Five strategies to navigate the economic headwinds facing food and beverage processors
Five strategies to navigate the economic headwinds facing food and beverage processors
Inflationary pressures have severely impacted Canada’s food and beverage sector over the past 12 months, compounding three years of issues in the supply chain and amplifying the challenges of operating a low-margin business. Staring down the possibility of an economic downturn, businesses must take bold steps to manage costs and shore up their operations. In this article, we look at five practical and proven steps leaders can take to improve operational efficiency, control costs, and increase profitability for the near and long term.
Over the past three years, Canada’s food and beverage processors have suffered a global pandemic, the most significant supply chain disruption in history, and inflation at 30-year highs. Now, many economists and industry experts are warning of an economic downturn in the year ahead.
Extraordinary times call for exceptional measures. Here, we look at five key considerations to help keep your business profitable in the face of rising costs and uncertain times ahead.
1. Demand planning: Be ready for anything
Stringent inventory management, a thorough understanding of your costs, revenue and margins, and robust planning are essential to navigate the current economic landscape.
Tighten your inventory controls
Challenges in sourcing raw materials will impact your profitability. So will shrinkage and tying up too much cash flow in unused inventory. No business can survive these economic headwinds by estimating purchasing and production targets. You must be relentless with your inventory controls.
Get clear on your numbers
Costs, sales, and margins are easy to memorize when prices are stable. It’s far more important to be on top of these figures when volatility is as high as it is right now. Don’t assume. Check your figures often and be ready to make decisive decisions.
Have a strategy and a backup plan
You need to be confident in the steps you’re taking to weather the storm. You should be prepared for the possibility that those plans may change. Study the scenarios you’re most likely to face in the near- and mid-term future and be ready to act on signs that need to pivot.
2. Capitalize your business for growth
Access to debt and equity financing will bring added confidence and adaptability and can help to improve your competitive edge. Depending on your financial circumstances, some options to consider include:
Increase your access to liquidity
Conventional wisdom says you should pay down your liabilities with interest rates rising. But ready access to credit can help you weather the turbulent times ahead. Primarily, it will allow you to buy up inventory and equipment if prices suddenly drop or one of your competitors goes insolvent.
Add a financial backstop to steady your path forward
Can you demonstrate a healthy balance sheet and a clear path to profitability? This may be an ideal time to pitch your business to new investors. The right equity partner can be a steadying force, providing much-needed cash and confidence to reassure your team, creditors, and other investors.
Take advantage of industry consolidation
Many of your cash-strapped peers may be considering opportunities to cash in before the value of their business disappears. The right debt or equity partner could help you add production or distribution capacity, acquire a valuable brand or intellectual property, and increase your overall footprint.
3. Plug your profit leaks
Taking steps to eliminate waste and inefficiencies in your business will give it the breathing space it needs to weather turbulent economic headwinds. Impactful measures you may want to consider include:
Get clear on which products are (and aren’t) making you money
It may seem counterintuitive, but now might be the time to downsize your product catalogue. A SKU rationalization (i.e., eliminating your least profitable items) will help you see which products are earning money and which aren’t worth the time and money.
Curb waste and improve efficiency
Do you know how much you’re losing to shrinkage? Taking steps to improve wasteful or inefficient processes can massively impact your bottom line. This could be as simple as tuning up your production equipment or as comprehensive as redesigning your manufacturing processes.
Eliminate delays in getting your product to market
The supply chain challenges of the past three years highlighted the risks of depending on narrow distribution channels for inputs and delivering products to market. Expanding your network of suppliers and buyers will help to keep your costs manageable and ensure your production lines continue running.
Performance Improvement
4. Technology: Embrace the investment
More businesses are turning to digital transformations to help manage costs and increase productivity. Food and beverage enterprises that proactively invest in modernizing technology are at a significant advantage compared to competitors that continue to rely on outdated and inefficient systems.
Build your foundation
Enterprise resource planning (ERP) and/or customer relationship management (CRM) are low-hanging fruit to replace spreadsheets and uncoordinated databases. Investing in these systems — and continuing to keep them current — is essential if you want to be competitive in the marketplace.
Set it, don’t forget it
Don’t take for granted that systems and tools that have worked in the past will continue to meet your needs into the future. Review and reinvest in your technology regularly to ensure it’s meeting your needs and whether there are better options to help your business to operate more efficiently.
5. Trust in your sales and marketing teams
Many of your competitors will cut back on sales and marketing expenses amid spiralling costs and looming fears about a recession. This is a mistake, and you can capitalize by increasing spending in these areas over the coming months.
Own your story
You need more than a great product to win market share. A compelling brand and an aggressive marketing strategy are also critical. Find out what matters to your target market and lean into what sets your product apart.
10x your marketing investment
The value of earned media is greater than ever. Take a note from any of several food and beverage brands that have recently received considerable praise and attention for their unconventional marketing campaigns. Don’t be afraid to push the envelope.
Iterate, evaluate, and eliminate
Leverage the robust analytics from digital, search, and social media advertising to optimize the effectiveness of your sales and marketing efforts. Experiment with different headlines and key messages. Quickly abandon ad sets that aren’t working and double down on those that are.
MNP’s Food and Beverage team can help
Want to learn more about these strategies to improve your performance and increase your business resilience? Contact a member of MNP’s Food and Beverage Processing team to learn more about the options and opportunities available in your industry.
We’ll pair our industry-leading insight with expertise from across our firm — including some of Canada’s most knowledgeable corporate finance, digital, and performance improvement advisors — to help you weather the economic headwinds ahead.
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