Market Digest

Leaders Also Expect Improved Jobs Outlook in 2010; Nearly Half Still See U.S. Economy as a Whole Not Recovering Until 2011 or Later

Senior executives in the food and beverage industry are optimistic they will see improved revenue, profitability and a better jobs picture in 2010 according to a recent survey conducted by KPMG LLP, the audit, tax and advisory firm.

In the KPMG survey, which focused on the food and beverage industry specifically, 72 percent of the executives said they expect business conditions to improve in 2010 with 72 percent also expecting stronger revenue and 65 percent expecting improved profitability. However, 48 percent of the food and beverage executives believe the U.S. economy as a whole could take as long as 2011 or later to substantially recover.

Overall, 86 percent of food and beverage executives see an improving jobs picture in their sector in 2010, with 54 percent saying it would be stable and 32 percent saying it would be better than 2009. At the same time, nearly half of them (48 percent) said they had already instituted headcount reductions and only 22 percent were contemplating further such actions.

“These survey results show a cautiously optimistic outlook from industry execs, even as the underlying volatility in the food and beverage sector–based on companies wrestling with the sting of higher costs, shrinking consumer spending, and working capital constraint–continues to develop,” said Patrick Dolan, KPMG LLP national line of business leader – Consumer Markets, and U.S. sector leader – Food, Drink and Consumer Goods. “With the food and beverage industry in the midst of potentially disruptive change–led by accelerating technological, social, and economic shifts–the executives surveyed are still upbeat about their future, though much hard work remains.”

The KPMG survey also asked food and beverage executives to indicate if their strategic focus was now on investing for growth or cutting costs. Almost two-thirds (63 percent) chose the investment option, but 37 percent said they were still focused on cost cutting.

CONSUMERS THE KEY TO RECOVERY

When survey respondents were asked to identify the triggers they think will spur a U.S. economic recovery, the top three factors by far were increased consumer spending (46 percent), an increase in jobs/employment (also at 46 percent) and improved consumer confidence (45 percent).

BIGGEST CHALLENGES TO RECOVERY

When asked to identify the biggest challenges they currently faced in dealing with the economic downturn, food and beverage leaders most frequently cited finding new sources of revenue growth (58 percent), managing/cutting costs (52 percent), managing risk (49 percent) and adjusting to changing customer demand (42 percent).

INFORMATION TECHNOLOGY, CUTTING CAPITAL EXPENDITURES AND RISK MANAGEMENT ALL PART OF RECOVERY EFFORTS

Interestingly, 82 percent of food and beverage executives cited implementing IT solutions to reduce operational costs as a means to adjust to the downturn. Almost two-thirds of food and beverage executives (63 percent) cited cutting capital expenditures as a way to adjust to the economic downturn.

When asked to identify how they were coping with the economic downturn, almost two-thirds (63 percent) of the food and beverage industry executives said they had created or modified their risk management plans.

INDUSTRY WELL-POSITIONED FOR RECOVERY

Notably, 60 percent of the respondents said they thought the food and beverage industry would fully recover ahead of the U.S. economy. Also, 65 percent of food and beverage executives surveyed believe their business is currently well-poised to take advantage of an economic recovery.

“Current industry business models are under intense pressure but our experience with food and beverage companies finds that those that translate customer understanding into value and cost-effective innovation, and that succeed in gaining a single view of their liquidity position, their underlying supply chain, and the alignment between performance and risk can better withstand the system shocks created by market volatility,” said Dolan.

THE KPMG INDUSTRY PULSE SURVEY

The KPMG survey was conducted from May through July of 2009 and reflects the responses of 65 CEOs and other C-level suite executives in the food and beverage industry. About 20 percent of respondents work for food and beverage companies with annual revenues exceeding $1 billion; 29 percent represent companies with annual revenues in the $250 million-$1 billion range and 51 percent represent companies with annual revenue below $250 million. Clarion Research Inc. conducted the survey and compiled the data.

Source: KPMG LLP