Food Beverage Outlook Survey 2013

2013 Food and Beverage Industry Outlook Survey
The table is set for change

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2013 KPMG LLP , a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in the U.S.A.
Contents
1 2 4

Table of
The table is set for change Survey highlights Detailed findings 4 Transformative technology
4 Engaging and empowering consumers 5 Actionable insights 10 Leveraging cloud 14 Running the company 14 Key management initiatives 15 Investing in the future 18 Workforce expectations 20 Revenue and revenue drivers 24 Barriers to growth 26 Business conditions 26 Economic outlook 27 Food and beverage industry growth 30 Threats to profit, business models 34 Legislation, policies, and risk 34 Regulations and mandates 36 Impact of federal tax policies 38 Adoption of risk policies
40 42 43
Final thoughts from KPMG A leader in the food & beverage industry Demographics and methodology
set for change

As the economy continues to slowly improve, a wave of significant change is moving through the food and beverage industry redefining how companies grow, operate, and manage risk. Rapidly advancing technology is driving much of the transformation, providing opportunities to explore new ways of doing business, and to better understand and engage with consumers. However, technology does not come without challenges, exposing companies to new areas of risk and vulnerability. And, while technology is accelerating the rate of change, several other disruptive forces are contributing to thetransformation. From tech-savvy millennials to aging boomers, the ways in which consumers gather information about what they want to purchase, the factors influencing their purchase decisions, and their loyalty to a brand or product are all up for grabs. On top of that, food and beverage executives are confronting the cost and impact of themany risk and regulatory issues that government and other regulatory bodies are putting into place. The respondents to KPMGs 2013 Food and Beverage Industry Outlook survey indicate the most significant impact is being made by engaging consumers through digital channels and social media. But the back office is also evolving, as almost two-thirds of survey respondents say they have adopted, or plan to adopt, cloud computing technologies into their business strategies and operations. Executives are also realizing the boundless potential offered by data and analytics in gaining customer insights and making better decisions. Thisyears survey confirms that the industry continues to make positive improvement, with most expecting continued increases in revenue, both thisyear and in the comingyear. They acknowledge pricing pressures as potential growth barriers and consider volatile input costs and discounting prices as the most significant threats toprofit margins. Notably, food and beverage executives exhibit a growing concern over the potential governmental impact on their businesses, including believing that regulation will hamper growth, and citing that political/regulatory uncertainty is asignificant threat to their business models. Executives indicated that the regulatory issue requiring most of their focus was the Food Safety Modernization Act. Looking ahead, the vast majority of survey respondents foresee continued sector growth over the nextyear, with revenue increases being largely driven by product innovations and the ability to add new customers. And, afteryears of cutbacks, many U.S. companies are seeking opportunities to make investments that will drive growth, including an increased focus on geographic expansion. On behalf of KPMG, I would like to thank those who participated in this survey. I hope the findings are useful to you in addressing market challenges and opportunities. Please do not hesitate to contact me if you would like to discuss this study and its implications for your business in theyear ahead.
The table is
Patrick Dolan National Line of Business Leader, Consumer Markets KPMG LLP
2013 Food and Beverage Industry Outlook Survey | 1

highlights
Technology, the main ingredient
Most executives realize that technology is paramount to driving growth and enhancing customer engagement. Therespondents to KPMGs 2013 Food and Beverage Industry Outlook survey indicate that new technologies are certainly accelerating the rate of change, and they acknowledge a significant increase in the use of technology to explore new ways of doing business. Theuse of social media and other digital marketing channels continues to gain ground, being increasingly utilized by food and beverage companies for engaging consumers. Todays companies are also learning that cloud is much more than just another IT cost reduction lever and they are placing more emphasis on determining how to leverage cloud to enable business transformation: shifting away from pure cost reduction objectives to taking a more strategic approach. While cost reduction is a given, transformation is critical. Almost two-thirds of food and beverage executives say they have adopted, or plan to adopt, cloud technologies into their business strategies and operations. Of those who have adopted cloud computing, a sizable majority found integration to be easy or cited only minor challenges. In this customer-driven environment, data and analytics are proving to be increasingly valuable. Food and beverage companies are taking note: morethan half of survey respondents say that their company has high, or is rapidly moving towards high, data and analytics literacy. Theuse of both structured and unstructured data and analytics also continues to penetrate deeper throughout the food and beverage organization, playing an increasingly vital role in making a variety of decisions. In addition to obtaining customer insight, companies are leveraging data and analytics to support brand and product management, to make decisions on pricing, and to drive operational excellence. However, opportunities for improvement exist: 46 percent of survey participants rate the data and analytics capability of their companies as average or below, with16percent believing they are lagging behind competitors when it comes toutilizing analytics.
Survey
2 | 2013 Food and Beverage Industry Outlook Survey

