We’re currently being bombarded from every angle with news about the latest crises and challenges facing businesses. Amidst all this noise, it is important for food manufacturers to remain focused on their goals and have a strategy with which to navigate changing circumstances.
In this blog we’ll consider 6 trends expected to have a big impact upon the business climate in 2024 and give tips as to how food manufacturers can respond.
Trend 1: Economic uncertainty
Economic conditions continue to loom large over the food industry. Recent research published by IoT Analytics, shows that interest rates and inflation remain key concerns for manufacturing managers.
The persistent climb in interest rates underscores the growing apprehension around budget constraints and the imperative for cost optimization. This trend directly correlates with the actions of central banks, notably the US Federal Reserve, impacting investment costs and debt servicing.
While inflation concerns may be slightly easing, it remains high, largely driven by escalating oil prices and constrained supplies. Despite these challenges, the food processing sector remains resilient, buoyed by the indispensable nature of food consumption.
Consumers are far more price conscious than they were and this isn’t going to change overnight. These spending habits mean more demand for no-frills and private label product lines. The food manufacturers best placed to succeed are those who can switch product lines and have the insight to make the right decisions. So, it’s vital food manufacturers fully understand their cost price per recipe/ product. This means including energy used during production, spillage, and wastage in the overall cost price.
Getting a grip on cost prices also means ensuring that production is as efficient as possible. Waste in all its forms becomes an economic concern not just an ethical one. This can best be monitored as part of the industry standard KPI: Overall Equipment Effectiveness (OEE).
Trend 2: Supply chain re-evaluation
The traditional just-in-time supply chain model, a longstanding pillar in the food industry, is undergoing a profound re-evaluation by plant managers. The shocks inflicted by the Covid-19 pandemic, disruptions in shipping due to geopolitical tensions, and incidents like the Ever Given grounding in the Suez Canal have collectively eroded confidence in the global just-in-time supply model.
Recent studies indicate a substantial shift, with firms now holding twice the amount of stock as a precautionary measure. This transition from just-in-time to a just-in-case strategy necessitates a significant overhaul of the supply chain. While the benefits include reduced pressure on upstream partners and enhanced resilience downstream, the shift comes at the expense of larger inventories, pose risks, as we recently discussed in our blog post: Freezing: A Temporary Fix to Deep-rooted Challenges in Food Production?
Recognizing the need for adaptability, plant managers are urged to invest in technology, focusing on automation, monitoring, and analysis of key processes such as inventory management.
This has also led to a trend in so called ‘Friend-shoring’, whereby supply chains are relocated to friendly countries. This goes hand in hand with increased demand from consumers for greater supply chain transparency.
Trend 3: The Sustainability carrot
Regardless of the economic uncertainty and pressure on prices, the long-term trend remains the focus on sustainability. The many facets of this trend on business form two categories. On the one hand, there are the opportunities presented by new market segments as consumer habits change. And on the other, there is government policy encouraging and forcing change to be made (see next section). This is the carrot and a stick of sustainability.
Consumers are increasingly aware of food-miles, which ties into the re-evaluation of supply chains, bringing them closer to market to reduce the environmental impact of extended logistics. Ethical considerations, such as the conditions livestock are kept in, whether producers have been paid fairly and how crops have been grown, remain hot topics. But increasing skepticism of companies ‘greenwashing’, means there is a desire for hard facts and data, such as the energy required to produce a particular recipe.
But whilst the change in consumer habits has been epitomized by the plant-based meat industry, the rush to get a piece of the action has led to the market becoming overcooked. Whilst this new sector is undoubtedly here to stay, it has quickly become a very crowded marketplace, not justified by the actual demand. Clearly an industry shakeout is to be expected. The lesson here is that there is a danger in the herd instinct of chasing every new trend.
Trend 4: The Sustainability stick
The Dutch Government’s nitrogen crisis has been well publicized. As the number of livestock raised in the country is significantly reduced in the coming years, this will undoubtedly impact the meat industry, which is one of the biggest in Europe.
Regulation directly forcing food manufacturers to have more regard for sustainability is also on the increase. Take for example the EU’s Energy Efficiency Directive, which requires energy monitoring and steps to be taken to reduce energy usage. Then there is the new Corporate Sustainability Reporting Directive (CSRD), which as part of the European Green Deal, requires large companies to report on the sustainability impact of their operations. The future may even be that consumers have to live within a CO2 budget. Solutions will be required to accurately calculate how much CO2 is produced throughout the entire supply chain.
Trend 5: The tight labour market will drive automation
Many western countries are currently experiencing a tight labour market. Technical roles are being particularly hard hit by the shortage, as the more experienced staff reach retirement age. In food factories this is being borne out in the maintenance departments.
Automation, or the technology to replace manual tasks, is going to be an increasingly important part of the solution. In the past automation was largely seen as a threat to people’s jobs. But especially in the current labour market, this has changed as robots replace boring repetitive jobs, freeing them up to take on more creative roles which robots can’t replicate. This is of course a generalisation, and automation cannot solve every type of labour shortage in every factory. However, the effects of this trend are already being seen in the increased rate at which robots are being used on production lines for example. As manufacturers it is important to consider the following advantages of automation:
- Increased production efficiency.
- Less reliance on the labour market.
- Consistent operating costs regardless of the day of the week or time of day.
- Consistent quality & safety.
- Predictability in terms of resource use, product output, and waste.
Automation not only helps fill unfilled roles but also creates upskilled jobs for human workers, making food processors more adaptable and competitive in the evolving landscape of the food industry.
Trend 6: Smart factory technologies moving from hype to pragmatic integration
Artificial intelligence became one of the hottest topics of 2023, thanks to the launch of ChatGPT at the end of 2022. But as IoT Analytics has reported, interest in this topic amongst Manufacturing Leaders is now in decline.
Considering then that AI is widely expected to have a major impact on industry, this may seem surprising. But this is typical of the Gartner Hype cycle, as AI moves from the ‘Peak of Inflated Expectations’ into the ‘Trough of Disillusionment’. The Gartner Hype cycle is strongly related to Amara’s law, which states that “new technology is overestimated in the short term but underestimated in the long term”.
Meanwhile other Smart Factory technologies such as the Cloud and the Industrial Internet of Things, are further along and moving into the phase of mainstream adoption. This makes them much more appealing for pragmatists for the time being.
In changing times, the food producers best placed to succeed are those who can switch product lines to meet consumer demands, tune recipes, optimise production processes and supply chains. The key here is to ask the right questions, gather the appropriate data, analyse it for answers and implement the required changes. At Innius we believe Industrial IoT has a major role to play in this process.