KPMG: Suppliers see a turnaround next year

NEW YORK Senior executives in the food and beverage industry, including manufacturers, distributors and bottlers, are optimistic they will see improved revenue, profitability and a better labor picture in 2010, according to a new survey from KPMG LLP, an audit, tax and advisory firm.

The KPMG study, which surveyed 65 chief executives or other C-level officials in the food and beverage industry between May and July, found 72 percent of respondents said they expect business conditions to improve in 2010, with 72 percent also expecting stronger revenue and 65 percent expecting improved profitability.

“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's head of the national food and drink practice. “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 manufactures, distributors and packagers that participated in this survey have been hit by increased raw material costs and higher fuel costs. The restaurant industry that they serve also has been hard hit by reduced consumer spending and their own increased operating costs, creating a double-whammy for the foodservice industry. Both sectors have experienced business closures and bankruptcies, from Bennigan’s Chapter 7 bankruptcy in July 2008 to chicken producer Pilgrim’s Pride's Chapter 11 filing in December 2008.

When survey respondents were asked to identify the triggers they think will spur an economic recovery in the United States, the top three factors were increased consumer spending, 46 percent; an improved employment environment, 46 percent; and improved consumer confidence, 45 percent.

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 ... can better withstand the system shocks created by market volatility,” Dolan said.

To adjust to the downturn, survey respondents said they had already undertaken headcount reductions and invested in improved IT systems to help reduce costs.

KPMG said about 20 percent of respondents work for food and beverage companies with annual revenue exceeding $1 billion; 29 percent represented companies with annual revenue between $250 million and $1 billion; and 51 percent represented companies with annual revenue below $250 million. Clarion Research Inc. conducted the survey and compiled the data for KPMG.

Contact Sarah E. Lockyer at [email protected] [3].