Seizing growth opportunities
Food and beverage executives believe that modest improvements in U.S.business conditions will continue, and an overwhelming majority predicts the industry will experience growth over the comingyear. More than half of survey respondents plan on investing capital to drive growth, many indicating they expect to increase spending on geographic expansion. Other key investment areas include acquiring a business and expanding facilities. Perhaps the positive outlook on growth stems from the continued dramatic climb in revenues: 84percent of respondents indicated an increase in revenue, while only 57percent indicated an increase in 2012. Revenue is expected to continue to grow, with the vast majority of the executives surveyed predicting an increase nextyear as well. Key drivers of revenue growth over the next one-to-threeyears include product innovations and adding new customers. Not surprisingly, many of the executives surveyed say they will be spending the most time, energy, and resources on new product development, pricing strategies, and geographic expansion. Other top initiatives on the minds of management include operational improvements and reducing costs; however, focus in these two areas has declined when compared with the results of lastyears survey. While food and beverage executives say their companies added slightly fewer U.S. employees over the lastyear than reported in the2012survey, almost half plan to add more staff over the nextyear.
Overcoming obstacles
Improving, but still relatively weak, consumer confidence and prolonged unemployment continue to plague the industry. These remain as the top two factors hindering industry growth. However, concern over government regulation rose significantly. Apprehension increased over the impact the Food Safety Modernization Actwill have on the industry. Healthcare reform, product recalls and evolving tax regulation also garnered attention. Yet despite increasing concern, almost two-thirds of the food and beverage executives surveyed believe their company is only somewhat prepared to manage the impact of public policy and regulatory reform. When asked to identify issues preventing the adoption of a formal risk policy, survey respondents indicated that culture and behavior, and the lack of clearly defined roles and responsibilities, posed significant obstacles. At the company level, pricing pressures not only continue to be identified as the highest barrier to growth; the percentage of respondents citing this concern increased from 42percent in 2012 to 51percent this year. Volatile commodity and input prices, along with rising labor costs, are also seen as major obstacles. Theindustry executives surveyed widely believe that the greatest threats to their profit margins are costs of inputs, and discounting and other sales incentives. They cite losing share to lower-cost producers as the biggest threats to their companys business model. To protect their bottom line, food and beverage companies plan to optimize their supply chains and reduce sales, general and administrative costs.

findings
Transformative technology
Engaging and empowering consumers Technology is driving change throughout the food and beverage industry, opening new doors of opportunity as well as new areas of risk and concern for companies. Survey respondents report that social media suchas Facebook and Twitter, and consumer engagement through mobile and online channels, are having themost significant impact on their business.
Detailed
Q: Which of the following technology-related trends is having a significant

impact on your business?
Social media (Facebook, Twitter, Pinterest, etc.)
46% 45% 31% 24% 23% 19%
Mobile/online consumer engagement
Mobile/online promotions and coupons
Mobile/online shopping Ability to scan QR codes, compare products and pricing Influence of peer rankings and reviews on consumerspurchase decisions
Multiple responses allowed

Actionable insights In the current customerdriven environment, data and analytics are proving to be increasingly valuable in getting to know customers better. In addition to obtaining customer insight, food and beverage companies are leveraging data and analytics to support brand and product management decisions, pricing decisions, and when looking to optimize operations. In fact, eachof the responses to this question was selected with relatively high frequency, demonstrating the broad applicability of data and analytics.
59
Customer insight
58 56%
Pricing decisions
Brand and product management
52%
43%
Market expansion
Operating model optimization
Q: In what areas does your

organization use data and analytics to help support strategic decision making?
Portfolio rationalization
42%

When it comes to taking action, nearly half (49percent) of the food and beverage executives surveyed report that data and analytics are best used to drive operational excellence and to determine how to position their products (42percent).
Q: Considering the relevance of data and analytics at your company, which

49% 42% 35% 32% 19% 18% 16% 9% 9%
of thefollowing items represent the best use of data and analytics in driving actionable insights?
Operational excellence (operations, supply chain)
Product positioning
Acquiring customers
Competitive intelligence
Finance
Human capital
IT infrastructure
Government regulation
Risk management

Realizing the value created by leveraging data and analytics, more than half of survey respondents (53percent) say that their company has high, or is rapidly moving towards high, data and analytics literacy. Anadditional 29percent would rate their company average when it comes to utilizing data and analytics. However, it is concerning that 46 percent of survey participants rate the data and analytics capability of their companies as average or below, with 16 percent believing they are lagging behind competitors when it comes to utilizing analytics. Leveraging this capability is expected to be a key enabler for better performing companies in the future.
Q: Which of the following best characterizes the data and analytics maturity
of your company?
My company has high data and analytics literacy My company is rapidly moving toward becoming an enterprise with high analytical literacy My company is about average when it comes to utilizing analytics, and our management team and workforce have an average analytical literacy My company has some data and analytics capabilities, but at the moment we are behind our competitors when it comes to utilizing analytics, and our management team and workforce have average to low analytical literacy My company has no formal data and analytics capabilities, and our management team and workforce have low analytical literacy Dont know
24% 29% 29% 16% 1% 1%


