With surging inflation and continuing supply chain disruptions, 2022 has been another challenging year for the nation’s food and beverage manufacturers. Here are some of the highlights (and a few low lights) and a look ahead to 2023.
Food manufacturers have been dealing with the largest year-on-year COGS )(cost of goods) input growth in recent history, well above levels seen in 2008 and 2011, note analysts at Bernstein in a Dec 15 report: “As we look to 2023, these problems will likely persist as our coverage guides to high-single digits to low double digits cost inflation for next year.”
“Ignoring changes in volume,” add the Bernstein analysts, “We estimate that a ~6.5% increase in pricing is needed to stay gross profit dollar neutral given a 10% increase in COGS. In light of current pricing actions and another year of elevated cost inflation, we struggle to see how companies will combat this higher inflation without additional price increases, something that will become increasingly hard to do as the window to negotiate with retailers closes.”
The percentage of sales sold on promotion is also still well below pre-pandemic levels, notes Bernstein: “The % of total food sales in US measured channels currently sold on deal is 24.4%, well below the 31% seen in 2019. This has likely been a tailwind to pricing, since promotional spend is deducted above the net revenue line.
“We believe this level is unsustainable and as supply chain bottlenecks subside we expect promotional spending to revert towards more normalized levels (albeit perhaps not back to pre-pandemic levels when much promotional spending probably didn't pay off).”
Several high-profile CPG companies including PepsiCo, General Mills and Coca-Cola have been reducing their workforce in recent months to offset inflation and alleviate pressure on profit margins, while high-profile players in the meat alternatives industry including Beyond Meat and Impossible Foods have also cut staff as sales slow down and investors look more carefully at costs.
Motif FoodWorks – best-known for its HEMAMI heme protein targeting plant-based meat cos – engaged in a round of layoffs over the summer, while Santa Barbara-based Apeel Sciences also laid off an undisclosed number of employees over the summer.
Meat giant JBS, meanwhile, shocked many in early October by pulling the plug on its US plant-based meat division Planterra Foods just over two years after debuting the ‘OZO’ brand at Kroger in summer 2020, and closing a 189,000 square foot factory it opened in Denver in December 2021.
As for the retail segment, all eyes are now on Kroger and Albertsons, which announced plans to merge in October, but are currently facing several regulatory hurdles. Ultimately the FTC has three options: to close its investigation, enter into a settlement with the companies, or pursue legal action to attempt to block the deal.
While many pandemic-fueled trends have proved transient (we didn’t become a nation of home bakers and scratch cooks), many Americans are still working from home at least one day a week, presenting opportunities for food companies targeting breakfast and lunch occasions, while surging inflation has dented the recovery in foodservice as cash-strapped consumers keep cooking at home to save money.
Manufacturers and retailers are under intense pressure to reduce their environmental impact, with a growing number of firms also seeking to reference their work on sustainability in their marketing, which has landed some brands in hot water. One case worth watching is against Danone, which has been sued over ‘carbon neutral’ claims on Evian bottled water. The FTC, meanwhile, has announced plans to revise its Green Guides.
Image: GettyImages-Hype-Photography
In late September, the FDA issued a proposed rule updating the criteria for the ‘healthy’ nutrient content claim on food labels that for the first time restricts the amount of added sugar firms can include in products bearing the claim. Comments are due by Feb 16, 2023, with industry stakeholders already expressing concerns about the implications for categories from yogurt and dried fruits to peanut butter.
The Biden administration is also exploring steps the federal government could take to reduce intake of added sugars “such as developing targets for categories of foods, similar to the voluntary targets FDA developed for sodium,” as part of a National Strategy released ahead of the White House Conference on Hunger, Nutrition and Health on Sept 28, 2022.
For those interested in sugar reduction, 2022 was an interesting year, with advances in the development of sweet proteins using microbial fermentation from Oobli, Amai Proteins and Conagen; innovations in monk fruit sweeteners; growing traction for allulose; and frustration over the labeling of fellow rare sugar tagatose.
Image credit: GettyImages-Carl99
A draft guideline from the WHO also sounded a cautionary note about the long-term effects of zero-calorie sweeteners such as sucralose and saccharin, while a new study from the Weizmann Institute suggested that some diet sweeteners are not inert and can alter the microbiome in a way that may impact glycemic tolerance, claims that were immediately challenged by industry stakeholders.
As for CBD, it’s been another frustrating year for advocates with no progress on a regulatory path forward at the federal level and indications in a recent flurry of warning letters that the FDA is taking a harder line on cannabinoids in foods and beverages.
Image credit: Getty Images-24K-Production
It’s been an action-packed year in the courts for the food industry, with several lawsuits over heavy metals in baby food and titanium dioxide dismissed. However, Clif Bar ended up shelling out $10.5m to settle a lawsuit over ‘excessive’ amounts of sugar to products marketed as wholesome and nutritious; while Fairlife agreed to pay $21m to settle a case over animal abuse at a supplier Fair Oaks Farms.
On the ingredients side, Sweegen and PureCircle (Ingredion) have been arguing over stevia IP, while Kerry and Florida Foods Products have been battling over natural preservatives.
There has also been a lot of legal wrangling in the alt-meat space, with fungi-fueled startups Meati Foods and the Better Meat Co engaged in an ugly dispute over IP; Impossible Foods squaring up with Motif FoodWorks over heme proteins; and Beyond Meat squaring off vs former co-packer Don Lee Farms over IP and protein claims.
Oat milk continued to drive growth in the plant-based milk category in 2022 (although Oatly’s P&L is raising some eyebrows) and plant-based eggs are growing albeit off a small base. However, the honeymoon period appears to be over for plant-based meat alternatives, with slowing sales prompting some serious soul searching in the category, although it’s way too early to write this segment off.
Image: Beyond Meat CEO Ethan Brown (credit: Beyond Meat)
It’s been a long time coming, but Terviva – a California-based firm commercializing ingredients from low-input, high-yielding pongamia trees – has teamed up with food ingredient supplier Ciranda to launch the first commercial supplies of ‘Ponova’ oil by mid-2023, with proteins to follow.
Image credit: Terviva
In the adjacent cultivated meat space, meanwhile, 2023 looks set to be a pivotal year following the FDA’s green light for UPSIDE Foods’ cell-cultured chicken, although questions remain about the commercial viability of the technology at scale.
Image credit: UPSIDE Foods
There has been a huge amount of innovation in the fats and oils space this year, making this a segment to watch in 2023, from palm oil replacements made by yeast cells in fermentation tanks to ‘designer fats’ that provide a meaty taste and aroma to plant-based meats; cell-cultured fats (made by animal cells in bioreactors); plant-based oil restructured in such a way that virtually none of it is absorbed by the body; microencapsulated oils; and oleogels.
Image: Gettyimages-rich-carey
‘Animal-free’ dairy proteins (made by microbes, not cows visa precision fermentation) have gained traction – with tests now underway at major CPG companies including Nestlé, Mars and General Mills, and a growing number of startups, while several players in the emerging ‘molecular farming’ space are exploring growing everything from heme proteins to casein in plants including soy, corn, and lettuce.
But there has also been pushback from the Non GMO Project, which startups in the space argue is trying to discredit precision fermentation technology by mischaracterizing it as dangerous, unregulated and bad for the environment. Image credit: Perfect Day