This article originally appeared in Ingredienti Alimentari journal
In 1990, global consumers spent an average of 14% of their total budgets buying food and non-alcoholic beverages. With rising incomes worldwide, integrated global economies, and more productive food systems, that proportion fell to 12% by 2005. However, since then, food prices have again begun to pressure budgets in ways not seen for decades. Under pressure from climate change, rising populations, deglobalisation, and a more dangerous geopolitical landscape, food insecurity is shaping up to be a dominant challenge for the food industry in the next decade.
Food inflation is here to stay
The global population is projected to reach nine billion people in 2039. Feeding everyone would be challenging in any circumstances. It will be incredibly challenging in a world facing ever more extreme weather events wiping out agricultural production, deglobalisation causing a shift towards regional trade blocs, more frequent geopolitical conflict, and rising input costs from ageing labour forces and the need to transition to green technology.
Food inflation is not a transitory phenomenon. It is the post-Cold War period of rapid globalisation, large demographic dividends, and safe global trade routes that is in fact proving to be transitory.
Source: Euromonitor International
While the rapid food price increases of 2021 and 2022 are unlikely to be seen again in the short term, a steady increase under pressure from long-term shifts in the global landscape should be expected.
What this means for packaged foods and beverages
The pandemic kicked off a new era for the food and beverage industries in which supply chains took on a prominence they had not previously experienced. The world we live in now is one of extreme weather, wars, export bans, and countries using food as a tool of their foreign policies. Far-flung global supply chains are riskier than they once were. This has several implications.
Local sourcing is set to become more important. Decentralisation of operations for many global companies will also become increasingly common, a process that was already well underway before the emergence of COVID-19. Like trends that unfolded during the pandemic, SKU counts are likely to fall, as companies prioritise reliable and cost-effective delivery of core brands rather than the widest possible selection of flavours. Sustainability will also become more pressing, not only because consumers demand it but more so because renewable energy, low water usage, and regenerative agricultural practices are important ways to strengthen supply chains in the face of uncertainty.
Consumers will prioritise price, but specific functionality remains important
Of course, the main consumer reaction to food insecurity will be prioritisation of prices when shopping.
“Low price” is the only food and beverage attribute that more consumers globally look for in 2023 versus 2021, with attributes such as health benefits, taste, branding, and sustainable positioning all falling
Euromonitor International’s Voice of the Consumer: Lifestyles Survey
While keeping this in mind, it is important to note there are products that consumers will continue to spend more on. “Health benefits” remain the second most looked-for attribute in food and beverages and as the world grows increasingly uncertain, focusing on what consumers can control (such as their own health) will become more appealing. Mental health functionalities will certainly be a major area of interest, as will sleep promotion and gut health.
There will also be spending on permissible indulgences. Since COVID-19, there has been significant interest in small, affordable splurges that help consumers cope mentally with the chaotic external world. Therefore, premiumisation as a trend is by no means going away, but it will be limited to fewer categories and will lean heavily on ideas of escapism and nostalgia.