Big Data + Big Analytics = Big Opportunity The emerging data-driven economy has two primary characteristics: the abundance and complexity of data and the speed of change, and thus decisionmaking. Recognizing that data is increasingly driving competitive insights, operational scale, and compliance complexities, organizations are embracing wholesale change in how information is accessed, interpreted, reported, and applied. The conventions for measuring, managing, and monitoring a business will be stressed to new extremes as speed, the need for new perspectives, and machine learning continue to influence the marketplace. As these market dynamics continue to evolve, expectations will continue to shift about what should be disclosed, when, and to whom. Consider the behavioral changes already taking place in large companies, where social media pressure has forced some to reverse positions that made perfect sense in the boardroom, but were anathema in the marketplace. In this context, consider the value of being able to better predict the combined tax, regulatory, and business impacts of a planned global expansion or an accounting change that affects selected products or divisions. Consider, too, the risk management opportunities that would be possible with better transparency into a suppliers upstream and downstream financial and operational health. Success in the data-driven economy will require as much acumen in harnessing what wasnt known or anticipated, as was rewarded historically for those able to optimize what was known and could be acted on to deliver on market expectations. This is the start of a journey, and there is time to prepare and respond. Thekey is to take the first step and plan for change. The ability of leaders to turn data into actionable information that allows them to make timely, more accurate decisions is creating entirely new markets. From custom modeling and analytics, visualizations and dashboards to master data management and storage considerations such as cloud, the world of Big Data and the desire to leverage big analytics are already driving the business of today and tomorrow. Organizations will also evolve. Theproliferation of Big Data and the speed of analytics will significantly disrupt many business models. Information as an asset will transform business and operating models, including how companies obtain assurance on those models. Any disruption offers an opportunity to drive business transformation, including new partnerships, new interactions across global enterprises, and newmarkets, all of which have risk, tax, and regulatory implications that are still being defined and discovered. An information-driven organization needs an information-driven mind-set from the top down. Thatmeans employees must be managed, measured, and compensated based on how well they use data to make decisions and drive business outcomes. Effectively governed and appropriately implemented, data analytics can bring clarity to business decisions and improve business outcomes. Its scope and application will continue to expand, helping leaders focus on the knowledge they need, derive insights and actionable intelligence from data, and create, manage, and govern new business models that support the information-driven organization. Those who embrace effective data analytics as a business imperative can gain a competitive advantage in the rapidly evolving global digital economy. With an information-driven culture focused on business outcomes, data analytics can produce the power that drives the growth engine.

Leveraging cloud As cloud begins to become more mainstream within the business environment, we are seeing organizations move from the when and why of the cloud adoption process to instead focus on the how. Almost two-thirds (65 percent) of the food and beverage executives surveyed indicate they have adopted, or plan to adopt, cloud technologies into their business strategies and operations. Of the 43 percent who have adopted cloud, a sizable majority found integration into their business strategy and operations to be easy, or they experienced only minor challenges.
Q: When it comes to cloud adoption, which of these statements is most

true for your organization?
Have adopted cloud computing (43%): We have adopted cloud, and found it an easyintegration into our business strategy andoperations
8% 23% 12% 9% 13% 22% 13%
43% 35%
e have adopted cloud, and found minor W challenges integrating it into our business strategyand operations e have adopted cloud, and found major W challengesintegrating it into our business strategyand operations Plan to adopt cloud computing (22%): We plan to adopt cloud, and believe we will easily integrate it into our business strategy andoperations We plan to adopt cloud, and believe we will face formidable challenges integrating it into business strategy and operations Not planning to adopt cloud computing or dont know (35%): We have no plans to adopt cloud Dont know/NA
22%
Have adopted cloud computing Plan to adopt cloud computing Not planning to adopt cloud computing or dont know.

Now that many organizations have adopted cloud into at least part of their enterprise, there is no longer any doubt that, as a critical set of enabling technologies, cloud can significantly impact how any organization conducts its business. A greater number of survey respondents see the potential benefits of cloud, including having greater transparency on transactions, and more believe cloud computing will fundamentally change their business model. While over one third (38 percent) of food and beverage executives believe that cloud computing will have no significant impact on their companys business model or operations, this number has declined (14 percent from the 2012 survey results) and may reflect that companies are implementing cloud with good success..
Q: Which of the following best describes the potential impact of cloud

computing on your business model/operations?
No significant impact It will provide management with greater transparency on transactions It will reduce costs
38% 52% 26% 13% 23% 23% 18% 9% 16% 25% 10% 16%
2013 2012
It will fundamentally change our business model It will change our interaction with customers andsuppliers It will accelerate time to market

