food beverage outlook survey 2013

8/13/2019 Food Beverage Outlook Survey 2013

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2013 Food and BeverageIndustry Outlook Survey

The table is set for change

kpmg.com/us/foodbeverageindustry
http://www.kpmg.com/us/foodbeverageindustryhttp://www.kpmg.com/us/foodbeverageindustry


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2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reser ved. Printed in the U.S.A.


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Table ofContents 1 The table is set for change

2 Survey highlights

4 Detailed findings

4 Transformative technology

4 Engaging and empowering consumers 5 Actionable insights

10 Leveraging cloud

14 Running the company

14 Key management initiatives

15 Investing in the future

18 Workforce expectations

20 Revenue and revenue drivers

24 Barriers to growth

26 Business conditions

26 Economic outlook

27 Food and beverage industry growth

30 Threats to profit, business models 34 Legislation, policies, and risk

34 Regulations and mandates

36 Impact of federal tax policies

38 Adoption of risk policies

40 Final thoughts from KPMG

42 A leader in the food & beverage industry

43 Demographics and methodology

2013 KPMG LLP, a Delaware limited liabil ity partnership and the U.S. member fi rm of the KPMG network of independent member fir ms affiliated with KPMG Internati onal Cooperative (KPMG International) , a Swiss entity. All rights r eserved. Printed in the U.S.A.


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The table is

As the economy continues to slowly improve, a wave of significant change is moving through the food and beverageindustry redefining how companies grow, operate, and manage risk. Rapidly advancing technology is driving muchof the transformation, providing opportunities to explore new ways of doing business, and to better understand andengage with consumers. However, technology does not come without challenges, exposing companies to new areasof risk and vulnerability.

And, while technology is accelerating the rate of change, several other disruptive forces are contributing tothe transformation. From tech-savvy millennials to aging boomers, the ways in which consumers gather informationabout what they want to purchase, the factors influencing their purchase decisions, and their loyalty to a brand orproduct are all up for grabs. On top of that, food and beverage executives are confronting the cost and impact ofthe many risk and regulatory issues that government and other regulatory bodies are putting into place.

The respondents to KPMGs 2013 Food and Beverage Industry Outlook survey indicate the most signif icant impact isbeing made by engaging consumers through digital channels and social media. But the back office is also evolving,as almost two-thirds of survey respondents say they have adopted, or plan to adopt, cloud computing technologiesinto their business strategies and operations. Executives are also realizing the boundless potential offered by data andanalytics in gaining customer insights and making better decisions.

This years survey confirms that the industry continues to make positive improvement, with most expecting

continued increases in revenue, both this year and in the coming year. They acknowledge pricing pressures aspotential growth barriers and consider volatile input costs and discounting prices as the most significant threatsto profit margins.

Notably, food and beverage executives exhibit a growing concern over the potential governmental impact on theirbusinesses, including believing that regulation will hamper growth, and citing that political/regulatory uncertainty isa significant threat to their business models. Executives indicated that the regulatory issue requiring most of theirfocus was the Food Safety Modernization Act.

Looking ahead, the vast majority of survey respondents foresee continued sector growth over the next year, withrevenue increases being largely driven by product innovations and the ability to add new customers. And, after yearsof cutbacks, many U.S. companies are seeking opportunities to make investments that will drive growth, including anincreased focus on geographic expansion.

On behalf of KPMG, I would like to thank those who participated in this survey. I hope the findings are useful to youin addressing market challenges and opportunities. Please do not hesitate to contact me if you would like to discussthis study and its implications for your business in the year ahead.

Patrick DolanNational Line of Business Leader, Consumer MarketsKPMG LLP

set for change

2013 Food and Beverage Industry Outlook Survey | 1



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Technology,the main

ingredient

Most executives realize that technology is paramount to driving growth andenhancing customer engagement. The respondents to KPMGs 2013 Food andBeverage Industry Outlook survey indicate that new technologies are certainlyaccelerating the rate of change, and they acknowledge a significant increase inthe use of technology to explore new ways of doing business. The use of socialmedia and other digital marketing channels continues to gain ground, beingincreasingly utilized by food and beverage companies for engaging consumers.

Todays companies are also learning that cloud is much more than just another ITcost reduction lever and they are placing more emphasis on determining how toleverage cloud to enable business transformation: shifting away from pure costreduction objectives to taking a more strategic approach. While cost reduction is a

given, transformation is critical. Almost two-thirds of food and beverage executivessay they have adopted, or plan to adopt, cloud technologies into their businessstrategies and operations. Of those who have adopted cloud computing, a sizablemajority found integration to be easy or cited only minor challenges.

