The start of a new year is a time to reflect on what has changed in the last 12 months. But in January of this year, restaurants were allowed to feel déjà vu.
Many of the challenges facing the industry at the beginning of 2022 remain unsolved. Commodity price inflation and product shortages have intensified, now compounded by higher energy prices, rising interest rates and declining consumer confidence.
Against this backdrop, the food and beverage industry still has many financial levers to pull. How you use them and what you use them for will depend on their purpose, but there are factors specific to the current climate to consider when planning for 2023.
Focus on Fundamentals
Equity financing has always been a viable vehicle for industry growth, but is now experiencing a private market slowdown.
In the UK, the recent ‘boom’ in private equity investment has fizzled out. While valuations remain high, rising interest rates and increased costs to set up trades will make investors more selective in the year ahead.
Food and drink have an even steeper slope to climb. For many companies, the stable returns investors seek are tied to discretionary spending. Cash-strapped consumers are moving away from premium products in some cases, deprioritizing factors that have influenced recent spending decisions, such as provenance.
This means that fundamentals such as pricing, availability and scaling capabilities will become more important than ever for companies seeking investment. Companies should emphasize their core products, their uniqueness, and reinvent their products if necessary at the right price.
This is the approach we see at the top end of the market. Global brands such as Kellogg’s and Olam International have spun off non-core parts of their business to focus on what they are best known for. This trend he may gain momentum in 2023.
While the slowdown in consumer spending has dominated most of our conversations with clients, availability still dominates the discussion. This is where specialized financing that strengthens the supply chain and working capital will have the greatest impact.
In 2022, more companies will move from a “just in time” model to a “just in case” model to offset product shortages. Equity financing can alleviate working capital pressure caused by holding more products, and we expect more companies to use it in 2023.
Also, more companies are using supplier financing to support their partners’ working capital and ultimately improve availability. Last year, we helped Coca-Cola Euro Pacific Partners (CCEP) launch a sustainability-related supplier finance program to help suppliers access efficient financing.
I think this collaboration marks one of the biggest funding trends we’ll see in 2023. More restaurants will work with lenders for customized financial solutions that help address specific objectives.
The industry must continue to innovate in 2023. But, for example, providing more sustainable production methods and pursuing greater digitization require significant investments. Tailor-made solutions that combine co-investments and alternative financing vehicles can provide this capital where access to traditional sources of funding is difficult.
This challenge exists across the industry. Businesses of all sizes will have to balance long-term goals with short-term financial pressures this year. However, while the next few months are going to be tough, those companies that can weather the storm will be better positioned when things improve.