Many organizations are already working in the cloud and it is encouraging to see that cost reduction appears to remain high on the list of objectives for executives. This benefit was always central to the cloud value proposition, and the fact that so many enterprises continue to see it as a key objective shows that experience in cloud environments has not seemed to dull this anticipated gain. But the survey findings also show that organizations are beginning to recognize that cloud is much more than just another IT cost reduction lever. Forty-four percent of those that have adopted or plan to adopt believe it will fundamentally change their business model and 78 percent say itwill provide greater transparency. These results suggest that business executives are starting to fully appreciate the potential transformative value that cloud can bring to the enterprise. And, having experienced some of the immediate benefits of the cloud, many are perhaps now starting to look deeper into their operating models to seehow these advantages can be extended into the wider enterprise.
The perceived potential impact of cloud computing compared to cloud adoption status.
Adopted cloud It will fundamentally change our business model It will change our interaction with customers and suppliers It will provide management with greater transparency on transactions It will reduce costs It will accelerate time to market No significant impact Other (please specify): Number of respondents Plan to adopt cloud Don't know/ NA No plans to adopt cloud
30 19 37 37 21 7 2 43
14 23 41 32 5 27 0 22
8 15 8 0 0 69 8 13
5 5 0 0 0 91 0 22

The silver lining Increasingly, companies are focusing on cloud productivity and collaboration solutions as a worthwhile alternative to traditional, in-house IT services, and with good reason. Cloud computing brings potentially significant advantages, from lower costs and more efficient use of resources to greater scalability and availability of IT services. Companies adopting a cloud strategy must choose from among a variety of delivery models, including software as a service (SaaS), platform as a service (PaaS), and infrastructure as aservice (IaaS), and must decide whether they are better off with a public, private, or hybrid cloud format. Also, many applications and tools are capable of being shifted to the cloud, and amajor first step in developing a cloud strategy is to identify the most appropriate applications to move to the cloud. As with any transformation, there are risks and challenges, such as security, compliance, changes in service levels, and change management, and companies transitioning to cloud must manage the issues carefully to avoidsurprises. Cloud solutions that provide capabilities such as e-mail, messaging, document sharing, and office tools are gaining significant traction and can be a great opportunity for early cloud adoption. There are many ways to approach a cloud strategy, from the different services or applications that can be shifted to the cloud, to different delivery models and degrees of private versus public cloud. Companies approaching cloud for the first time are likely to have questions regarding security, performance, impact on regulatory compliance, andother potential risks. Cloud users are finding these issues can be managed satisfactorily, and in many cases improved, as a result of steps that have been taken by cloud providers to address the various risk areas. So, where does an organization start? Whatis the best entry point when one considers the costs, risks, transition issues, impact on legacy systems, and the firms IT infrastructure asawhole? Many companies are finding that productivity and collaboration applications are a good area for a first step into cloud services because they offer comparatively low barriers to entry, and a potentially significant return on investment. Ultimately, executives of all stripes will need to remember that cloud is not a short-term fix for the business, and that some of the benefits will only start to have a significant impact a couple of years down the road. Indeed, gaining real cost savings from the cloud is about more than simply moving from fixed costs to operating costs; the greatest cost savings and, more importantly, the transformational business benefits will come from the longer-term outcomes such as more efficient processes, more flexible operating models and faster entry into new markets and geographies.

Running the company

Key management initiatives Of the executives surveyed, 21percent will be spending the most time, energy, and resources on growing organically. This includes asignificant focus on new product development, pricing strategies, and geographic expansion. Other top initiatives on the minds of management include operational improvements and reducing costs. Overall, 43 percent are focused on growth initiatives, 44 percent on operations, and 13 percent on managing risk.
Q: What initiative do you expect to undertake over the

nextyear that will consume the most time, energy and resources, from a management perspective?
% in 2013 Significant investment in organic growth (new product development, pricing strategies, geographic expansion) Significant improvement of operation processes and related technology Focus Growth
21
19
12 11 11 11 7
5
2 1
Operations
Significant cost reduction initiatives
Operations
Merger/acquisition
Growth
Entering into new markets
Growth
Navigating significant changes in the regulatory environment Significant changes in business model Significant changes to financial processes and related technology Improve enterprise risk management programs/processes Strategic divestiture of current assets
Risk Management Operations Operations Risk Management Operations

Investing in the future More than half (58percent) of the food and beverage executives surveyed plan on investing capital to drive growth, while only 14percent expect to invest less than the previousyear.
Q: What is the outlook for capital spending by your company over

thenextyear?
58%
28%
3 20+ % of 10 11-20 respondents 22 6-10 23 1-5 % of expected increase
10 1-5
14%
% of 3 6-10 respondents 0 11-20 1 20+
% of expected decrease
Increase
About thesame
Decrease

Key areas in which food and beverage companies expect to invest include acquiring a business (33percent) and expanding facilities (31percent). However, almost half of the executives surveyed (48percent) indicated they expected an increase in spending on geographic expansion. Other investment areas include new products or services and information technology.
Q: In which areas do you expect your company to increase spending the most
over the nextyear?
Acquisition of a business Expanding facilities New products or services Information technology Geographic expansion within the U.S. Advertising and marketing/ branding Geographic expansion into or among high-growth emerging markets outside U.S. Employee compensation and training Business model transformation Geographic expansion into or among other developed markets outside the U.S. Research and development Regulation/control environment Green/sustainability initiatives
33% 31% 28% 24% 20% 20% 17% 17% 13% 11% 10% 9% 8%
17% 11%
20%
Geographic Expansion 48% Geographic expansion within the U.S. Geographic expansion into or among high- growth emerging markets outside the U.S. Geographic expansion into or among other developed markets outside the U.S.


