Cost and success strategies to tackle volatile markets

By Sarah Hills

- Last updated on GMT

Related tags Economics Supply and demand

Cutting costs is the top priority in 2009 for food and beverage companies, according to a report from Deloitte which outlines strategies companies can adopt to stay ahead in challenging economic times.

A survey conducted by the business advisory firm showed that 31 per cent of respondents have made cost reduction their number one issue this year, with 73 per cent of businesses reporting substantial input cost rises in the last 12 months.

However, just eight per cent implemented price increases to match these rises and 37 per cent passed on all cost increases to their customers, said the report called

“Food and Beverage 2012 - Ingredients for Success in Volatile Markets”.

Meanwhile commodity prices and the security of supply are expected to remain high on the agenda, so businesses must prepare themselves, according to Lawrence Hutter, Deloitte global head of food and beverage.

He said: “Our respondents have identified both serious challenges and real opportunities that the economic downturn will present the industry.

“Some businesses need to tackle urgent issues related to debt and liquidity. Many need to focus on immediate drivers of trading performance such as pricing and cost structures.

“Longer term the winners will be those organisations that effectively track and anticipate changing consumer needs and meet these needs with relevant brands, products and services that deliver value, while at the same time responding to consumer values that have not gone away such as the desire for good nutrition and sustainable sourcing.”

The report said despite the economic challenge, recent key trends such as convenience, good nutrition and health, packaging reduction, interest in provenance, environmental impact and ethical sourcing remain.

However, affordability, perceived value and price will be relatively more important drivers of consumer choice for the foreseeable future.

Therefore, it said: “Those businesses that succeed in bringing new products to market that reconcile these different needs, and at the same time make a good margin, will win market share and capture value.​”

The report highlights four key areas when developing success strategies:

Strengthening the balance sheet

More drastic action is needed to tackle liquidity problems, looking at areas such as sources of funding, working capital and cash management.

Examples include new approaches to supply chain finance which sees invoices settled on presentation at an affordable discount rate.

Optimising trading performance

Marketing spend effectiveness is “critical”​ for any brand based business, while pricing and promotions offers one of the most important areas of opportunity.

Improving operational efficiency across the supply chain is also important.

Winning in the medium term

Focusing product innovation and portfolio management on changing customer and consumer needs is crucial. Brand architectures and strategies should be refreshed to ensure relevance and resonance.

Businesses should also revisit longer term sourcing strategies to secure supply at the right quality and cost.

Potential partner and suppliers will also be assessed on criteria such as sustainability; risk profile and climatic exposure and strategies for water and energy use.

Building confidence among stakeholders

Management need to focus on leading and motivating people in the business through the downturn, whilst keeping the confidence of suppliers and customers.

Related topics Market trends

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