In this customer-driven environment, data and analytics are proving to beincreasingly valuable. Food and beverage companies are taking note: more thanhalf of survey respondents say that their company has high, or is rapidlymoving towards high, data and analytics literacy. The use of both structured andunstructured data and analytics also continues to penetrate deeper throughoutthe food and beverage organization, playing an increasingly vital role in makinga variety of decisions. In addition to obtaining customer insight, companiesare leveraging data and analytics to support brand and product management,to make decisions on pricing, and to drive operational excellence. However,opportunities for improvement exist: 46 percent of survey participants ratethe data and analytics capability of their companies as average or below,with 16 percent believing they are lagging behind competitors when it comesto utilizing analytics.

Survey

highlights

2 | 2013 Food and Beverage Industry Outlook Survey

2013 KPMG LLP, a Delaware limited liabi lity partnership and the U.S. member fi rm of the KPMG network of i ndependent member firms affiliated with KPMG Int ernational Cooperative (KPMG International) , a Swiss entity. All rights r eserved. Printed in the U.S.A.


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Seizinggrowth

opportunities

Food and beverage executives believe that modest improvements inU.S. business conditions will continue, and an overwhelming majority predictsthe industry will experience growth over the coming year. More than half ofsurvey respondents plan on investing capital to drive growth, many indicatingthey expect to increase spending on geographic expansion. Other keyinvestment areas include acquiring a business and expanding facilities.

Perhaps the positive outlook on growth stems from the continued dramaticclimb in revenues: 84 percent of respondents indicated an increase in revenue,while only 57 percent indicated an increase in 2012. Revenue is expected tocontinue to grow, with the vast majority of the executives surveyed predictingan increase next year as well. Key drivers of revenue growth over the next

one-to-three years include product innovations and adding new customers.Not surprisingly, many of the executives surveyed say they will be spendingthe most time, energy, and resources on new product development, pricingstrategies, and geographic expansion. Other top initiatives on the minds ofmanagement include operational improvements and reducing costs; however,focus in these two areas has declined when compared with the results oflast years survey. While food and beverage executives say their companiesadded slightly fewer U.S. employees over the last year than reported inthe 2012 survey, almost half plan to add more staff over the next year.

Overcomingobstacles

Improving, but still relatively weak, consumer confidence and prolongedunemployment continue to plague the industry. These remain as the top two

factors hindering industry growth. However, concern over government regulationrose significantly.

Apprehension increased over the impact the Food Safety ModernizationAct will have on the industry. Healthcare reform, product recalls and evolvingtax regulation also garnered attention. Yet despite increasing concern, almosttwo-thirds of the food and beverage executives surveyed believe their companyis only somewhat prepared to manage the impact of public policy and regulatoryreform. When asked to identify issues preventing the adoption of a formal riskpolicy, survey respondents indicated that culture and behavior, and the lack ofclearly defined roles and responsibilities, posed significant obstacles.

At the company level, pricing pressures not only continue to be identified as thehighest barrier to growth; the percentage of respondents citing this concern

increased from 42 percent in 2012 to 51 percent this year. Volatile commodityand input prices, along with rising labor costs, are also seen as major obstacles.The industry executives surveyed widely believe that the greatest threats to theirprofit margins are costs of inputs, and discounting and other sales incentives.They cite losing share to lower-cost producers as the biggest threats to theircompanys business model. To protect their bottom line, food and beveragecompanies plan to optimize their supply chains and reduce sales, general andadministrative costs.




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Detailed

findingsTransformative technology

Q: Which of the following technology-related trends is having a significantimpact on your business?

Social media (Facebook, Twitter, Pinterest, etc.) 46%

Mobile/online consumer engagement 45%

Mobile/online promotions and coupons 31%

Mobile/online shopping 24%

Ability to scan QR codes, compare products and

pricing 23%

Influence of peer rankings and reviews on

consumers purchase decisions 19%Multiple responses allowed

Engaging and empowering consumers

Technology is driving change throughout the food and beverage

industry, opening new doors of opportunity as well as new areas

of risk and concern for companies. Survey respondents report

that social media such as Facebook and Twitter, and consumer

engagement through mobile and online channels, are havingthe most significant impact on their business.




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Multiple responses allowed

Q:In what areas does yourorganization use data andanalytics to help supportstrategic decision making?

Actionable insights

In the current customer-driven environment,

data and analytics are

proving to be increasingly

valuable in getting to

know customers better.

In addition to obtaining

customer insight, food

and beverage companies

are leveraging data andanalytics to support

brand and product

management decisions,

pricing decisions, and

when looking to optimize

operations. In fact, each of

the responses to this

question was selectedwith relatively high

frequency, demonstrating

the broad applicability of

data and analytics.

58%Brand and product management

59%

Customer insight

56%Pricing decisions

52%Operating model optimization

43%Market expansion

Portfolio rationalization

42%




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Q: Considering the relevance of data and analytics at your company, whichof the following items represent the best use of data and analytics in drivingactionable insights?