Workforce expectations Food and beverage executives added slightly fewer U.S. employees over the lastyear, with 45percent of respondents reporting an increase inheadcount. However, more respondents (36percent) indicated their staffing levels remained the same, and fewer saw adecrease in headcount than did lastyear.
Q: Compared with this time last year, how would you describe your
companys current U.S. headcount?
2013
45%
36%
18%
1% 2012
12 1-3 % of 6 4-6 respondents 0 7-10 0 10+ % of expected decrease
50%
Increase
25%
25%
About thesame
Decrease
Not sure/dont know

Almost half (49percent) of the food and beverage executives surveyed expect to add more U.S. staff over the nextyear, while 34percent anticipate current staffing levels will remain the same. Nearly a quarter of respondents (23percent) believe they will see growth in the number of employees of 4percent or more.
Q: How do you expect your companys U.S. headcount to change oneyear

from now?
49%
34%
16%
1%
Increase
About thesame
Decrease
Not sure/dont know

Revenue and revenue drivers Revenues continue climbing rather dramatically: the percentage of respondents indicating an increase rose from 57percent in 2012 to 84percent this year. Whats more, over two-thirds (38percent) of food and beverage executives report current revenue is up 6percent or more.
Q: Compared with this time lastyear, how would you describe your
companys current revenue?
2013
84%
10%
6%
2012
57%
Increase in revenues
35%
About thesame
8%
Decrease in revenues


And the growth in revenue is expected to continue: 81percent of the executives surveyed predict an increase nextyear as well, withalmost half (49percent) indicating growth of 6percent or more.
Q: What do you expect your companys revenue to be like oneyear

fromnow?
81%
14%
4 1-5
5%
% of 0 6-10 respondents 1 11-20 0 20+
Increase
About thesame
Decrease

According to survey respondents, product innovations (38percent) and adding customers (35percent) will be key drivers of revenue growth over the next one-to-threeyears. And while pursuing alternative sales channels and distribution strategies are expected to give revenue aboost, healthier products and those addressing dietary needs willalso bolster revenue growth.
Q: Which of the following areas do you believe will be the biggest

drivers of your companys revenue growth in the next threeyears?
Product innovations Adding customers Alternative sales channels and distribution strategies Products that provide healthier alternatives or address specific dietary needs M&A (merger and acquisition) activity Expansion in core markets Focus on emerging markets Retaining customers Improving economic conditions Increased consumer spending Changed pricing and promotional strategies Innovative merchandising strategies Growth of environmentally friendly products/services
38% 35% 25% 23% 20% 19% 18% 18% 17% 17% 16% 14% 1%

Barriers to growth According to over half (51percent) of industry executives, pricing pressures remain the highest barrier to growth and the number of respondents citing this concern increased from 42percent last year. Volatilecommodity/input prices and rising labor costs are also seen as major obstacles, as evidenced by 31percent and 28percent of survey responses respectively.
Q: Which of the following are the most significant growth barriers facing
your company over the next year?
Pricing pressures
51% 42% 31% 38% 28% 22% 21% 16% 16% 22% 15% 20%
2013 2012
Volatile commodity/input prices
Labor costs
Regulatory and legislative pressures
Lack of customer demand
Energy prices

A quest for growth It is true that no one ever cut their way to growth. So the cost savings initiatives of the past were just that: savings alone. Today, cost is still an issue, but its what companies do with the found cost savings that make the key strategic difference between them and their competitors. But after decades looking for cost reduction, cost alignment and cost analysis, are there still meaningful savings and cost strategies left to find? The answer lies within cost transformation: having a new and different vision of your companys strategy and how costs really align to achieve those strategic objectives. Cost transformation requires a keen understanding of a companys global competition, sourcing options, performance, processes, systems, tools, functions, values, and strategic direction. It is a purposeful and built-in alignment of a companys cost with its strategy to optimize financial performance. There are several potential benefits to cost transformation: Improved bottom-line results Better understanding and clarity around performance Streamlined and more efficient process Organizational and functional efficiencies Improved performance versus peers Improved discipline and rigor in financial management Strategic alignment and execution Decreased risk
Business conditions
Economic outlook Food and beverage executives believe that modest improvements in U.S. business conditions will continue. More than half (52percent) believe that the economy will improve over the nextyear, while 32percent of respondents expect the economy to remain flat. These results are similar to 2012 survey findings.
Q: Ayear from now, what are your expectations for the U.S. economy?
2013
16%
Better nextyear
52% 32
%
About the same Worse nextyear
2012 16% Better nextyear 56% About the same Worse nextyear
28

Food and beverage industry growth Most executives (79percent) predict the industry will experience growth over the comingyear, with modest gains of 5percent or less anticipated by the majority (62percent). These responses mirror lastyears surveyresults.
Q: What do you estimate your industrys growth rate will be over

thenextyear?
2013
79%
16%
1 10+
% of 16 6-10 respondents 62 1-5
% of expected increase
5 1-5
5%
% of 0 6-10 respondents
0 10+
2012
82%
Increase over nextyear
13%
5%
No change
Decrease over nextyear

Improved but still relatively weak consumer confidence, and prolonged unemployment continue to plague the industry and remain as the top two factors hindering industry growth. However,concern over increased government regulation continues to increase significantly, up 11percent from 2012.
Q: What factors are most likely to hinder industry growth?

