Food companies shift to strategies that will protect profitability

Industry expertise

External shocks to the food industry are finally slowing after years of turmoil from global conflicts and the COVID-19 pandemic. Yet the cost of production and labor—not to mention fertilizers, pesticides, and fuel—continue rising. Food companies can’t continue using price increases to shift costs to customers, so they’re looking for internal and external operational strategies to boost productivity, efficiency, and margins.

As 2024 unfolds, food businesses look to automation and robotics for relief from labor shortages. Tighter relationships with partners can expand vertical integration and scale advantage while optimizing the food value chain from supplier to end customer. Technology investments will allow companies to meet the requirements of the upcoming Food Safety Modernization Act (FSMA) and address its broad-ranging implications on their approach to production, operations, and supply chain management.

Automate for productivity gains.

Persistent labor scarcity and a steep rise in labor costs drive the move toward automation and robotics. From basic automation to artificial intelligence, advanced manufacturing techniques reduce the need for manual labor, especially from less-skilled, temporary workers. Food companies become more efficient, increasing productivity while reducing their reliance on a volatile labor market.

Automation builds flexibility into the production model and delivers additional benefits that align with emerging industry priorities. An automated food manufacturing environment can offer more consistent quality and less waste. Adopting digital technologies enhances data collection and analysis, improves quality monitoring, and fine-tunes FSMA tracking requirements. It also offers a food safety upgrade—fewer human touches mean fewer contamination risks.

Automated manufacturing can require a significant investment in equipment, software, and training. In today’s labor-constrained economy, food companies may see a return on their investment in the short term as automation transforms variable costs for labor into a fixed cost, remaining stable as production rises.

Automation’s longer-term strategic implications can be substantial as well. The impact of automation and robotics can extend into storage, refrigeration, and shipping and can guide your decisions to retrofit existing equipment—or build an all-new production line. Greater use of sensors, digitization of data, and reporting can enhance quality monitoring and enable regulatory compliance.

While you’ll need new workforce skills and ongoing training as technology becomes a larger component of your operations, gaining greater flexibility and scalability could make your business nimbler, boost its profitability, and grow its enterprise value.

Optimize your supply chain with stronger partnerships.

The intensifying economic and regulatory atmosphere in the food industry makes the collaboration between producers, suppliers, distributors, and retailers more important than ever. Managing and supporting these relationships is essential to ensuring reliability and consistency in the food value chain and allowing greater efficiency in moving food from production to market.

Lessons from COVID play an additional role in supply chain considerations. Remembering the paralysis that created so much havoc at the pandemic’s onset, leaders have been intent on building more resilient and redundant supplier networks so they’re better prepared for any supply chain disruption.

With the increasing pressure on producers and manufacturers, alliances can strengthen the strategic and economic ties along the food value chain, whether the goal is to support organic growth, build technological and automation advantages, or find economies of scale. Alliances can also provide a means to deliver the scale big brands need while keeping smaller vendors in the game.

What’s the best way to connect the food value chain and find efficiencies that deliver on the promise of greater profitability and strengthened competitive positioning? When it comes to M&A, value-driven combinations that create synergies and enhance profitability are favored. Deals that drive efficiencies or permit combining operations into fewer facilities have an advantage, as do those that advance an organization’s financial position, bolster supply chain resilience, or confer a competitive edge.

Acquisition or minority investment isn’t always the right answer to link companies in the food value chain. Close partnerships are sometimes the best approach to delivering vertical integration benefits companies need to compete effectively. Partners can coordinate decisions about site location, production planning, and logistics that benefit the quality of the goods getting to consumers, along with the financial results for each player in the chain.

Prepare for FSMA compliance in 2026.

The FSMA has wide-ranging effects that loom large for food business leaders as they set priorities for the coming years. The impending regulations drastically expand visibility and traceability requirements for food products. Compliance will require collaborative relationships and close partnerships across the food value chain to measure, record, and track the information needed to meet these mandates.

The law initially targets fresh fruits, vegetables, leafy greens, and shellfish when compliance becomes mandatory in 2026 but will likely expand over time. Both consumers and regulators are poised to demand the same level of accountability from producers of meat, baked goods, and other products that FSMA requires for foods included in the initial rollout.

Forward-looking food companies are preparing now to thrive in this new environment. That starts by investing in hardware, software, advanced networks, skilled staff, and service providers to help meet FSMA requirements. It also means deploying the necessary sensors and systems to collect data, expanding data storage and management capabilities, and adding AI and analytics management for source tracing and batch monitoring.

In many cases, food companies will need to upgrade processing equipment to meet the escalating standards for safe food manufacturing. The problems with older equipment are well-known, from more frequent breakdowns and production disruptions to contamination by shavings shed from fatigued metal parts. Newer equipment minimizes these risks and adds new features like seam-free surfaces that eliminate places where contaminating bacteria can collect.

FSMA standards emphasize the need for strong, transparent partnerships at each link in the food value chain. FSMA holds food companies responsible for safety, visibility, and compliance, ensuring full traceability of every ingredient in every product. Consolidated supply networks allow partners to work together, minimizing contamination risks while offering greater transparency and tracking.

Compliance with safety regulations around production, ingredient tracing, data management, and other standards reduces risk for everyone. No business can tolerate a weak link as food products move from producers and processors, through storage and transport, making their way to distributors and retailers on the long path to consumers. 

Put your plans for profitability in motion.

Now, more than ever, food companies are focused on improving margins and building enterprise value. Talk to your Truist relationship manager today. Our food industry knowledge experts can help you chart a sustainable path for your business to succeed in this competitive, regulatory environment. With our food industry experts and Truist Business Lifecycle Advisory, we can help with insights, ideas, and solutions to help you chart a sustainable path for your business to succeed. To learn more, visit our website.