July 1, 2022
By Deger Becer, Partner at Translink Corporate Finance Turkey and Head of Translink’s Food Industry Expert Group
The food industry is experiencing seismic change and with it, consolidation has become a strategic priority for many food-focused companies the world over. McDonalds is investing millions in the metaverse. The world’s food security is threatened by the longstanding conflict between Russia and the Ukraine. Food inflation is placing financial strain on populations everywhere. And consumers are choosing foods for reasons beyond sustenance.
Globally, consumer food preferences and habits have been irrevocably influenced by the COVID-19 pandemic. Demand for food delivery, for example, has risen exponentially. Lifestyle preferences have also changed as people are seeking nourishment that is not only regarded as healthy, but with positive environmental returns too. Significant innovation is being fuelled as a result. The third factor is constraints – both regulatory and due to the global food supply shortages and related inflation. This trifactor is driving the largest shifts the industry is experiencing right now.
Here are eight of these top trends and the M&A impact:
1. The massive surge in food delivery services: Food delivery is now a global market valued at over $150 billion. It has tripled in size since 2017. The surge is catalysing significant tech innovation and M&A activity. McKinsey reports on many of the major deals – including Uber’s acquisition of Postmates for $2.65 billion, and Just Eat Takeaway’s purchasing of Grubhub for $7.3 billion. We are seeing a scramble to fundraise fast in a cluttered and competitive environment, with players from myriad sectors competing for ‘share of stomach’. IT infrastructure is being developed at pace, which should continue to drive the deal frenzy. Businesses are looking to acquisitions to streamline operational efficiencies.
2. Good for me, good for the environment: This is a major trend. The plant-based market could comprise 7.7% of the global protein market by 2030, according to Bloomberg, and be worth over $162 billion. During the pandemic, many consumers did a lifestyle audit, including evaluating their eating decisions. The result is that people tend to care more about where their food comes from, its nutritional value, freshness and seasonality, and impact on the earth. Capital is currently being directed to investment into start-ups that promise product innovation, especially in the vegan, plant-based and cultivated meat sectors.
3. Inflation – the perfect storm: Approximately 25% of the world’s wheat and corn comes from the Ukraine and Russia. We may be in for major food shortages soon, with an abrupt change to the supply chain and an imminent threat to global food security. This is fuelling existing inflation around the world – we’re seeing increases of 5 to 15% in Western markets, mimicking the 15% rise in the US. In emerging markets, food price inflation could be closer to 78%. Sugar has seen a 100% price inflation in the last few months. Vegetable oils are also up considerably. Supply-related inflation prompts people’s pantry stocking habits, which drives demand-driven inflation. The result is a perfect storm.
The good news is that it shouldn’t last. Things are anticipated to stabilise and normalise in the next 12 months.
In terms of M&A impact, we’re seeing big businesses consolidate by shedding their unprofitable businesses and investing in smaller players that are more profitable and promise high growth. Who would have thought PepsiCo would dispose of Tropicana and that Coca-Cola would shed Tab and other brands, in order to invest in healthier, niche sports drinks?
4. Farm to freezer: Ecommerce has taken off around the world. Online platforms have made it possible for consumers to buy directly from suppliers, thus cutting out the middleman.
5. Everyone’s a chef right now: In parallel with the food delivery trend, many used the pandemic-related lockdowns as an opportunity to explore their inner chef. Cue the banana bread, sour dough and pineapple beer brewing trends. Freezer meals also had a significant moment and continue to be a top trend, allowing people to stock up on healthier meals on demand.
6. The great recovery of the hospitality sector: We should see a big demand recovery across the food and beverage sector, including food services, restaurants, dining, travel, tourism and hotels. We’re seeing a significant bounce back that will drive strong sector returns. Digitisation, innovation and the Internet of Things are also fuelling big changes in the hospitality sector, which should fuel further M&A activity.
7. The metaverse? Things are changing. Fast. Now, a farmer can pick, pack, and ship an apple to a buyer’s door in a day. So, it basically comes to you straight off the tree. The role of technology in our lives is today’s megatrend. Soon, we may be exploring the metaverse. Big brands like McDonalds are investing billions in being early adopters. Who knows where this will lead?
8. It’s emotional: Food isn’t just sustenance. It feeds us. It feeds our emotions. We increasingly care about where it comes from. If we’re eating meat, we want to know it’s been ethically reared, given the best grass, and treated well. We want to trace the exact farm it comes from and the farmer that reared it. We’re getting granular in our information seeking. Consumers expect transparency in every link of the value chain. In terms of M&A, ethics, sustainability, and social responsibility will be big factors going forward.
Translink is now 50 years old with deep expertise in the food sector. We have a team of experts around the world who are perfectly positioned to advise on both the buy- and sell-side, with unprecedented local, on-the-ground knowledge. Our vast footprint and strong global relationships set our business apart and empower us to always get the deal done. We’re here to help you leverage all the opportunities of a post-pandemic, tech-led world.