% in 2013 % in 2012
Decreased consumer confidence
52
42 41
16 15
10 10
58
Continued high national unemployment
52
Increased government regulation
30 14 16 13 9 17 5 12
Uncertainty in the credit markets
Limited access to credit for consumers Limited access to credit for businesses Decreased investor confidence Distressed real estate market Threats to U.S. business from Asia and abroad Turmoil in the Middle East/North Africa
9 9
5


Threats to profit, business models Despite the momentum and revenue growth that the food and beverage industry has recently experienced, the biggest threats to profitmargins over the next 12months remain unchanged from lastyears survey. Costs of inputs or merchandise (46percent), discounting and other sales incentives (40percent), and decreased sales volumes (38percent) were widely seen by industry executives as posing the greatestconcern.
Q: In your opinion, which of the following items will pose thegreatest

threat to your companys profit margins in the next 12months?
Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Marketing costs Regulatory compliance Inventory carrying costs Administrative costs Foreign exchange variability
46% 40% 38% 25% 24% 19% 17% 13%

As evidenced by the response to the previous question, volatile input costs continue to challenge food and beverage manufacturers. To protect their bottom line, 59percent of executives plan to optimize supply chain costs along with sales, general, and administrative (SG&A) costs. A sizable 45percent will combat costs by implementing commodity hedging strategies.
59%
Optimizing SG&A and supply chain costs
Hedging strategies for commodities
45
40%
Customer-centric pricing strategies
Q: What strategies has your
organization implemented to help combat the impact of volatile costs?
30%
Enhancing trade spend efficiency
19%
Revisiting service delivery models (offshoring/shared services)

A transparent (and resilient) supply chain Fundamentally, a more transparent supply chain will help SEC-reporting companies to comply with the law. But if the issue is regarded by companies solely as a matter of compliance, they will be missing an opportunity to make their supply chain more resilient and more efficient. Companies may gain a competitive advantage by developing a compliance strategy, consisting of an organizational framework, a process of mapping the supply chain and auditing the result. Greater transparency leads to better management, based on better business data. And while few would disagree that the supply chain is a critical source of competitive advantage, it is also a potential strategic risk. A break in the supply chain can be enormously disruptive. By contrast, an efficient, strong supply chain can provide companies with an edge over its rivals. To run a lean operation, receiving components at the right time/price and avoiding excess inventory are fundamental requisites of every modern manufacturer. They can require highly sophisticated computer systems to manage a global logistics operation. Information is, therefore, a critical part of supply-chain management, yet most companies do not have a deep insight into those chains.

Food and beverage executives cite losing share to lower-cost producers (42percent) as the biggest threats to their companys business model, followed by lingering uncertainty over political and regulatoryissues.
Q: What issues pose the biggest threat to your business model?

Losing share to lower-cost producers Political/regulatory uncertainty Energy costs Lack of qualified workforce Customer/employee mobility Inability to find visionary leadership Disruptive technologies Ability to find capital
42% 35% 29% 25% 14% 13% 6% 6%

Legislation, policies, and risk

Regulations and mandates When it comes to regulations, the Food Safety Modernization Act, the most sweeping changes to the nations food-safety laws in more than 70years, requires the greatest focus: 82percent of executives surveyed expect it to have a significant impact on the industry, a15percentincrease from lastyears survey results. Healthcare reform and product recalls also continue to garner attention.
Q: What regulations and mandates is your organization most focused on?

Food Safety Modernization Act
82% 67% 38% 42% 36% 29% 20% 21% 6% 6%

2013 2012
Healthcare reform
Product recalls
Labor/immigration Laws
Dodd-Frank conflict minerals

Almost two-thirds (63percent) of the food and beverage executives surveyed believe their company is only somewhat prepared to manage the impact of public policy and regulatory reform.
Q: How prepared is your company to proactively manage the impact of

public policy and regulatory changes?
% 4% 2
Very prepared
31%
Somewhat prepared Not prepared
63%
Dont know

Impact of federal tax policies Most survey respondents believe evolving tax policy will impact their business strategy. Executives expect that tax policies will have asignificant effect on hiring and will also lead many food and beverage manufacturers to invest less capital.
Q: How will evolving federal tax policy impact your organizations

business strategy?
Changing business structure/impact to hiring Less capital investment Increased overseas expansion Increased domestic expansion Increased M & A (mergers and acquisitions) activity No impact to business strategy Do not know
28% 27% 21% 11% 7% 24% 10%


