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The Top Three Factors Disrupting the Food Industry

These three trends are causing significant shifts in the Ohio and U.S. food industries

Joe Needham, Director, JobsOhioWed May 29 2019

There are three main drivers of change in the food industry that are also common to most sectors in the state and country: financial pressure, consumer preference and technology. These trends are causing and enabling significant shifts and disruption in the Ohio and the U.S. food manufacturing system.

Financial Pressure

Poor margins and weak net income have caused large national and global food companies to be under pressure for a number of years. The DJIA (Dow Jones Industrial Average) has risen 73 percent over the past five years, while General Mills is down 7 percent, Kellogg’s up 18 percent, and Campbells down 6 percent. CEOs of 18 major U.S. food companies have resigned or been let go since early 2017 alone. The purchase of Heinz by 3G Capital and its acquisition of Kraft in mid-2015 set a new standard in efficiency by reducing overhead a reported 35 percent. Other companies are being pressured by markets and activist investors to achieve similar savings.

As a result, automation and consolidations are high on the list of strategies for food companies. Automation both increases the capacity of fixed assets and decreases the need for hard-to-find employees. With current low interest rates, making capital investments has been a preferred method to increase operating margins in food manufacturing.

Consolidation has also picked up as companies see efficiencies and product line expansion. Reducing overhead and combining distribution has obvious benefits, but some consolidation is driven by the need for innovation. Buying a newer startup that has disrupted a category gives the larger food manufacturers future growth and immediate access to consumers. Smaller food companies have been able to build consumer trust and introduce new products better than the large established companies. For many food product startups, the exit strategy is selling out to “big food.”

Consumer Preference

Consumer preference is at least equal to financial pressure as a driver of change in food. Nutrition, convenience, and sustainability are the big three, and they are powerful forces. In nutrition, “clean labels,” which imply fewer ingredients, no preservatives, and fewer additives, require new handling and distribution methods such as refrigeration or freezing and new processing such as high-pressure pasteurization (HPP). Consumers want healthier products and functional food, meaning new recipes with probiotics, antioxidants, and nutritionally dense ingredients. Plant based foods are gaining rapid acceptance and are often introduced by new startup companies.

For consumers, convenience is a close second to nutrition. The market is moving to on-the-go snacking in place of three set meals a day. Food purchases at grocery stores have stagnated while sales at convenience stores, quick-serve restaurants, and online have increased dramatically. Even when cooking at home, many consumers prefer prepackaged meal-kits, available online or in traditional grocery stores. Blue Apron and others represent this category. Sustainability is also of increasing interest to food consumers, exemplified by the demand for locally grown, environmentally sensitive products. This overlaps heavily with nutrition, resulting in plant-based foods, controlled environment agriculture (CEA or greenhouses), and organic products. Kroger now has the largest organic brand in the U.S., with its Simple Truth products generating $2 billion in annual sales.


Technology is having a major impact on food manufacturing in three major areas. Data analytics, food science, and operations (manufacturing, packaging, warehousing). Food companies have been relatively slow to invest in technology due to low margins and changing consumer tastes. Insufficient labor, new products, and potential productivity increases, however, have encouraged a recent jump in tech investments by food companies. Consumer packaged goods (CPG) companies are typically one step removed from direct consumer contact, so the data on what, when and how consumers make purchases is often obtained in arrangements with retailers. This data accumulation and “sharing” is well-established but analyzing the data for value is still in an infant stage. Figuring out how to extract value from consumer behavior is the primary goal of data analytics, but there are also significant benefits around manufacturing efficiency, inventory management, transportation costs, and plant location.

Demand for clean labels, nutrition, convenience, and sustainability are addressed by food science. The technology to add nutrients, eliminate additives, reduce ingredients and increase shelf life is not only recipe formulation, but processing methodology. High-pressure pasteurization not only enables reductions in preservatives and longer shelf life, but also increases the need for a robust cold chain, including refrigeration, freezers, cold storage, and refrigerated trucks. Food science was historically centered on academic campuses but is now well distributed throughout the food industry.

In plant operations, technology can be seen in high-speed machinery, new packaging, and in fully automated warehouses (all robotic). In addition to better efficiency, technology offers the opportunity for better sanitization of equipment. Technology also allows lighter, more effective packaging to increase food safety and extend shelf life without preservatives. Gas-permeable produce bags, retort pouches, and resealable foil bags are examples of technology in packaging. This is an area of significant impact and is typically a high priority for food manufacturing.

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