This article is written by Yasar Arafath, pursuing a Diploma in Business Laws for In House Counsels from LawSikho.
Table of Contents
Introduction
COVID-19 has not spared the food and beverage industry. Private label food and beverage markets are witnessing an increase in sales as customers are either by choice or by lockdown eating at home. On the other hand, the private label food and beverage market are facing challenges with a shortage of supplies. As the outbreak continues to develop, now it’s time for private label food and beverage companies to consider response actions in mitigating their risk and prepare on how they can deal with the fallout in supply during the outbreak.
The global private label food and beverage market is going to witness a considerable growth over the coming years, mainly due to the increasing number of competitive private label players in the healthy snacks industry segments and ready-to-eat meals worldwide, especially in the Asia Pacific region. Millennials who belong to the age group of 18-35 are an important driving force behind the growth of the beverages and ready-to-eat meal market.
Fast-track life of individuals in developed and developing economies is a cause of growth in the private labeled and beverage market. Private label market players can make use of flexible packaging solutions such as films, wraps, pouches, etc. as well as contract packaging which can further aid towards a preferential shift of customers to private label food products from branded food products over the period.
The global private label food and beverages market is expected to grow by USD 215.81 billion during 2020-2024, progressing at a compound annual growth report (CAGR) of 6% during the forecast period.
Overview of private label food and beverage market
Private labels products are the products which are manufactured by one country then are sold with the name of the other. These products include food, beverages, and cosmetics etc. which are used widely in different industries. Private labels products are available at low price as compared to the other products. The Internet is one of the best useful sources to reach these products. They are affordable as compared to the other products. Rising demand for ready to eat products is the major factor fueling the growth of this market.
There is an increasing demand for animal-based products among humans and it will accelerate the market demand. Increase in cattle farming is likely to accelerate the growing demand for private label food and beverage demand. Increasing consumer awareness about the benefits associated with the use of feed additives to reduce disease has supported the need of the market. On the other side, the gaining popularity of meat and related products and rising health problems in animals will promote new avenues for Private Label Food and Beverage.
Effects of COVID-19 on the industry
One of the major challenges almost every business has been facing is as a result of the aftermath of COVID-19. During these unprecedented times, we have seen how some businesses flourished overnight and how others struggled to adapt to the situations. Managing supply chain disruption is not a new concept to the manufacturers and industrial companies. The effects of COVID-19 have made it more vital for processes and operations to change and some matters that finally needed to be taken off the backburner.
In the last few months, we have witnessed countless pictures of empty grocery store shelves, which shows that grocery store supply chains were not prepared for the spike in demand. It is important for private label products manufacturers to understand the consumers’ mindset and apply innovations to decrease further disruption in the supply chain.
Private label markets can be geographically divided into the Asia Pacific, Middle East and Africa, Europe, North America, and Latin America.
For the private label food and beverage market Asia Pacific may offer substantial growth during the forecast period due to the heightened investments across the segment in the region. In addition to this, the millennial population is more interested in the ‘on-the-go’ food trend to a considerable extent. This aspect has brought wide growth for the private label food and beverage market. The North America region may also observe a steady growth due to the fast paced lifestyle across the region.
Largely positive economy and consumer confidence are driving private label sales. Where value used to be the primary driver of private label food and beverage choice, consumers are sticking with those brands and have even expanded their private label purchase patterns further, raising expectations of quality from brands.”
Increase in demand of private label food and beverage market
As the COVID-19 lockdown implementation led a large population to stay at home resulted in a constant increase in demand for ready-to-eat food and served as a growth multiplier for the private label food and beverage market.
Globally in a number of markets, the pandemic created initial panic causing demand to surge. A significant impact of pandemic and duration has varied across markets and with initial surges in demand for products such as hand wash, toilet paper and sanitizer, followed by core grocery staples such as rice, flour and pasta.
Demand in categories such as produce, meat and snacks have also tended to increase, though these have been less extreme, while shortages overcome quickly. This has resulted in an overall increase in sales for private label growth which outstrip that of branded products.
Availability issues during the pandemic faced by many products and which led to many consumers switching brands or purchasing private label products based on the availability and as their usual products were limited. Many shoppers have also widened the selection of stores they visit, in an attempt to get the products they need. This situation gave them access to private label products they may not have previously encountered.
Several factors are contributing to the growth of private labels. The foundations for opportunity to private label growth already existed in many markets, with private labels slowly increasing their share in the last few years. While each market and channel differs and there are major reasons contributing and they are the increasing quality and perception of private labels, the competitive prices and the range and product attributes available.
Cost difference is the major factor for the growth of private label food and beverages market between them and the already established monocracy of the age-old brands in the market. Some were placed in the premium brand segment based on the marketing done on the basis of the fact that they provide more nutritious and superior food products and beverages as they are mostly not profit oriented. In addition to that the private labels acceptance by the people are driven by their freshness, especially in case of products like meat, dairy, poultry etc. Moreover, the retailers play a key role in convincing the shoppers of the above stated facts with giving these products the best visibility in their store.
Raising consumer awareness on the quality of a product rather than its brand has also been an impactful factor for the upward swift in the sales of private label food and beverages market. Increase in demand for ready to go food further, has forced private labels to focus more on the “on-the-go” food products more and relying heavily on the online platforms for selling their products to the consumers.
