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Anchin's 2007 Food & Beverage Industry Survey:
Optimism Drives Manufacturers, Distributors

By Greg A. Wank,
Partner-in-Charge
Food and Beverage Services Group

Those inside the food and beverage industry paint an optimistic picture of the coming year, according to the results of Anchin’s Food & Beverage Services Group industry survey. In written and on-line responses from dozens of companies, owners and managers projected growth in product types, revenues, and personnel.

Greg A. Wank Partner-in-Charge Anchin's Food and Beverage Services Group

Results of the survey were first revealed at a State of the Industry breakfast sponsored by Anchin on Wednesday, May 16, at New York City’s Penn Club. In addition to survey results, attendees at the event also heard from energy consultant Ed Liberty, president, Dome Tech Energy Advisors, and two “giants” in the food and beverage industry, Bill Endico, CEO, Ace Endico Food Service Specialists, and Isidore “Skip” Pines, former CEO, Hebrew National Foods.

Survey Results: Demographics
One of the most interesting points about the survey was the diversity of the respondents. Responding companies were evenly divided according to longevity by those from 1 to 5 years, 6 to 24 years, and 25 or more years. Furthermore, they were evenly represented in annual sales, number of employees, and distribution channels. Half of the respondents represented family-owned businesses, with 55% of them in either the second or third generation of ownership.

Business Operations and Strategies
For such a broad range of companies, there were very strong trends towards product diversification and use of the internet. During 2006, more than 80% of the companies expanded the number of products offered, with about half of the businesses surveyed entering a new market segment altogether. More than 70% used the internet to establish an online presence, while less than 25% used the internet for more sophisticated functions, such as recruiting, employee communications or e-commerce.

Presentation moderator Richard V. Imprescia, Executive Director, Anchin's Business Economic Development Services

Other business activities were fairly evenly split. Half of the companies anticipated either a merger or an acquisition over the next five years. Sol Lipshitz, Executive Managing Principal of Anchin Capital Advisors, observed, “This is not surprising as there is a clear trend among mid-sized businesses to either expand their business via acquisition or to joint venture with other similar sized or larger businesses. Such transactions provide businesses with the power of a larger distribution channel as well as the benefits from lower costs.”

The most startling discovery revealed in the survey related to strategic issues and long-range planning. Two-thirds of the respondents said they do not have a written business plan. Moreover, one-fourth of the respondents said they do not even prepare a budget or forecast. Operationally, the absence of these tools is the equivalent of running your business blindfolded.

Forecast
As we mentioned earlier, the forecast was very optimistic. While 82% of the companies had higher revenues in 2006 than 2005, 91% of them predicted growth in 2007. When asked to quantify this growth, 77% said they expected an increase greater than 5%. Over 90% also indicated that they would increase the wages of their employees and 71% plan to hire additional employees.

Business Concerns, 2006 and 2007
Increased competition emerged as the most pressing concern for both years, with decreased margins, cash flow levels, and increasing labor and utility costs rounding out the top five issues for 2007 (and 2006). The next five concerns for both years included retaining skilled labor, retaining skilled management, government regulations, financing, and lack of return on research & development.

What keeps owners and managers up at night?
Surprisingly, not the cost of energy. With utility costs rising, we expected these costs to be a consistent top concern. While energy costs ranked third in 2006, it dropped to fifth for 2007. There are at least four possible reasons for this finding:

• Some companies already have a plan of action to control their utility costs.
• Others have accessed government programs to reduce energy costs.
• Some have employed an effective energy cost consultant.
• Unfortunately, perhaps other business owners feel that the escalating cost of energy is out of their control, so they have turned their attention elsewhere.

The retention of skilled labor and management were very low on the companies’ lists of concerns for 2006 but were seen as a greater concern for 2007. Should this trend continue, one remedy might be found by re-evaluating the package of benefits made available to employees. While over 50% of the respondents offer standard benefits such as bonuses, disability, 401(k)’s and insurance, less than 25% offered “upgraded quality of life benefits” such as dependent care, stock ownership, tuition reimbursement or pension plans.

While encouraged that the food & beverage industry is continuing to grow, our greatest concern was that this growth was accompanied by increased competition and decreased margins. If companies are reducing their margins in an attempt to increase market share, then their growth may not reflect a positive development. In fact, it could result in cash flow problems.

Cutting margins for market share is a reactive measure to market pressures and reflects the fact that respondents do not have the proper strategic planning to navigate the effects of competition on their pricing strategy. In order to alleviate some of these pressures, we recommend reexamining your financing status, seeking advice on possible government incentive programs, and exploring energy cost savings measures.

Please feel free to contact the professionals in Anchin’s Food & Beverage Services Group if you have any questions about the complex issues that were raised in this year’s industry survey.

(For a more in-depth look at survey results and pictures of this year’s industry event, visit www.anchin.com/groups-beverage.htm.)