Operational excellence (operations, supply chain) 49%

Product positioning 42%

Acquiring customers 35%

Competitive intelligence 32%

Finance

19%Human capital 18%

IT infrastructure 16%

Government regulation 9%

Risk management 9%


When it comes to taking action, nearly half (49 percent) of the foodand beverage executives surveyed report that data and analytics are

best used to drive operational excellence and to determine how to

position their products (42 percent).




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Q: Which of the following best characterizes the data and analytics maturityof your company?

My company has high data and analytics literacy 24%

My company is rapidly moving toward becoming an enterprise

with high analytical literacy 29%

My company is about average when it comes to utilizing

analytics, and our management team and workforce have an

average analytical literacy29%

My company has some data and analytics capabilities, but at

the moment we are behind our competitors when it comes to

utilizing analytics, and our management team and workforce

have average to low analytical literacy

16%

My company has no formal data and analytics capabilities,

and our management team and workforce have low analytical

literacy1%

Dont know 1%

Realizing the value created by leveraging data and analytics, morethan half of survey respondents (53 percent) say that their company

has high, or is rapidly moving towards high, data and analytics

literacy. An additional 29 percent would rate their company average

when it comes to utilizing data and analytics. However, it is concerning

that 46 percent of survey participants rate the data and analytics

capability of their companies as average or below, with 16 percent

believing they are lagging behind competitors when it comes to utilizing

analytics. Leveraging this capability is expected to be a key enabler for

better performing companies in the future.




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Big Data +Big Analytics =Big Opportunity

The emerging data-driven economy has two primarycharacteristics: the abundance and complexity ofdata and the speed of change, and thus decision-making. Recognizing that data is increasingly

driving competitive insights, operational scale,and compliance complexities, organizations areembracing wholesale change in how information isaccessed, interpreted, reported, and applied.

The conventions for measuring, managing, andmonitoring a business will be stressed to newextremes as speed, the need for new perspectives,and machine learning continue to influence themarketplace. As these market dynamics continue

to evolve, expectations will continue to shift aboutwhat should be disclosed, when, and to whom.

Consider the behavioral changes already taking placein large companies, where social media pressure hasforced some to reverse positions that made perfectsense in the boardroom, but were anathema in themarketplace. In this context, consider the valueof being able to better predict the combined tax,regulatory, and business impacts of a planned global

expansion or an accounting change that affectsselected products or divisions. Consider, too, the riskmanagement opportunities that would be possiblewith better transparency into a suppliers upstreamand downstream financial and operational health.

Success in the data-driven economy will require asmuch acumen in harnessing what wasnt known oranticipated, as was rewarded historically for thoseable to optimize what was known and could be

acted on to deliver on market expectations. This isthe start of a journey, and there is time to prepareand respond. The key is to take the first step andplan for change.

The ability of leaders to turn data into actionableinformation that allows them to make timely,more accurate decisions is creating entirely newmarkets. From custom modeling and analytics,

visualizations and dashboards to master datamanagement and storage considerations suchas cloud, the world of Big Data and the desireto leverage big analytics are already driving the

business of today and tomorrow.

Organizations will also evolve. The proliferation ofBig Data and the speed of analytics will significantlydisrupt many business models. Information as anasset will transform business and operating models,including how companies obtain assurance onthose models. Any disruption offers an opportunityto drive business transformation, including newpartnerships, new interactions across global

enterprises, and new markets, all of which have risk,tax, and regulatory implications that are still beingdefined and discovered.

An information-driven organization needs aninformation-driven mind-set from the top down.That means employees must be managed,measured, and compensated based on howwell they use data to make decisions and drivebusiness outcomes.

Effectively governed and appropriatelyimplemented, data analytics can bring clarityto business decisions and improve businessoutcomes. Its scope and application will continueto expand, helping leaders focus on the knowledgethey need, derive insights and actionableintelligence from data, and create, manage, andgovern new business models that support theinformation-driven organization.

Those who embrace effective data analytics asa business imperative can gain a competitiveadvantage in the rapidly evolving global digitaleconomy. With an information-driven culturefocused on business outcomes, data analytics canproduce the power that drives the growth engine.




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Leveraging cloud

As cloud begins to become more mainstream within the businessenvironment, we are seeing organizations move from the when

and why of the cloud adoption process to instead focus on the

how. Almost two-thirds (65 percent) of the food and beverage

executives surveyed indicate they have adopted, or plan to adopt,

cloud technologies into their business strategies and operations. Of

the 43 percent who have adopted cloud, a sizable majority found

integration into their business strategy and operations to be easy, or

they experienced only minor challenges.

Q: When it comes to cloud adoption, which of these statements is mosttrue for your organization?

22%

35

%

43%

Have adopted cloud computing

Plan to adopt cloud computing

Not planning to adopt cloud

computing or dont know.

