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Analysis: Food and Beverage Industry Challenges in 2020

BlogEnterpriseYour business By Duncan Khoury – 11 May 2020

2020 has presented the Australian food and beverage industry with exceptional – and unforeseeable – challenges.

While demand for essential food and beverages will always exist, many businesses in the industry are experiencing significant challenges primarily due to:

  • changing customer needs,
  • supply chain disruptions, and
  • currency fluctuations. 

Now, more than ever, food industry businesses need to focus on their finances to stay profitable and take advantage of strong opportunities. So let’s take an in-depth look at the challenges facing the food and beverage industry, and how businesses in the sector can manage their risk.

The importance of Australia’s food and beverage industry

The food and beverage sector is Australia’s largest manufacturing industry, accounting for 32% of the country’s total manufacturing turnover. According to the Australian Food and Grocery Council’s 2019 State of the Industry report, the food and beverage, grocery and fresh produce sector is worth $122 billion. The industry is made up of 15,000 businesses of all sizes that employ over 273,000 people. 

And perhaps most importantly, it’s the heart of regional Australia, with 39% of these employees living in regional and rural communities. 

Together, these businesses supply a diverse range of products, including:

  • meat
  • grains
  • dairy
  • fruits 
  • vegetables
  • seafood
  • confectionery
  • beverages (including wine). 

And they cover all distribution channels, from retail to food service and food ingredients.

Food and beverage industry challenges

A strong food and beverage industry is vital to the Australian economy, now more than ever. 

Some businesses are booming in the current climate, while others’ creativity and ability to pivot has kept them going. Regardless of the status of each individual business, the food and beverage industry as a whole is facing three unique challenges in 2020.  

Challenge 1: Unpredictable customer patterns

Most businesses are currently finding it hard to predict how much product stock to make or buy. Demand for some consumer staples like rice and pasta has rapidly increased. Meanwhile, demand for others has reduced – and for yet others, there’s been no change. Additionally, due to the global nature of the current situation, some exporters are seeing their markets completely disrupted. 

A changing customer base has also strongly impacted the demand for many products. For example, many restaurant and event catering supply businesses initially saw sales fall before creating new, flexible sales channels, such as online and local delivery, that have been wildly popular. Additionally, those businesses who supply staples to end consumers have struggled to meet the unprecedented increase in demand. The fluctuations in demand have been fast, unpredictable and sizeable – changes which all have a significant impact on an industry that primarily trades in shorter shelf life goods. 

As businesses find a new ‘normal’ and begin to accurately forecast demand again, cash flow is needed to meet the new demands and opportunities for growth, as well as respond to fast evolving sales distribution channels.

Challenge 2: Disrupted supply chains

Disrupted supply chains are making it more difficult to meet fluctuating production levels for many in the food and beverage industry just now. Internationally-sourced ingredients and packing supplies may be taking longer than average to arrive with the reduction in flights and shipping. The same can be said for locally-sourced items, making the usual production lead times blow out. 

Businesses who can bulk order will be able to better ride out these delays without impacting production lead times. However, finding quick cash flow solutions right now can be a challenge, particularly if your business is experiencing a sharp, sudden increase in sales and your sales cycle is long. 

Challenge 3: Currency fluctuations

Finally, even under normal circumstances, currency fluctuations can cause cash flow issues for businesses that either export or source materials internationally. Currency fluctuations mean many businesses are currently paying more than they usually would for imported goods and services, while also earning less from exports. Uncertainty has created downward pressure on the Australian Dollar with, as an example, the AUD/USD currency pair falling just over 10% between January and April 2020, from when news of the pandemic started to spread globally. 

Without the cash flow to cover these often meaningful fluctuations, these businesses increase the risk of negatively impacting their bottom line during this extraordinary time.

How can food and beverage industry businesses improve cash flow in 2020?

As we’ve explored, strong cash flow can help businesses weather many of the current challenges. But how do you generate a strong cash flow in such an unpredictable environment? 

One way is to leverage the funds tied up in your supply chain thanks to our Debtor Finance solution. 

It funds up to 85% of the value of your unpaid invoices within 24 hours. Your cash flow is boosted based on your invoiced sales, so you have the money available to take action against the impacts of those challenges above. 

Improved cash flow can help you:

  • Leverage opportunities to grow or pivot. Meeting new market demands or changing your distribution network requires flexibility. Having cash flow available in line with your invoiced sales lets you jump on those opportunities without going into uncharted financial territory. With Debtor Finance, the more you sell, the more finance you’ll generally have available. 
  • Reinforce your supply chain. Freeing up the money in your accounts receivables might allow you to buy extra stock or take advantage of bulk purchases to attain discounts and prevent supply chain disruptions. 
  • Ride out exchange rate fluctuations. Access to increased working capital gives your business flexibility to better respond to currency fluctuations. And using our secure cross-border payments platform gives you upfront Australian Dollar visibility for international supplier payments, so you don’t get any nasty surprises. 

Leverage the funds tied up in your supply chain 

Debtor Finance is just one of the ways that Octet can help give your business a working capital boost. 

Learn more about how we can power your food and beverage business.