The past few years have 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
- currency fluctuations
- climate change
- cost-of-living pressures
- skills shortages
Now, more than ever, managing finances in the food industry is crucial to staying profitable and building a resilient business. Let’s take an in-depth look at the challenges facing the food and beverage industry and how businesses in the sector can best 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 2021 State of the Industry report, the food and beverage, grocery and fresh produce sector is worth $132 billion and employs more than 270,800 people.
And perhaps most importantly, it’s the heart of regional Australia, with 40% of these employees living in regional and rural communities.
Together, these businesses supply a diverse range of products, including:
- beverages (including wine)
And they cover all distribution channels, from retail to food service and food ingredients.
Food and beverage industry challenges
Strong financial performance in the 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 adapt amid constant change has kept them going. Regardless of the status of each individual business or their finances, the food and beverage industry as a whole will face five unique challenges in 2023.
Challenge 1: Unpredictable customer patterns
Rising interest rates and cost-of-living pressures will continue to create unpredictable customer spending patterns in 2023. McKinsey found that price sensitivity has continued to grow during 2022, particularly among consumers from lower income brackets. This cohort is looking to save money on food and beverages where they can — even more so than during the pandemic.
This is driven by cost-of-living pressures due to rising inflation, which has reduced incomes and available cash for the weekly grocery shop. Switching to cheaper brands, favouring value retailers (such as Aldi) and seeking out better deals and promotions are ways that consumers might be looking to save money.
Challenge 2: Disrupted supply chains
Disrupted supply chains are currently one of the biggest challenges in the food and beverage industry. Business is also facing pressure to adopt circular supply-chain models. Internationally sourced ingredients and packaging supplies are taking longer than average to arrive, with the ongoing economic unrest causing global supply chain disruptions.
Transport costs have also skyrocketed, and this is putting increased financial pressure on the food industry — both for international and domestically sourced items. For example, Klaus Pamminger, chief operating officer at GrainCorp, said in a recent interview that transport costs have almost tripled in the last two years.
Finding quick cash flow solutions can be a challenge right now for many in the food and beverage industry. Some are considering different supply chain innovations, such as introducing more flexibility into their processes. An example of greater flexibility would be experimenting with different recipes in case key ingredients become unavailable.
Australian food and beverage manufacturers are also pivoting by diversifying their pool of suppliers, incorporating new technologies into their supply chain systems and training their supply chain workers to become more adaptable.
Challenge 3: Currency fluctuations
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 any exports. Uncertainty has created downward pressure on the Australian Dollar, which dropped 11% against the USD in September 2022. This was its lowest level in two and a half years.
Without the cash flow to cover these often meaningful currency fluctuations, food and beverage businesses increase the risk of negatively impacting their bottom line during this extraordinary time.
Challenge 4: Climate change
Unpredictable weather patterns, such as long periods of drought, major floods and storms, can negatively impact supply chains and production processes. And with climate concerns intensifying into 2023, businesses in the food and beverage industry are challenged to find solutions to combat the associated risks.
Amid growing concerns about climate change and sustainability, consumers are paying closer attention to the personal impact their choices have on the environment. For example, Deloitte’s 2022 Sustainability Report found that 64% of consumers surveyed have reduced their consumption of single-use plastics. But in the coming years, consumers will have no choice. Australia’s states and territories, apart from Tasmania, have either banned or committed to banning single-use plastics — including cutlery, straws, plates, bowls and drink stirrers — by 2025.
In 2023, this increased scrutiny may shift consumer buying behaviour, not only around the products and brands they choose, but also in areas like packaging, sustainable waste reduction and ethically sourced products.
Challenge 5: Skills shortages
The food and beverage industry faces two key challenges in 2023 when it comes to resourcing: shortage of available talent and attrition of existing employees.
Data from the Australian Bureau of Statistics found that almost a third of employing businesses are having difficulty finding suitable staff. And in a 2022 report of the European grocery market, 39% of CEOs said hiring the right talent was a significant challenge over the last year.
Retaining talent is also a big challenge in the food and beverage industry, particularly in hospitality, as people are seeking better conditions. Many employers are considering incentives to attract and retain talent, such as sign-on bonuses, paid time-off and more flexible hours.
How can food and beverage businesses enjoy a cash flow boost in 2023?
Strong cash flow can help F&B businesses weather many of the current challenges. But how do you boost cash flow in such an unpredictable environment?
Our Trade Finance facility gives you access to a flexible line of credit to pay your suppliers earlier, whilst strengthening key business relationships. As it did for online wine retailer Vinomofo, which used the facility to take advantage of local growth opportunities during the pandemic.
Another way to boost cash flow is to leverage the funds tied up in your supply chain via 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 that you have the funds available to take action against the impacts of these industry challenges.
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 unchartered 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
Trade and Debtor Finance are just two of the ways that Octet can help give your business a working-capital boost. Want to find out about these and other facilities we offer? Learn more about how we can power your food and beverage business today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as at the date of publication and are subject to change without notice.