Have adopted cloud computing (43%):

We have adopted cloud, and found it an

easy integration into our business strategy

and operations

8%

We have adopted cloud, and found minor

challenges integrating it into our businessstrategy and operations 23%We have adopted cloud, and found major

challenges integrating it into our business

strategy and operations12%

Plan to adopt cloud computing (22%):

We plan to adopt cloud, and believe we will

easily integrate it into our business strategy

and operations

9%

We plan to adopt cloud, and believe we will face

formidable challenges integrating it into business

strategy and operations

13%

Not planning to adopt cloud computing or

dont know (35%):

We have no plans to adopt cloud22%

Dont know/NA13%




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Now that many organizations have adopted cloud into at least part of theirenterprise, there is no longer any doubt that, as a critical set of enabling

technologies, cloud can significantly impact how any organization conducts

its business. A greater number of survey respondents see the potential

benefits of cloud, including having greater transparency on transactions,

and more believe cloud computing will fundamentally change their

business model. While over one third (38 percent) of food and beverage

executives believe that cloud computing will have no significant impact on

their companys business model or operations, this number has declined

(14 percent from the 2012 survey results) and may reflect that companiesare implementing cloud with good success..

Q: Which of the following best describes the potential impact of cloudcomputing on your business model/operations?

No significant impact38%

52%

It will provide management with greater transparencyon transactions

26%

13%

It will reduce costs23%

23%

It will fundamentally change our business model18%

9%

It will change our interaction with customers

and suppliers16%

25%

It will accelerate time to market10%

16%

Multiple responses allowed 2013 2012




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The perceived potential impact of cloud computing compared to cloud

adoption status.

Adoptedcloud

Plan toadopt cloud

Don't know/NA

No plans toadopt cloud

It will fundamentally change our

business model30 14 8 5

It will change our interaction with

customers and suppliers19 23 15 5

It will provide management with greater

transparency on transactions37 41 8 0

It will reduce costs 37 32 0 0It will accelerate time to market 21 5 0 0

No significant impact 7 27 69 91

Other (please specify): 2 0 8 0

Number of respondents 43 22 13 22

Many organizations are already working in the cloud and it is

encouraging to see that cost reduction appears to remain high onthe list of objectives for executives. This benefit was always central

to the cloud value proposition, and the fact that so many enterprises

continue to see it as a key objective shows that experience in cloud

environments has not seemed to dull this anticipated gain. But the

survey findings also show that organizations are beginning to recognize

that cloud is much more than just another IT cost reduction lever.

Forty-four percent of those that have adopted or plan to adopt believe

it will fundamentally change their business model and 78 percentsay it will provide greater transparency. These results suggest that

business executives are starting to fully appreciate the potential

transformative value that cloud can bring to the enterprise. And, having

experienced some of the immediate benefits of the cloud, many are

perhaps now starting to look deeper into their operating models to

see how these advantages can be extended into the wider enterprise.




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The silver lining

Increasingly, companies are focusing on cloud

productivity and collaboration solutions as a

worthwhile alternative to traditional, in-house IT

services, and with good reason. Cloud computing

brings potentially significant advantages, from lower

costs and more efficient use of resources to greater

scalability and availability of IT services.

Companies adopting a cloud strategy must choosefrom among a variety of delivery models, including

software as a service (SaaS), platform as a service

(PaaS), and infrastructure as a service (IaaS), and

must decide whether they are better off with a

public, private, or hybrid cloud format. Also, many

applications and tools are capable of being shifted

to the cloud, and a major first step in developing a

cloud strategy is to identify the most appropriate

applications to move to the cloud.

As with any transformation, there are risks and

challenges, such as security, compliance, changes

in service levels, and change management, and

companies transitioning to cloud must manage the

issues carefully to avoid surprises.

Cloud solutions that provide capabilities such as

e-mail, messaging, document sharing, and officetools are gaining significant traction and can be a

great opportunity for early cloud adoption.

There are many ways to approach a cloud strategy,

from the different services or applications that

can be shifted to the cloud, to different delivery

models and degrees of private versus public cloud.

Companies approaching cloud for the first time

are likely to have questions regarding security,

performance, impact on regulatory compliance,

and other potential risks. Cloud users are finding

these issues can be managed satisfactorily, and

in many cases improved, as a result of steps that

have been taken by cloud providers to address the

various risk areas.

So, where does an organization start? What is the

best entry point when one considers the costs, risks,

transition issues, impact on legacy systems, and the

firms IT infrastructure as a whole?

Many companies are finding that productivity and

collaboration applications are a good area for a

first step into cloud services because they offer

comparatively low barriers to entry, and a potentiallysignificant return on investment.