Adoption of risk policies Changing marketplace dynamics and evolving regulation have added to the need for companies to implement a strong internal risk framework. When asked to identify existing challenges preventing the adoption of a formal risk policy, survey respondents indicated that culture and behavior and the lack of clearly defined roles and responsibilities pose significant obstacles.
Q: What challenges exist within your organization that may impede or

have impeded adopting a formal risk policy?
%
Culture and behavior
37 36
23 22 9
Clearly defined roles and responsibilities
Process integration/efficiency of operations
Shared resources across the organization
Governance framework
No challenges exist
29

Why bad things happen to good companies In todays world, companies need to apply a risk lens thats equal to that of the growth lens when making strategic business decisions. Astrategic approach to risk management can help a company mitigate a threat to its reputation and optimize its bottom line. Successful companies anticipate something could go wrong, and if something does occur, theyre ready to manage it by leveraging an established crisis management process, as well as scenario planning and stress testing of key strategic growth assumptions. KPMG International conducted a large-scale study of risk which was based on a global survey of more than 1,000 C-level respondents deployed by the Economist Intelligence Unit in December 2012. Despite the C-levels awareness of the risk environment, most companies surveyed do not have a consistent way of assessing risk across the enterprise. Survey results consistently demonstrate that companies struggle to build an enterprise-wide view of threats, making it difficult to plan strategically.

from KPMG
Technology is transforming the food and beverage industry and is expected to continue to play a vital role in business strategies. Foodand beverage executives are well aware of the trends in the industry, yet the key to successfully navigating this rapidly evolving landscape is identifying the so what: how these trends will impact their companies. Then, its a matter of determining how they can best respond and capitalize on the resulting opportunities, how they need to change their business to not only adapt, but to thrive.
Social media and mobile technology are having a significant impact on food and beverage businesses as consumers increasingly utilize these channels to aid in making buying decisions: from product comparisons to price checks to recommendations and ratings from their virtual communities. Meanwhile, food and beverage executives are also increasing their usage of these channels to reach more consumers build relationships with them, and even ask for their advice on new products. Some food and beverage companies are now selling direct to consumers in addition to their traditional retail distribution channels. As a result, the relationship companies have with consumers is evolving, and while the voice of the customer has always been important, it has become significantly more demanding and powerful. Is your product gluten free, organic? Was it produced in an environmentally responsible way? Do you need to expand to new markets or customize to target growing ethnic segments? How are your products prepared, packaged, and shipped? Never before have food and beverage companies been subject to this level of scrutiny from consumers, and this trend is not going away any time soon. Food and beverage executives are rapidly embracing the value of data and analytics as key facilitators of success: identifying new markets, new strategies and new operating models to generate growth and profitability. Investing in technology toharness the vast amounts of structured data that reside in acompany, as well as the unstructured data online and in social media, is proving to be integral to achieving success in the new environment. As it evolves in both sophistication and application, data and analytics will be leveraged by all functions within food and beverage companies. Risk and regulatory issues are often a hidden threat, as many companies are not prepared, or even aware of, what vulnerabilities they may have. For example, social media by its very nature poses inherent risks that, unfortunately, have frequently been identified only when something has gone wrong and the company must manage the resulting crisis . KPMG believes that innovation is the key to success for food and beverage executives: from continually evolving products, to identifying more effective ways to run their business, to creatively building relationships with consumers and defining their brand through the use of technology. Food and beverage companies must also proactively address regulatory compliance and mitigate risk. Companies must first accurately assess how equipped they are to drive innovation and surface good ideas throughout their entire organization. How do they compare to competitors in this respect? What metrics are they using? How do they define product success? Each companys unique culture will determine how well they respond to todays rapidly and dynamically changing food and beverage industry environment.
Final thoughts


food and beverage industry

The Food and Beverage industry continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance. At the same time, advances in technology and in capturing and analyzing data are helping companies drive growth, streamline operations and engage better with consumers. Having the right professional services firm is critical to addressing these challenges and achieving financial goals. KPMG in the United States is a leading accounting, tax, and advisory firm for the consumer markets industry, and working with our network of member firms, we serve clients worldwide. Our Food, Drink, and Consumer Goods practice is comprised of accomplished professionals, from top food, drink, and consumer goods companies that possess the knowledge, experience, and skills necessary to sort through todays complex business problems. Bydeveloping insights into industry trends and approaching market opportunities with a fresh perspective, we offer company-specific guidance that helps our clients become or remain market leaders.
A leader in the
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methodology
KPMGs 2013 Food and Beverage Outlook survey reflects the viewpoints of 100 senior executives in the United States. TheWeb survey was conducted in Spring 2013.
Demographics &
Revenue
Company Type
Title
10% 25% 6% 12% 17% 30% 24% 22% 46% 54%
7%
47%
less than $100 million (0%) $100 million to $249.9 million (10%) $250 million to $499.9 million (6%) $500 million to $999.9 million (12%) $1 billion to $4.9 billion (30%) $5 billion to $10 billion (17%) More than $10 billion (25%)
Private (54%) Public (46%)
Senior Vice President or Director level (47%) Executive Vice President/Managing Director level (24%) C-Class (CFO, COO, CTO, etc.) (22%) CEO, President (7%)

