Food & Beverage Crystal Ball: Trends We're Following

January 05, 2017

We’ve taken a look at some of the top trends and provided a snapshot of how they may impact your business in 2017 and beyond.

New product development, branding and R&D

Consumers continue to demand specialty offerings such as organic, non-GMO, craft and gluten-free, all of which carry a premium price. Global cuisine resonates with U.S. consumers, and new/different preparation styles such as fire-grilled or smoked are growing as consumers explore new flavors. Recent changes to the cannabis laws may introduce agricultural activity in product development and production, real estate, finance and trademarks. And companies continue to find creative ways to tackle food waste by using on-hand ingredients and menu offerings that generate less waste. As a result we anticipate significant product development and branding efforts within food and beverage companies in 2017.

Mergers, acquisitions and PE activity

The trends in new product development will impact not only trademark filings and food and beverage R&D, but corporate activity as well. Indeed, we anticipate M&A/PE activity in the food and beverage space to continue at a strong pace in 2017.

  • Established food and beverage companies will likely obtain the specialty offerings that consumers crave through acquisition, rather than through new product development. PE shops see specialty food and beverage companies as having the potential for high returns. Adding to that, even though interest rates will rise in 2017, many established companies and PE shops are flush with cash that they need to put to good use. Like last year, 2017 will be a seller’s market, as established food companies look to broaden their portfolio through strategic acquisitions and PE shops look for “the next big thing.”
  • It may be expected that there will be significant changes to the corporate tax laws in 2017, with rules being created to encourage repatriation of profits and domestic production, with possible penalties associated with foreign production of U.S.-owned products to be sold in the U.S. market. This, and the possible reduction in the corporate tax rates, may be another source of cash for investments in domestic means of production.
  • On the international level, if the new administration continues the “thaw” with Cuba, there may be a spike in interest in the exporting of agricultural products to Cuba, and exploration of the possibility of new ventures in Cuba, as the Office of Foreign Assets Control has recently blessed the signing of executory agreements to become effective once the embargo is lifted.

Clean and clear labeling will be the norm in 2017

Consumers are demanding that companies go beyond “natural” and “healthy” and provide a shorter, easier to understand ingredients list. They want product transparency, including labeling terms such as “sustainably sourced,” “environmentally friendly,” “grass fed,” “organic” and “non-GMO.” The drive for cleaner and simpler labels is expected to continue to impact graphics, colors and logos on food and beverage packaging in 2017.

Sugar content under increased scrutiny

Companies may also face increased scrutiny of sugar levels in their products. This stems from a 2016 literature review published in JAMA Internal Medicine concluding that, over the past 40 years, the food industry minimized the harmful effects of sugar, while pointing the finger at fat. Coincidentally, changes to the nutrition facts panel set to take effect mid-2018 will require companies to list a percentage daily value for “added sugar.”

No slowdown for class actions

Despite several roadblocks to class actions, plaintiffs continue to file lawsuits against food and beverage companies over the use of terms such as “natural” and “healthy,” “slack fill” claims, and alleged excessive sugar levels. Given the circuit split, the Ninth Circuit’s decision in Briseno (decided this week) could be the impetus for the Supreme Court to take up the question of “ascertainability” and have the final say on the test for identification of class members, particularly in cases involving low-cost consumer products. The food/beverage industry will be monitoring these developments closely in 2017.

Increased food delivery options

We expect that the food delivery service industry—including takeout, meal preparation kits and groceries—will continue to grow, increasing market penetration where it already exists and expanding into smaller communities companies have yet to reach. Industry players run the gambit from direct delivery to contracting with outside delivery companies to using trendier (but less familiar) sharing services. Expect to see continued innovation in the transportation vehicles employed to ensure that food is delivered as efficiently as possible while keeping produce fresh and prepared foods hot. Modifications to delivery vehicles and packaging and drones could completely transform the food delivery industry. Businesses will want to master the twin goals of quality and speed to gain significant market share as this booming industry inevitably consolidates.

Focus on energy and environment

Water risk and related conservation strategies will continue to play a large role in 2017 for the food and beverage industry. As California continues to roll out its Sustainable Groundwater Management Act, including the December released Best Management Practices for groundwater conservation, the rest of the country awaits to see just how much the new administration will reel in the EPA and climate change related regulations. It is anticipated that environmental enforcement, at least on a federal level, will be ratcheted back, and that citizen enforcement groups, state governments and consumer demands will continue to push for signs that the products and services help, or at least do not deteriorate, our water, air and renewable energy use.

Alcoholic beverages take center stage

We see 2017 growing the trend of sour beers (using local fruits where possible), beer using local wild yeasts and a rise in Belgian-style brewing and farmhouse brews as the IPA craze continues to fizzle. Cider will also continue to grow as a category, thanks to its gluten-free characteristics and wide variety of flavor profiles, from sweet, to flavored with other fruit, to bone-dry and everything in between. Farm wineries in New York State are automatically able to produce cider, and we expect many producers to take advantage of this privilege as the demand holds.

For liquors, gin is the new vodka as craft gin producers spring up around the globe, fueled by the gin-forward cocktail craze that keeps gaining momentum. On a related note, port consumption will be on the rise, and after dinner drinks like amaro are experiencing a renaissance of sorts. But the biggest winner for 2017 will be brown liquors—apple brandy (applejack), rye, bourbon and whiskies (domestic and foreign) will continue to gain popularity as millennials demand higher quality products that are as much about integrity and the story behind them (as well as how local they are) as they are about taste.

A look ahead to the new administration

With the impending change in administration, we expect that departments and agencies will take an increasingly hands-off approach and attempt to roll back some of the existing regulations. Still, there may be reluctance to significantly roll back food safety regulations given the potential for public backlash. Efforts to change such regulations should begin with a plan to educate the relevant agencies, as well as the congressional oversight committees and stakeholder members.

If the incoming administration pursues its campaign promise to significantly downsize the federal workforce, the food and beverage industry may be affected in areas such as the USDA, FDA and other oversight departments and agencies. Companies who depend on the federal workforce will want to develop a plan to educate members of Congress and staff, particularly the appropriations and relevant oversight committees, regarding the need to protect certain parts of the workforce.

Trade agreements are often strongly supported in the agricultural and food industries. It will be important to educate the new administration early regarding the economic effects and job creation from these industries.

President-elect Trump’s selection for Secretary of Agriculture will be an important indication as to how the next administration will work to shape the next Farm Bill, which includes many of the agricultural support programs as well as many of the food assistance programs. This selection, as well as the selection of deputy and undersecretaries, is important to monitor, and then to reach out to these new administration officials as they shape the nation’s agricultural and food policies.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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