Ultimately, executives of all stripes will need to

remember that cloud is not a short-term fix for

the business, and that some of the benefits will

only start to have a significant impact a couple

of years down the road. Indeed, gaining real cost

savings from the cloud is about more than simply

moving from fixed costs to operating costs; thegreatest cost savings and, more importantly, the

transformational business benefits will come from

the longer-term outcomes such as more efficient

processes, more flexible operating models and faster

entry into new markets and geographies.




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Q: What initiative do you expect to undertake over thenext year that will consume the most time, energy andresources, from a management perspective?

% in 2013 Focus

Significant investment in organic growth (new product

development, pricing strategies, geographic expansion) 21 Growth

Significant improvement of operation processes and related

technology 19 Operations

Significant cost reduction initiatives 12 Operations

Merger/acquisition 11 Growth

Entering into new markets 11 Growth

Navigating significant changes in the regulatory environment 11

Risk Management

Significant changes in business model 7 Operations

Significant changes to financial processes and related technology 5 Operations

Improve enterprise risk management programs/processes 2 Risk Management

Strategic divestiture of current assets 1 Operations

Running the company

Key management initiatives

Of the executives surveyed, 21 percent will be spending the mosttime, energy, and resources on growing organically. This includes

a significant focus on new product development, pricing strategies,

and geographic expansion. Other top initiatives on the minds of

management include operational improvements and reducing costs.

Overall, 43 percent are focused on growth initiatives, 44 percent on

operations, and 13 percent on managing risk.




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Q: What is the outlook for capital spending by your company overthe next year?

% of

respondents

% of expected

increase

3 20+

10 11-20

22 6-10

23 1-5

% of

respondents

% of expected

decrease

10 1-5

3 6-10

0 11-20

1 20+

58%

28%

14%

Increase About the same Decrease

Investing in the future

More than half (58 percent) of the food and beverage executivessurveyed plan on investing capital to drive growth, while only

14 percent expect to invest less than the previous year.




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Key areas in which food and beverage companies expect to invest

include acquiring a business (33 percent) and expanding facilities

(31 percent). However, almost half of the executives surveyed

(48 percent) indicated they expected an increase in spending on

geographic expansion. Other investment areas include new productsor services and information technology.

Q: In which areas do you expect your company to increase spending the mostover the next year?

Acquisition of a business 33%

Expanding facilities 31%

New products or services 28%Information technology 24%

Geographic expansion within

the U.S. 20%

Advertising and marketing/

branding 20%

Geographic expansion into or

among high-growth emerging

markets outside U.S. 17%

Employee compensation and

training 17%

Business model transformation 13%


among other developed markets

outside the U.S.11%

Research and development

10%Regulation/control environment 9%

Green/sustainability initiatives 8%

Geographic Expansion 48%

Geographic expansion within

the U.S.


among high- growth emerging

markets outside the U.S.

Geographic expansion into

or among other developed

markets outside the U.S.

20%

17%

11%




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Workforce expectations

Food and beverage executives added slightly fewer U.S. employeesover the last year, with 45 percent of respondents reporting an

increase in headcount. However, more respondents (36 percent)

indicated their staffing levels remained the same, and fewer saw

a decrease in headcount than did last year.

2012

50% 25%

2013

% of

respondents

% of expected

increase

6 10+

8 7-10

13 4-6

18 1-3

% ofrespondents

% of expecteddecrease

12 1-3

6 4-6

0 7-10

0 10+

45%

36%

18%

25%

Increase About the same Decrease Not sure/dont know

1%

Q: Compared with this time last year, how would you describe yourcompanys current U.S. headcount?




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Almost half (49 percent) of the food and beverage executivessurveyed expect to add more U.S. staff over the next year, while

34 percent anticipate current staffing levels will remain the same.

Nearly a quarter of respondents (23 percent) believe they will see

growth in the number of employees of 4 percent or more.

% of

respondents

% of expected

increase

3 10+

7 7-10

13 4-6

26 1-3

% ofrespondents

% of expecteddecrease

11 1-3

4 4-6

1 7-10

0 10+

49%

34%

16%

Increase About the same Decrease Not sure/dont know

1%

Q: How do you expect your companys U.S. headcount to change one yearfrom now?




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Revenue and revenue drivers

Revenues continue climbing rather dramatically: the percentage ofrespondents indicating an increase rose from 57 percent in 2012 to

84 percent this year. Whats more, over two-thirds (38 percent) of food

and beverage executives report current revenue is up 6 percent or more.

2012

57% 8%

2013

% of

respondents

% of expected

increase

2 20+

10 11-20

26 6-10

46 1-5

% of

respondents

% of expected

decrease

4 1-5

0 6-10

2 11-20

0 20+

84%

10%

6%

35%

Increase in revenues About the same Decrease in revenues

Q: Compared with this time last year, how would you describe yourcompanys current revenue?




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And the growth in revenue is expected to continue: 81 percentof the executives surveyed predict an increase next year as well,

with almost half (49 percent) indicating growth of 6 percent or more.