The offline distribution channel segment holds a lion’s share in the Global Private Label Food and Beverages Market. In the Global Private Label Food and Beverages Market US region holds a major share.
Few of the major competitors currently working in the global private label food and beverage market are Ahold Delhaize, A&P, Carrefour., Dollar General Corporation, Edeka, Inc, Family Dollar, Giant Eagle, The Kroger Co., SUPERVALU INC., Loblaw Companies Limited, Tesco.com, Insta Foods, Winn-Dixie Stores, Symega Food Ingredients Limited., Ingredion, TreeHouse Foods, Gehl Foods, LLC., Karlin Foods Corp., Grand River Foods, Kingmaker Foods and others.
Market drivers
- Growth in the food and beverages market.
- Raising demand for ready to go/eat food.
- Increase in adoption for online food delivery systems.
- Rising awareness for healthy food.
- Cost conscious among consumers.
COVID-19 will be a test for supply chain capabilities
The food and beverage industry is bracing for major adjustments as concerns over the spread of the COVID-19 growth. While the full extent of the outbreak’s impact remains uncertain, the food and beverage industry, labour and supply chain disruptions are major areas of focus.
Several retailers pushed their private labels in the early part of the lockdown as the food and beverage industry companies struggled with supply and distribution constraints.
Pandemic has caused supply chain disruptions and threats of disruptions on a scale never previously witnessed. While supply chain and distribution networks generally have been developed with flexibility in mind, disruptions caused by COVID-19 will likely challenge the processes and systems over the upcoming months.
COVID-19 has caused short-term demand and this shouldn’t be a problem for most companies, but business leaders and industry analysts expressed uncertainty over the degree and length of the pandemics impact.
Globally many companies have introduced contingency plans to prepare for deeper supply chain disruptions. Food and beverage retailers are focused on establishing local sourcing to overcome the risk of cross-regional transportation bans. Manufacturers of food and beverage with facilities in other countries have started working with local suppliers to keep products moving during the pandemic.
As said by PepsiCo: “The direct risk to our supply chain is very low based on the poor survivability of coronavirus on surfaces or in dry environments. We have put in place robust preventive measures within our manufacturing locations, and have ample product inventory to meet demand.”
Coca-Cola said that “incorporating best-practices from locations that have had to temporarily close facilities for some period of time,” introduced “staggered shifts for production to protect employees’ health and maintain operations,” and limited interactions between delivery drivers and plants.
Supply chain issues and concerns
- Capacity constraints and Product availability: particularly in stockpiled categories demand exponentially exceeds available supply.
- Lack of clarity on future demand: traditional forecasting models are not accurate for the next six – twelfth until things at least marginally go back to normal.
- Potential import gaps: for products made in affected countries and regions as well as transportation and shipping disruptions.
- Domestic supply chain disruptions: shortage of workers if lockdown is implemented, reduced manufacturing capacity and shipping constraints, or areas of the country are cordoned off.
Conclusion
COVID-19 is not a new pandemic encountered in the history of humanity because mankind has faced various pandemics in history. Negative effects on the economy is the common point among pandemics on the global stage. The private label food and beverage, demand and supply chain, was impacted due to COVID-19 in the light of challenges in food production, processing, distribution, and demand. COVID-19 resulted in the changes in demand of consumers, movement restrictions of workers, closure of food production facilities, financial pressures in the food supply chain and restricted food trade policies.
Governments should lift the lockdown restrictions to facilitate the movement of food and workers across the borders. Companies and facilities should maintain healthy working conditions and should put stress on the safety of employees by altering safety measures.
Globally each country must understand the severity of the situation and sometimes should loosen or tighten the measures based on the impact and the spread of the pandemic. The food and beverage supply chain also should be flexible enough to respond to the challenges in the supply chain.
References
- https://www.grandviewresearch.com/industry-analysis/private-label-in-food-beverage-market
- https://www.databridgemarketresearch.com/reports/global-private-label-food-and-beverage-market
- http://www.fnbnews.com/Special-Reports/fb-sector-performance-during-2020-61203
- https://www.transparencymarketresearch.com/private-label-food-and-beverage-market.html
- https://retailanalysis.igd.com/news/news-article/t/what-effects-could-covid-19-have-on-the-growth-of-private-label/i/25598
- https://www.natlawreview.com/article/managing-commercial-impact-coronavirus-food-beverage
- https://spoonshot.com/blog/2020/04/16/covid-19-impact-on-the-food-and-beverage-industry/
- https://www.marketwatch.com/press-release/private-label-food-and-beverage-market-increasing-demand-industry-share-with-industry-study-pandemic-impact-product-overview-and-scope-opportunities-market-volume-competitive-landscape-possible-challenges-and-forecast-to-2027-2020-09-21?mod=mw_quote_news&tesla=y
- https://www.foodnavigator-usa.com/Article/2020/03/19/COVID-19-Packaged-food-beverage-brands-enjoy-surging-sales-but-mass-unemployment-could-change-the-landscape-rapidly
- https://fractal.ai/covid-19-impact-on-cpg/
- https://www.foodbusinessnews.net/articles/15624-food-industry-braces-for-coronavirus-impacts
- https://blog.thomasnet.com/challenges-and-opportunities-in-the-food-beverage-industry
- https://www.foodbusinessnews.net/articles/15849-covid-19-disrupting-brand-loyalty
- https://www.woob.in/private-label-food-growth-of-the-category-amid-covid-19/
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