Between our 47th Annual Plant Construction Survey and our 2024 Top 100 Food and Beverage Companies, we’ve been able to put together a mostly complete picture of what’s going on with the food and beverage industry regarding how it’s spending money. Through the reports of members of the AEC industry, we’ve seen that many companies are currently holding off on larger projects as they await the results of next month’s election. Through the financial reports of manufacturers, we’ve seen that many took a hit in terms of overall sales, but continued to grow revenue based on initiatives aimed at improving efficiency and cutting waste, among others. Now with our 45th State of Food Manufacturing, we’ll see how food and beverage manufacturers have been achieving those efficiency and waste-cutting goals, and our picture will be complete. FOOD ENGINEERING partnered with research firm myCLEARopinion Insights Hub to get the answers we were looking for. And, simply put, manufacturers have been compensating for lower-than-expected sales—despite a need for increased throughput—by investing in their production processes to improve revenue.

Throughput Expectations

We’ll start with throughput expectations which, much like the previous year, are expected to increase. Three in five manufacturers expect their location’s gross throughput to increase at an average of 23%, up from last year’s expected increase of 18%. This data is significant because financial data used to create FE’s Top 100 indicates that more than a few manufacturers experienced a decline in sales for fiscal year 2023 compared to the year prior. How is it possible that manufacturers needed to increase throughput despite a decline in sales? Well, some of those reported declines in sales were relatively marginal. A few examples would include Tyson Foods, which went from $53 million to $52 million, Archer Daniels Midland went from $47 million to $46 million, and CHS dropped from $37 million to $35 million. Companies like Tyson, in particular, closed processing locations to prevent that sales decline from impacting yearly revenue. Closing those plants, however, meant that other plants had to pick up the slack. This would lead to investing in those other plants in order to improve their throughput.

Location Gross Throughput

Another reason for the need to improve throughput is more straightforward: increased sales and demand. While quite a few manufacturers did experience slower sales or sales declines, many others saw the trend of increasing sales continue. Increased sales was relatively unchanged, with 36% expecting that to generate the need for more throughput compared to 35% expecting that to be the case last year.

Demand, though still high, dropped 5% between last year and this year, the study shows. Various manufacturers and accounting firms state that consumers are still buying, however they’ve become more sensitive to price, and therefore more open to finding other purchase options. “According to the results of our latest U.S. Consumer Pulse Survey,” write the authors of the report from McKinsey & Company, “they’re worried about rising prices and job security, yet they’re optimistic and still spending. They’re switching to less expensive brands to save money, but they’re also willing to splurge on certain goods and services.”

The Hershey Company’s consumer insights team did its own survey, and came to the same conclusion. Its survey also found that consumers are more apt to buy in bulk, share experiences with friends and relatives, and that wellness continues to be a high priority for many.

Albeit another small change in percentage, it’s still significant to note that updated equipment supplanted new products as a reason for additional throughput, followed by an uptick in efficiency increases. 

Reasons for Expected Change in Location Gross Throughput

Costs Continue to Rise, but are Slowing

As reported in our Top 100, although inflation has cooled, it’s still much higher than it was pre-pandemic and is one of the reasons that consumers have been switching to less expensive brands. The increased cost of food for consumers, though, is the result of manufacturers having to continue to pay to cover their own costs. Our study found that 68% of respondents said their total cost per product increased at an average of 12%. The reported cost increase is down from the reported 75% last year, but the average of that increase remained the same at 12%. On the positive side, 10% reported a cost decrease, which is up from 8% reporting a decrease the previous year.

Seventy four percent of survey takers reported a material cost increase, which is down from 80%, 21% reported that their costs stayed the same, which is up from 17%. Those reporting a decrease in material costs were more than last year, but the sample size from both years is too small to make an accurate analysis. Regardless, the fact that costs appear to be rising at a slower rate is reflective of the economy as a whole as the pain caused by inflation continues to ease.rate is reflective of the economy as a whole as the pain caused by inflation continues to ease. 

Total Cost Per Product 

Like the others, the cost of labor is still high. Again, though, more people are reporting that the increased cost of labor is slowing, with 68% saying it increased compared to last year’s 71%. Twenty-two percent of respondents said costs stayed the same compared to a year ago when 27% said labor costs hadn’t changed. The good news, is that 10% said their cost of labor decreased compared to last year’s measly 2%. Of course, that all comes with the caveat that our sample size was too small to do a complete data analysis. 

Everyone Onboard with Automation?

I took a little bit of grief last year for my stance that the industry wasn’t incorporating automation as much as it was talking about it. Given the results of this year’s survey, it looks as though companies still aren’t quite walking the talk.

Respondents continue to believe the biggest trend that changes manufacturing operations is automation/robotics/AI. However, that number dropped from last year’s 38% down to this year’s 27%. Respondents went even further to say that customer demand has more of an impact on operational change (19%) than new equipment (16%). The idea of a customer’s choice in products having an effect on operations was at 10% last year. Maybe that’s to be expected since, as we saw earlier, consumers are more willing to try new brands based on cost and manufacturers have to adapt. 

Trends That Change Manufacturing Operations

None of this is to say that manufacturers aren’t investing in automation. Clearly, they are. The best indicator for this is by looking at budgets and how those dollars are allocated. Approximately 25% of budgets are set aside for the purchase of equipment, which includes machines for production, packaging, software, etc. Nearly 70% of respondents said that less than $1 million is being set aside for said purchases.

Meanwhile, 50% of respondents said that their budgets have increased, with a mean increase of 23%, while 40% said their budgets have stayed the same, and 10% said their budgets actually decreased. These numbers are nearly identical to what respondents to last year’s survey said, suggesting the people responsible for purchasing have consistency in expected finances to work with.

This, of course, is a brief look at some of the highlights of this year’s study. There was a lot more information covered, including more on labor costs and how the AEC community has seen budgets being affected. The full survey is available for download from myCLEARopinion Insights Hub. We’ll also be expanding on these topics and adding more like the ones listed above during our State of Food Manufacturing webinar taking place on October 22, 2024.