% of

respondents

% of expected

increase

1 20+

11 11-20

37 6-10

32 1-5

% of

respondents

% of expected

decrease

4 1-5

0 6-10

1 11-20

0 20+

81%

14%

5%

Increase About the same Decrease

Q: What do you expect your companys revenue to be like one yearfrom now?




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According to survey respondents, product innovations (38 percent)and adding customers (35 percent) will be key drivers of revenue

growth over the next one-to-three years. And while pursuing

alternative sales channels and distribution strategies are expected

to give revenue a boost, healthier products and those addressing

dietary needs will also bolster revenue growth.

Q: Which of the following areas do you believe will be the biggestdrivers of your companys revenue growth in the next three years?

Product innovations 38%

Adding customers 35%

Alternative sales channels and distribution strategies 25%

Products that provide healthier alternatives or address

specific dietary needs 23%

M&A (merger and acquisition) activity 20%

Expansion in core markets 19%

Focus on emerging markets 18%

Retaining customers 18%

Improving economic conditions 17%

Increased consumer spending 17%

Changed pricing and promotional strategies 16%Innovative merchandising strategies 14%

Growth of environmentally friendly products/services 1%





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Barriers to growth

According to over half (51 percent) of industry executives, pricingpressures remain the highest barrier to growth and the number of

respondents citing this concern increased from 42 percent last year.

Volatile commodity/input prices and rising labor costs are also seen

as major obstacles, as evidenced by 31 percent and 28 percent of

survey responses respectively.

Q: Which of the following are the most significant growth barriers facingyour company over the next year?

Pricing pressures51%

42%

Volatile commodity/input prices31%

38%

Labor costs28%

22%

Regulatory and legislative pressures

21%

16%

Lack of customer demand16%

22%

Energy prices15%

20%





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A quest for growth

It is true that no one ever cut their way to

growth. So the cost savings initiatives of the past

were just that: savings alone. Today, cost is still

an issue, but its what companies do with the

found cost savings that make the key strategic

difference between them and their competitors.

But after decades looking for cost reduction,

cost alignment and cost analysis, are there

still meaningful savings and cost strategies

left to find? The answer lies within cost

transformation: having a new and different

vision of your companys strategy and how

costs really align to achieve those strategic

objectives. Cost transformation requires a

keen understanding of a companys global

competition, sourcing options, performance,

processes, systems, tools, functions, values, and

strategic direction. It is a purposeful and built-in

alignment of a companys cost with its strategy

to optimize financial performance.

There are several potential benefits to cost

transformation:

Improved bottom-line results

Better understanding and clarity around

performance

Streamlined and more efficient process

Organizational and functional efficiencies Improved performance versus peers

Improved discipline and rigor in financial

management

Strategic alignment and execution

Decreased risk




30/48

Business conditions

Economic outlook

Food and beverage executives believe that modest improvements inU.S. business conditions will continue. More than half (52 percent)

believe that the economy will improve over the next year, while

32 percent of respondents expect the economy to remain flat. These

results are similar to 2012 survey findings.

2013

Better next year

About the same

Worse next year

2012

56%

16%

28%

Better next year

About the same

Worse next year

52%

16%

32%

Q: A year from now, what are your expectations for the U.S. economy?




31/48

Food and beverage industry growth

Most executives (79 percent) predict the industry will experiencegrowth over the coming year, with modest gains of 5 percent or less

anticipated by the majority (62 percent). These responses mirror

last years survey results.

2012

82% 5%

2013

% of

respondents

% of expected

increase

1 10+

16 6-10

62 1-5

% of

respondents

% of expected

decrease

5 1-5

0 6-10

0 10+

79%

16%

5%

13%

Increase over next year No change Decrease over next year

Q: What do you estimate your industrys growth rate will be overthe next year?




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Q: What factors are most likely to hinder industry growth?

% in 2013 % in 2012

Decreased consumer confidence 52 58

Continued high national unemployment 42 52

Increased government regulation 41 30

Uncertainty in the credit markets 16 14

Limited access to credit for consumers 15 16

Limited access to credit for businesses 10 13

Decreased investor confidence 10 9

Distressed real estate market 9 17

Threats to U.S. business from Asia and abroad 9 5

Turmoil in the Middle East/North Africa 5 12


Improved but still relatively weak consumer confidence, andprolonged unemployment continue to plague the industry and remain

as the top two factors hindering industry growth. However, concern

over increased government regulation continues to increase

significantly, up 11 percent from 2012.




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Q:What strategies has yourorganization implemented tohelp combat the impact ofvolatile costs?

As evidenced by theresponse to the previous

question, volatile

input costs continue

to challenge food and

beverage manufacturers.

To protect their bottom

line, 59 percent of

executives plan to

optimize supply chaincosts along with sales,

general, and administrative

(SG&A) costs. A sizable

45 percent will combat

costs by implementing

commodity hedging

strategies.