Contact Us Patrick Dolan National Line of Business Leader Consumer Markets 312-665-2311 patrickdolan@kpmg.com John Farrell National Advisory Leader, Consumer Markets 212-872-3047 johnmichaelfarrell@kpmg.com Jacquelyn Daylor National Audit Leader, Food, Drink and Consumer Goods 612-305-5737 jkdaylor@kpmg.com Thomas Theodoropoulos National Tax Leader, Food, Drink and Consumer Goods 212-872-6594 ttheodoropoulos@kpmg.com Raman Kansal National Director, Consumer & Industrial Markets 312-665-3623 rkansal@kpmg.com Anne Giometti National Marketing Director, Consumer Markets 312-665-2922 agiometti@kpmg.com kpmg.com
The views and opinions from the survey findings are those of the survey respondents and do not necessarily represent the views and opinions of KPMG LLP . 2013 KPMG LLP , a Delaware limited liability partnership and theU.S. member firm of theKPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), aSwissentity. All rights reserved. Printed in theU.S.A. TheKPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. NDPPS 186908

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2013 Food and Beverage Industry Outlook Survey

The table is set for change

set for change

2013 Food and Beverage Industry Outlook Survey | 1

2 | 2013 Food and Beverage Industry Outlook Survey

Seizing growth opportunities

2013 Food and Beverage Industry Outlook Survey | 3

Q: Which of the following technology-related trends is having a significant

46% 45% 31% 24% 23% 19%

Mobile/online consumer engagement

Mobile/online promotions and coupons

4 | 2013 Food and Beverage Industry Outlook Survey

Brand and product management

Operating model optimization

Q: In what areas does your

Multiple responses allowed

2013 Food and Beverage Industry Outlook Survey | 5

Q: Considering the relevance of data and analytics at your company, which

Multiple responses allowed

6 | 2013 Food and Beverage Industry Outlook Survey

24% 29% 29% 16% 1% 1%

2013 Food and Beverage Industry Outlook Survey | 7

8 | 2013 Food and Beverage Industry Outlook Survey

2013 Food and Beverage Industry Outlook Survey | 9

Q: When it comes to cloud adoption, which of these statements is most

8% 23% 12% 9% 13% 22% 13%

10 | 2013 Food and Beverage Industry Outlook Survey

Q: Which of the following best describes the potential impact of cloud

Multiple responses allowed

2013 Food and Beverage Industry Outlook Survey | 11

12 | 2013 Food and Beverage Industry Outlook Survey

2013 Food and Beverage Industry Outlook Survey | 13

Running the company

Q: What initiative do you expect to undertake over the

Significant cost reduction initiatives

Entering into new markets

Risk Management Operations Operations Risk Management Operations

14 | 2013 Food and Beverage Industry Outlook Survey

Q: What is the outlook for capital spending by your company over

3 20+ % of 10 11-20 respondents 22 6-10 23 1-5 % of expected increase

% of 3 6-10 respondents 0 11-20 1 20+

2013 Food and Beverage Industry Outlook Survey | 15

16 | 2013 Food and Beverage Industry Outlook Survey

2013 Food and Beverage Industry Outlook Survey | 17

6 10+ % of 8 7-10 respondents 13 4-6 18 1-3 % of expected increase

12 1-3 % of 6 4-6 respondents 0 7-10 0 10+ % of expected decrease

Not sure/dont know

18 | 2013 Food and Beverage Industry Outlook Survey

Q: How do you expect your companys U.S. headcount to change oneyear

3 10+ % of 7 7-10 respondents 13 4-6 26 1-3 % of expected increase

11 1-3 % of 4 4-6 respondents 1 7-10 0 10+ % of expected decrease

Not sure/dont know

2013 Food and Beverage Industry Outlook Survey | 19

2 20+ % of 10 11-20 respondents 26 6-10 46 1-5 % of expected increase

4 1-5 % of 0 6-10 respondents 2 11-20 0 20+ % of expected decrease

20 | 2013 Food and Beverage Industry Outlook Survey

2013 Food and Beverage Industry Outlook Survey | 21

Q: What do you expect your companys revenue to be like oneyear

1 20+ % of 11 11-20 respondents 37 6-10 32 1-5 % of expected increase

% of 0 6-10 respondents 1 11-20 0 20+

22 | 2013 Food and Beverage Industry Outlook Survey

Q: Which of the following areas do you believe will be the biggest

2013 Food and Beverage Industry Outlook Survey | 23

Volatile commodity/input prices

Somewhat prepared Not prepared