<img height="1" width="1" style="display:none;" alt="" src="https://px.ads.linkedin.com/collect/?pid=938154&amp;fmt=gif">
Food and Beverage Companies and Investors: What’s Coming in 2022?

Food and Beverage Companies and Investors: What’s Coming in 2022?

The second anniversary of the beginning of the COVID-19 pandemic in the United States has arrived. COVID-19 has triggered many changes, including in the food and beverage industry.

The pandemic has rocked restaurants and forced them to get creative to attract and serve customers. Food and beverage companies have had to contend with product shortages, production problems, and huge swings in demand.

Now, inflation has begun to have profound effects on the United States as a whole. The price of labor has increased, and the ability of suppliers to keep up with demand is constantly in flux. The Fed has now signaled that rate increases are coming in the near future.

The food and beverage industry has had to make huge adjustments to account for these changes. The truth is that no one can know exactly what the future holds for the food and beverage industry in 2022, but reading some signals now to prepare can be very helpful for both companies and investors.

How-Companies-Are-Addressing-Challenges-in-the-Food-and-Beverage-industryBIZ TIP: How Companies are Addressing Challenges in the Food and Beverage Industry

Addressing Labor Shortages

Rampant demand is apparent across most industries today, but it has hit the food and beverage industry disproportionately hard. Labor shortages only compound the problem.

According to the U.S. Bureau of Labor Statistics, part of the issue might be that older workers have chosen to stop working and retire earlier than they might have otherwise because of the pandemic. As of December 2021, the employment participation rate for those over 55 is currently at 38.4%, which is about 2% less than pre-pandemic levels. While 2% may not seem like much, when you consider that those over 55 and under 65 make up 8.6% of the population (over 23 million people), that number is significant.

For the food and beverage industry, the current labor shortage concerns are forcing companies to get creative about attracting and retaining workers. They are offering higher wages and more benefits, and those costs often trickle down to their production costs. In a survey by the National Restaurant Association, 84% of operators reported that labor costs are higher now than before the pandemic.

Some companies are now exploring options with automation and other ways to utilize technology to address labor challenges. Looking into these services might not have otherwise occurred until years into the future for some companies.

how-food-and-beverage-companies-are-adapting-to-current-labor-shortage-issuesBIZ TIP: How Food and Beverage Companies are Adapting to Current Labor Shortage Issues

Inflation and Financing

In the past two years, the United States economy saw an increase of the nation’s money supply by 40%—all while interest rates were at historic lows. However, those low rates are expected to climb this year. That can have an impact on the cost of borrowing for many food and beverage companies, especially those that rely on debt service to maintain day-to-day operations.

Companies might want to consider ways to limit or reduce debt or fix rates on portions of their long-term debt now, while rates are still lower. Early discussion with financial experts can help curb some of the costs associated with new financing or variable rate lending.

Inflation will have an impact on overall pricing, regardless of whether it is through financing needs or simply buying ingredients and supplies. For example, in November 2021, General Mills announced that it would be raising the prices on hundreds of products—some by up to 20%.

While there is some dispute about whether this type of action is truly necessary (General Mills reported a $3.1 billion profit in 2021), the company says that it is in direct response to inflation. The company asserts that increased productivity, even if it were possible with the current labor shortage, will not be enough to combat the current inflation levels.

Decreased Merger and Acquisition Activity

Because of challenges expected with increased lending rates, industries across the United States might also see fewer mergers and acquisitions activity. The food and beverage industry might be hit harder in this area compared to other industries.

Cost inflation is especially challenging to pass through to customers when the company is small, which might decrease profits, leading to reduced balance sheets—and, ultimately, fewer options for M&A activity.

Careful investors will be even warier because of inflation and increased financing charges. If a company cannot get a handle on profits because of challenges with inflation, potential investors are more likely to look at other options, even if the inflation effect is temporary.

svaa-profitability-review-using-ratios-scorecard-business-restaurant-hosptitality-industry-3EGUIDE: Profitability Review: Using Ratios as a Scorecard for your Business

Dealing with Safety Restrictions

Some areas (such as California, New York City, and Minneapolis) are beginning to relax the requirement that restaurants and bar patrons show proof of vaccination status to enter. Modifications in service, such as using menus on individual phones and restricting deliveries and patron access, can be seen throughout the country as well.

Safety protocols like these have decreased the number of customers who come to restaurants and bars. It also makes workers’ jobs more difficult, compounding labor problems.

For example, UCLA Labor Center published a report in January 2022 that examined COVID-19 and working conditions in fast-food restaurants. It found the following negative effects for those working in those environments because of safety protocols (just to name a few):

  • 34% have been yelled at
  • 13% have been threatened
  • 4% have been physically assaulted

Overall, 50% of those involved in the study have experienced some kind of negative side effect because of COVID-19 safety protocols.

Looking Forward to 2022

Despite the challenges, the food and beverage industry is expected to grow 13.8% in 2022 (from $3.2 trillion to $3.7 trillion). With careful planning and an eye toward the future, both investors and business owners can continue to see good returns and profits.

Request More Information

© 2022 CPA ContentPlus

Biz Tip Topic Expert: Nicole Gralapp, CPA, CExP™

Nicole Gralapp, CPA, CExP™

Nicole is a Principal at SVA Certified Public Accountants working primarily with closely-held businesses and individual clients. Nicole performs a variety of tax, assurance and business consulting functions. She provides clients with technical expertise in areas such as tax planning, financial reporting, financial projections, budgeting, financial and estate planning and review of internal controls. Her experience in the hospitality, restaurant, construction and professional services industries gives her the ability to consult with clients in a variety of areas.

Awards and Affiliations

Forbes Names SVA as 2021 America's Best Accounting Firms
sva-certified-public-accountant-affiliation-accountingtoday-top100-firms-2021
sva-certified-public-accountant-affiliation-inside-public-accounting-top-100-firms-2021
milwaukee-business-journal-largest-milwaukee-area-accounting-firms-2022-logo2
sva-certified-public-accountant-affiliation-wicpa
sva-certified-public-accountant-affiliation-great-place-to-work-2021
sva-certified-public-accountant-affiliation-m-power-business-champion-program
sva-in-business-executive-choice-award
sva-certified-public-accountant-affiliation-aicpa
sva-certified-public-accountant-affiliation-aicap-ebpaqc-member

Locations

Madison, WI
1221 John Q Hammons Dr, Suite 100
Madison, WI 53717
(608) 831-8181

Milwaukee, WI
18650 W. Corporate Drive, Suite 200
Brookfield, WI 53045
(262) 641-6888

SVA BBB Business Review Man Standing

Contact

(888) 574-4782
info@SVAaccountants.com
BizTips

Are you in the know on the latest business trends, tips, strategies, and tax implications? SVA’s Biz Tips are quick reads on timely information sent to you as soon as they are published.

Connect With Us

Copyright © 2022 SVA Certified Public Accountants | Privacy Policy | Cookie Policy | CCPA