30%Enhancing trade spend efficiency

45%Hedging strategies for commodities

59%Optimizing SG&A and supply chain costs

19%Revisiting service delivery models (offshoring/shared services)

40%Customer-centric pricing strategies




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A transparent (and resilient) supply chain

Fundamentally, a more transparent supply chain

will help SEC-reporting companies to comply

with the law. But if the issue is regarded by

companies solely as a matter of compliance,

they will be missing an opportunity to make their

supply chain more resilient and more efficient.

Companies may gain a competitive advantage

by developing a compliance strategy, consisting

of an organizational framework, a process of

mapping the supply chain and auditing the

result. Greater transparency leads to better

management, based on better business data.

And while few would disagree that the

supply chain is a critical source of competitive

advantage, it is also a potential strategic risk.

A break in the supply chain can be enormously

disruptive. By contrast, an efficient, strong

supply chain can provide companies with an

edge over its rivals. To run a lean operation,

receiving components at the right time/priceand avoiding excess inventory are fundamental

requisites of every modern manufacturer. They

can require highly sophisticated computer

systems to manage a global logistics operation.

Information is, therefore, a critical part of

supply-chain management, yet most companies

do not have a deep insight into those chains.




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Regulations and mandates

When it comes to regulations, the Food Safety Modernization Act,the most sweeping changes to the nations food-safety laws in more

than 70 years, requires the greatest focus: 82 percent of executives

surveyed expect it to have a significant impact on the industry,

a 15 percent increase from last years survey results. Healthcare

reform and product recalls also continue to garner attention.

Q: What regulations and mandates is your organization most focused on?

Food Safety Modernization Act82%

67%

Healthcare reform38%

42%

Product recalls36%

29%

Labor/immigration Laws20%

21%

Dodd-Frank conflict minerals6%

6%


Legislation, policies, and risk




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Almost two-thirds (63 percent) of the food and beverage executives

surveyed believe their company is only somewhat prepared to

manage the impact of public policy and regulatory reform.

Very prepared

Somewhat prepared

Not prepared

Dont know63%

31%

4% 2%

Q: How prepared is your company to proactively manage the impact ofpublic policy and regulatory changes?




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Impact of federal tax policies

Most survey respondents believe evolving tax policy will impacttheir business strategy. Executives expect that tax policies will

have a significant effect on hiring and will also lead many food and

beverage manufacturers to invest less capital.

Q: How will evolving federal tax policy impact your organizationsbusiness strategy?

Changing business structure/impact to hiring 28%Less capital investment 27%

Increased overseas expansion 21%

Increased domestic expansion 11%

Increased M & A (mergers and acquisitions) activity 7%

No impact to business strategy 24%Do not know 10%





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Adoption of risk policies

Changing marketplace dynamics and evolving regulation have addedto the need for companies to implement a strong internal risk

framework. When asked to identify existing challenges preventing

the adoption of a formal risk policy, survey respondents indicated

that culture and behavior and the lack of clearly defined roles and

responsibilities pose significant obstacles.

Q: What challenges exist within your organization that may impede orhave impeded adopting a formal risk policy?

%

Culture and behavior 37

Clearly defined roles and responsibilities 36

Process integration/efficiency of operations 23

Shared resources across the organization 22

Governance framework 9

No challenges exist 29





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Why bad things happen to good companies

In todays world, companies need to apply a risk

lens thats equal to that of the growth lens when

making strategic business decisions. A strategic

approach to risk management can help a

company mitigate a threat to its reputation and

optimize its bottom line.

Successful companies anticipate something

could go wrong, and if something does occur,

theyre ready to manage it by leveraging an

established crisis management process, as well

as scenario planning and stress testing of key

strategic growth assumptions.

KPMG International conducted a large-scale

study of risk which was based on a global

survey of more than 1,000 C-level respondents

deployed by the Economist Intelligence Unit in

December 2012.

Despite the C-levels awareness of the risk

environment, most companies surveyed do nothave a consistent way of assessing risk across

the enterprise. Survey results consistently

demonstrate that companies struggle to build

an enterprise-wide view of threats, making it

difficult to plan strategically.




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Final thoughts

from KPMGTechnology is transforming the food and beverage industry andis expected to continue to play a vital role in business strategies.

Food and beverage executives are well aware of the trends in the

industry, yet the key to successfully navigating this rapidly evolving

landscape is identifying the so what: how these trends will impact

their companies. Then, its a matter of determining how they can best

respond and capitalize on the resulting opportunities, how they need

to change their business to not only adapt, but to thrive.

Social media and mobile technology are having a significant

impact on food and beverage businesses as consumers

increasingly utilize these channels to aid in making buying

decisions: from product comparisons to price checks to

recommendations and ratings from their virtual communities.

