Anchin’s 2008 Food Survey:
Manufacturers cope with rising commodity costs
By Greg A. Wank, CPA
Chair, Anchin’s Food and Beverage Services
What a difference a year makes in New York’s food and beverage industry.
Respondents overwhelmingly reported that their greatest struggle in 2008 was maintaining viable margins without pricing themselves out of their customers’ reach. That was in sharp contrast to their greatest concern in 2007, which was increased competition.
Anchin’s annual survey spoke volumes about the pressures the industry is facing. Results were presented to more than 125 of the metropolitan area’s most influential players in the industry, who also heard from the owners of three successful companies -- Henry Beyer, CEO and President of Beyer Farms/Tuscan Dairy; Simon Jacobs, CEO and President of Hale & Hearty Soups, LLC; and Jacque Torres, CEO and President of Jacques Torres Chocolate.
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Jacques Torres, Simon Jacobs,
Henry Beyer and Greg Wank
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Respondent Population
Respondents to this year’s survey came from a wide range of companies. They included start-ups and multi-generational family businesses; small businesses and large corporations; and a variety of manufacturers and distributors. Because of the fragmented nature of the food and beverage industry, respondents were classified as either: 1) Beverage, 2) Dairy, 3) Distribution (including wholesalers and retailers), 4) Manufacturers, or 5) Meat, Poultry & Seafood.
Growth Trends
Across the board, 78% of food and beverage companies responding to the survey experienced growth in revenues in 2007 and 90% of them expect growth in 2008. Beverage companies reported the greatest growth; dairy companies were in high growth mode; distributors and manufacturers had mixed results; and meat, poultry and seafood companies were struggling with growth.
Industry Challenges
Any way you slice it, commodity costs and their effect, decreased margins, were the greatest challenges on everyone’s minds. Even companies experiencing revenue growth said they may be less profitable due to inflationary pressures. As documented in our survey and in the mass media, vast increases in the global demand for food and the far reaching specter of rising crude prices are the main reasons for the increase in commodity costs.
One of the most striking results of the survey was the response to the question, “Do you have a plan that effectively addresses your primary challenge?” Only the beverage companies felt secure in their ability to deal with rising commodity costs. After that, only 55% or less of the remaining respondents felt like they had an effective plan in place. Others reported that they either had an ineffective plan or no plan in place, feeling the issue was beyond their control.
Strategic Response
Audience members were presented with a wide range of practices that can help mitigate these pressures, including the benefits of outsourcing; hedging futures and supplier contracts; utilizing buying coops; tightening operational controls; modifying products; diversifying products in the market place; and considering the risks and rewards of mergers and acquisitions.
Panelists Henry Beyer, Simon Jacobs, and Jacques Torres addressed the effectiveness of some of these practices.
Henry Beyer, CEO and President of Beyer Farms/Tuscan Dairy
Henry Beyer took the mantle to become the fourth generation president of his family’s business in 1977. In the first 44 years of the company’s history, Beyer Farms had grown to a $5 million a year business. Over the next 30 years, he transformed the business into a $150 million firm, with 124 trucks and 240 employees. With a product where the per capita consumption is in decline, Beyer Farms managed to grow by gaining market share through acquisitions. By being a New York based company that “lived and breathed” the city, Beyer had the savvy to effectively grow at a moderate rate during the first 25 years. In 2003, he acquired the New York distribution rights to Tuscan Dairy, which has proven to have been a major success for the company.
Beyer said that two other essential elements to the company’s success include the diversity of his customer base, which allows Beyer Farms to avoid heavy reliance upon any single customer, and his hands-on managerial style. Beyer keeps a firm pulse of the company’s cash flow and operations and meets one-on-one with his managers to maintain a clear picture of the company’s direction.
Simon Jacobs, CEO and President of Hale & Hearty Soups, LLC
Simon Jacobs became an investor in Hale & Hearty Soups in the late 1990s, when the two founding owners had only 8 stores in New York City. Since that time, the founders pursued a different venture and Jacobs expanded Hale & Hearty Soups to 22 locations, including one in New Jersey and one on Long Island, as well as a wholesale division with 400 customers. Additionally, Hale & Hearty opened a new production facility in what was charted as an Empire Zone, which would allow the company to receive substantial government incentives to facilitate further growth. Jacobs noted that due to a technicality, the company was considered outside of the zone, but Anchin’s Economic Development Services Group worked with government officials successfully securing an amendment to the zone’s borders.
Jacobs said that Hale & Hearty eschews traditional marketing and public relations and bases its growth on a quality product and the customer experience. This goes beyond in-store customer service and incorporates customer connections through its web-site.
Jacobs also espouses moderate growth. With an eye towards logistics and control, he firmly believes in adding stores at a moderate pace and fully serving the immediate market before moving on to the next. He said he is very proud of the fact that Hale & Hearty has not had to close a single store due to low performance.
Jacque Torres, CEO and President of Jacques Torres Chocolate
Jacques Torres literally built his company with his own hands. He constructed his manufacturing facility and first store with the help of his two partners, describing the construction process as being much like decorating a giant wedding cake. But the success of his company was founded on quality ingredients and branding. As an acclaimed chef from Le Cirque, Torres was able to generate significant interest in his product even before the inception of his business.
Torres noted that when pressed by overhead expenses, he made a push to improve his margins by increasing sales. In addition to launching a new TV show, Jacques put the onus for new sales on his employees. To avoid layoffs, he gave them an opportunity to promote the business through guerrilla marketing (such as handing out coupons at the Brooklyn Bridge), resulting in a 20% increase in sales.
Complete results of Anchin’s 2008 Food and Beverage, as well as pictures from the May 8 event, can be found at www.anchin.com.
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