The experts within our Food & Beverage Group maintain ongoing contact with a wide range of knowledgeable sources to stay abreast of the issues and trends that could impact the industry’s M&A climate or otherwise influence our clients’ businesses.  Following are a few of the topics addressed in our most recent Food & Beverage Review, which is published quarterly.

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FOOD & BEVERAGE REVIEW (2009: Q4) (View complete report)

Thoughts from the Group

Due to continued weakness in consumer spending, “white tablecloth” restaurants remain weak, while “value” restaurants and the “fast food” channel remain firm, and in some cases are growing. Additionally, consumers continue to eat at home more, so the grocery channel remains resilient during this downturn.  Within grocery, private label continues to increase its share versus branded. With total private label in the US accounting for only 17 percent of total sales versus the worldwide average of 22 percent, we see this trend continuing. Value segments within grocery, such as frozen foods, will continue to outperform higher priced segments like organic and gourmet.

Assessing the Post-Recession Landscape

The economy has brought many changes to the food landscape and how people shop. The question remains whether these are permanent or temporary and if consumers will go back to their old ways of shopping after the economy improves. We believe that a permanent shift has occurred that will allow private label to continue gaining market share. In this new post-recession environment, food and beverage companies must realize the necessity to adapt to this change in consumer behavior.

Pricing and value have become the keys to success as consumers look to spend less, which has driven many shoppers to private label brands for the first time. This intense price competition combined with rising profits for private label offerings has led to the reduction in the number of SKUs in almost every product category, which is called SKU rationalization. This offers several benefits to retailers, including lower carrying costs, less risk of stock shortages and more leverage with vendors.  When combined with the growing perception that private label can deliver comparable quality, it becomes clear that private label will continue to grow long past today’s economic doldrums.  In short, the genie is out of the bottle and it is unlikely that shoppers will forget the value/quality proposition private label provides when the economy eventually improves.

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