Meanwhile, food and beverage executives are also increasing

their usage of these channels to reach more consumers build

relationships with them, and even ask for their advice on

new products. Some food and beverage companies are now

selling direct to consumers in addition to their traditional retail

distribution channels.

As a result, the relationship companies have with consumersis evolving, and while the voice of the customer has always

been important, it has become significantly more demanding

and powerful. Is your product gluten free, organic? Was it

produced in an environmentally responsible way? Do you need

to expand to new markets or customize to target growing

ethnic segments? How are your products prepared, packaged,

and shipped? Never before have food and beverage companies

been subject to this level of scrutiny from consumers, and this

trend is not going away any time soon.

Food and beverage executives are rapidly embracing the value

of data and analytics as key facilitators of success: identifying

new markets, new strategies and new operating models togenerate growth and profitability. Investing in technology

to harness the vast amounts of structured data that reside

in a company, as well as the unstructured data online and in

social media, is proving to be integral to achieving success in

the new environment. As it evolves in both sophistication and

application, data and analytics will be leveraged by all functions

within food and beverage companies.

Risk and regulatory issues are often a hidden threat, as

many companies are not prepared, or even aware of, what

vulnerabilities they may have. For example, social media by

its very nature poses inherent risks that, unfortunately, have

frequently been identified only when something has gone

wrong and the company must manage the resulting crisis.

KPMG believes that innovation is the key to success for food

and beverage executives: from continually evolving products,

to identifying more effective ways to run their business, to

creatively building relationships with consumers and defining

their brand through the use of technology. Food and beverage

companies must also proactively address regulatory compliance

and mitigate risk. Companies must first accurately assess how

equipped they are to drive innovation and surface good ideas

throughout their entire organization. How do they compare to

competitors in this respect? What metrics are they using? How

do they define product success?

Each companys unique culture will determine how well they

respond to todays rapidly and dynamically changing food andbeverage industry environment.




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A leader in the

How KPMG can help

food and beverageindustry

The Food and Beverage industry continues to face a demanding market environment that requires companies

to adjust and actively manage change that may impact sales and performance. At the same time, advances in

technology and in capturing and analyzing data are helping companies drive growth, streamline operations and

engage better with consumers.

Having the right professional services firm is critical to addressing these challenges and achieving financial goals.

KPMG in the United States is a leading accounting, tax, and advisory firm for the consumer markets industry, and

working with our network of member firms, we serve clients worldwide. Our Food, Drink, and Consumer Goods

practice is comprised of accomplished professionals, from top food, drink, and consumer goods companies that

possess the knowledge, experience, and skills necessary to sort through todays complex business problems.

By developing insights into industry trends and approaching market opportunities with a fresh perspective, we

offer company-specific guidance that helps our clients become or remain market leaders.

Audit Services

Financial Statement Audit

Internal Controls Over Financial Reporting

Other Attestation

Tax Services

Federal

Economic and Valuation Services

International Corporate Services

International Executive Services

Mergers and Acquisitions

State and Local

Advisory Services

Management Consulting

Financial Management

IT AdvisoryPeople & Change

Strategy & Operations

Business Intelligence & Analytics

Post Merger Integration

Shared Services & Outsourcing Advisory

Transformational Program Management

Risk Consulting

Accounting Advisory

Financial Risk Management

Forensic

Internal Audit, Risk & Compliance

IT Advisory

Transactions & Restructuring

Corporate Finance

Restructuring

Transaction Services




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Revenue Company Type Title

Demographics &

methodologyKPMGs 2013 Food and Beverage Outlook survey reflects

the viewpoints of 100 senior executives in the United States.

The Web survey was conducted in Spring 2013.

less than $100 million (0%)

$100 million to $249.9 million (10%)



$1 billion to $4.9 billion (30%)

$5 billion to $10 billion (17%)

More than $10 billion (25%)

Private (54%)

Public (46%)

Senior Vice President or Directorlevel (47%)

Executive Vice President/ManagingDirector level (24%)

C-Class (CFO, COO, CTO, etc.)

(22%)

CEO, President (7%)

25%10%

30%

17%

12%

6%

54%46%

7%

47%

24%

22%




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Contact Us

Patrick Dolan

National Line of Business Leader

Consumer Markets

[email protected]

John Farrell

National Advisory Leader, Consumer Markets

212-872-3047

[email protected]

Jacquelyn Daylor

National Audit Leader, Food, Drink and Consumer Goods

612-305-5737

[email protected]

Thomas Theodoropoulos

National Tax Leader, Food, Drink and Consumer Goods

212-872-6594

[email protected]

Raman Kansal

National Director, Consumer & Industrial Markets

312-665-3623

[email protected]

Anne Giometti

National Marketing Director, Consumer Markets312-665-2922

[email protected]

kpmg.com
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food beverage outlook survey 2013

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