December 23, 2014
Change is underway in the food/beverage industry and agri-business. We’ve taken a look at some of the top trends and provide a snapshot of how they may impact your business in 2015 and beyond.
Millennials are having a transformative effect on the food and beverage industry. Half of the approximately 80 million millennials in the U.S. identify themselves as “foodies.” For them, food and beverages are about much more than hunger and thirst. Millennials use food and beverage as a form of expression by instagramming what they eat, posting Yelp reviews of restaurants, liking Facebook pages, following Twitter feeds, downloading apps, joining loyalty rewards programs and attending festivals. Developing strong brands that play well in the social media arena, affirmatively seeking trademark protection for those brands and locking up ownership rights in various types of digital content will be critical to the success of food and beverage companies in 2015.
The food industry sees breakfast-related offerings as an area of tremendous growth potential. We anticipate that new breakfast products will be launched as companies seize opportunities to extend their brand and develop creative, cutting-edge product packaging. Food companies who have developed strong brands and engage in meaningful enforcement campaigns will position themselves to obtain “first-mover” advantage in 2015.
By this time next year, all chain restaurants and retail food establishments (including bakeries, coffee shops, delicatessens, food service facilities located within amusement parks, bowling alleys, movie theatres, food service vendors, food take-out and/or delivery establishments, grocery stores, etc.) with 20 or more locations nationwide will be required to provide calorie and other nutrition information for standard menu items. Under the new Menu Labeling Rules, calorie information is to be posted on all menus and menu boards, and additional nutrition information is to be available to consumers upon request. As with any new rulemaking, we anticipate litigation will follow.
The incubator model is one that has been incredibly successful in the high-tech industry, and it is being pursued now more than ever in the food and beverage industry. As consumer demand for all-natural, artisanal and locally made product offerings continues to rise and investment in the space continues to increase, we’ll see additional independent and corporate-sponsored food-related incubators opening up to meet the needs of start-ups and entrepreneurs. One example is the Chobani Food Incubator set to launch in New York City in early 2015. These incubators will continue to provide wonderful opportunities for investors and corporations to identify new potential investment and/or acquisition targets.
Craft brews are increasingly the choice for American consumers, and as the demographics of craft beer consumers shift (many are millennials), their tastes are changing as well. We’ll see more “big” companies entering the craft brew sector to stay competitive and maintain market share. Large producers and the private equity world have taken note of this boom market. Anheuser-Busch InBev acquired three craft brewers in recent years and MillerCoors’ craft division (Tenth & Blake Beer Co.) has taken a minority stake in Georgia’s Terrapin Beer Co. In the spirits world, new craft offerings have sprung up across the country and are ripe for private equity investment. Look for more industry-specific funds in 2015 and for the larger alcoholic beverage producers and private equity firms to continue to take stakes in the craft market, either through outright acquisitions or minority interests.
In the wine market, small producers are likely to continue to press legislators for new opportunities to sell their products, with a special focus on direct sales to consumers. In Massachusetts, small wine producers are urging lawmakers to repeal changes made in July 2014 to the “Direct Wine Shipper License,” which changes legislators say inadvertently eliminated small wineries’ ability to sell directly to retailers. Other states are actively expanding opportunities for small producers. For example, New York’s recently enacted Craft New York Act expanded the volume caps on certain small producers and opened up new opportunities for those producers to sell directly to consumers. And, in July, Arizona became the latest state to permit micro-distilleries to sell directly to the public.
Expect to see more regulatory enforcement of trade practice issues at state levels as the Alcohol Tobacco & Trade Bureau continues to suffer budget cuts. Look also for the possibility of Bureau “user fees” for “expedited services” as the number of label approval and permit applications continues to increase while the number of people available to process those applications has decreased.
Several states—including Idaho, Iowa, Kansas, Missouri, Montana, North Dakota and Utah—have passed laws that impose restrictions, and sometimes criminal penalties, on individuals who take undercover videos on farms. So called “ag-gag” laws target animal rights groups that place workers on farms for the sole purpose of documenting alleged animal abuse. The ag-gag laws passed by Idaho and Utah have been challenged in federal court and could be decided in 2015.
The FAA is currently drafting new regulations for the use of drones in various commercial applications and may open the door for the use of drones in agricultural settings. The use of drones in agriculture promises to unleash a new era of data-driven agricultural production. The anticipated regulations may be the first step in the widespread use of drones in U.S. agriculture.
We see zoning issues on the horizon as demand for locally grown products increases and suppliers struggle to find farmable land proximate to their distributors and consumers. We suspect many communities will be reviewing and revising their zoning codes to support this movement and encourage local production of food and beverage products.
Given increased consumer demand for transparency and accountability across the food supply chain, companies are motivated to move quickly to address sustainability issues. This will impact product-sourcing, food safety practices, production processes used, animal welfare and carbon footprints. Increased pressure from consumers will likely result in an increased number of companies seeking certifications and verifications such as Non-GMO (non-genetically modified) verification, and BRC and IFS certifications. We also anticipate an uptick in agri-businesses seeking G.A.P. (Good Agricultural Practices) certification as well as UTZ certification related to health and environmental aspects of their business.
We are closely monitoring new rules and requirements such as the California Transparency in Supply Chains Act (in effect as of 2012) related to human trafficking as well as the European Parliament’s Disclosure Directive (in effect as of FY ’17) requiring mandatory disclosures related to social and environmental issues. The FDA recently proposed changes to the Produce Rule. If approved, these changes will impact growers, harvesters and packers of produce and would establish standards related to agricultural water and safety/ sanitation practices.
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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