Food industry must prepare for economic rebound

by Morton Sosland
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As predictions, and even declarations, multiply pointing to the likely end of the Great Recession of 2008-09 that has plagued the American and world economy, much caution ought to characterize food manufacturing. After all, doing well during economic recovery is often more difficult than surviving, much less prospering, during the prior downturn. Rendering this advice should not be interpreted as embracing predictions that the worst recession since the 1930s is near its close. Instead, the hope is that anticipating stability, recovery and even rebound provides the base on which every food sector may learn from the way it responded to the bad times now on the way out. Doing this requires realizing that the initial uptick often produces just as many, if not more, chances for failure than prevailed when everyone pursued exceptional care.

Indeed, several studies would indicate that the opportunities for decisions that cause failure are greater as the economy moves out of recession than rule at the bottom of the cycle. This is ascribed to the excessively enthusiastic embrace of better times in reaction to the bitter days when credit was tight or non-existent and when the market itself imposed strict growth limits. Ebullience without attention to the many consequences has proven in the past to be a recipe for disappointments. For instance, nothing is more dangerous in such a situation than pursuing a strategy to expand market share by cutting prices just as something akin to a recovery appears likely.

Students of economic trends probably are tempted to point to the food industry’s situation as particularly perilous because of the way the industry performed better than most other business sectors at the bottom of this Great Recession. Managing well under conditions when companies in other industries are failing is to the great and enduring credit of the food industry. Maintaining volumes as well as dollar sales and profitability, and in a few cases chalking up significant gains, combine to write a sterling performance record that is the envy of many other sectors. This outcome is reflected in the relatively better performance of food company share prices at the depths of the stock market’s collapse.

Yet, it’s the lag in the food industry shares as the overall stock market has turned in a stellar performance that ought to be examined as a warning sign. The nearly unprecedented share recovery from the recession’s nadir is among the favorable signs cited for coming out of recession. That food companies have not been bought with the same enthusiasm as the rest of the market reflects the rather simple-minded assessment that companies that did well during the recession will lag, if not disappoint, as recovery begins. Facing up to that possibility poses a severe challenge all along the food industry’s supply chain. It is particularly the case in dealing with food retailers that suffered severely during the recession and will now be looking for new concessions on top of what was demanded to survive at the economy’s bottom.

One of the great unknowns as recovery looms, if not begins, is how consumers will react to coming out of a shortfall that has proven particularly difficult on a personal scale. With unemployment still a powerfully negative force, measuring how this situation, which affected food demand in distinct ways, will now change becomes essential. The "new" consumer that the food industry will have to deal with poses a quandary that will have much to do with the industry’s future. Continued deterioration in the job market does not make sense in the context of economic recovery, but that appears a real possibility as the rebound starts. Figuring out how best to react to such a conundrum will tell the story of how the food industry does. Involved are decisions about management, capital spending and product development that may have to be totally different from anything in the difficult past.

This article can also be found in the digital edition of Food Business News, September 15, 2009, starting on Page 9. Click here to search that archive.

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