5 tips for investing in food and drink during turbulent times
Opinions expressed by Contractor the contributors are theirs.
The past two years have seen a very variable landscape in the food and beverage industries. Packaged goods companies such as Kraft Heinz, Unilever and P&G have performed well as more and more people ate at home, and continue to do so. According to an analysis by trade publication Food Dive, the industry is experiencing a construction explosion as companies seek to add R&D facilities and manufacturing capabilities to meet this new demand.
Beer, wine and spirits businesses are also doing well, thanks to some of the same strengths. Despite the buzz surrounding the “curious sober” movement, retail alcohol sales have increased over the past two years, more than offsetting lower sales in bars and restaurants. Companies such as Boston Beer and Brown Forman, which own some of the most recognized names in beer, spirits, wine and seltzer water, are showing strong results.
However, while food and alcohol manufacturers generally benefited in 2020 and 2021, restaurant businesses have suffered both dramatic successes and failures, with an emphasis on the latter. A thought-provoking research report released by Baron Small Cap Fund in May 2021 predicted that “about 15% of restaurants in the casual dining space will be closed forever.” Faced with an existential moment, a number of companies have shown creativity. Some have prospered by developing both online ordering and drive-thru sales. Digital transactions at Chipotle, for example, have grown by more than 100% year over year, and many market watchers believe these digital orders and other initiatives launched during the pandemic will become permanent features of the industry.
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A reader might wonder at this point why, in such a difficult and uncertain environment, invest in food and drink – sectors that were already sensitive to changes in raw materials, wages and the economy in general. before the last 24 tumultuous months? Some basic strategies increase the chances of success:
1. Invest in what you know and understand
As Warren Buffett said, “The important thing is to know what you know and to know what you don’t know”. This is especially important during uncertain times like these. It just helps that I love food and wine and therefore follow the businesses in the area closely.
2. Invest in leaders, not just companies
Weak leaders ruin big companies, while big ones stage company turnarounds, among other triumphs. Take Chipotle CEO Brian Niccol. He spent 13 years with Yum! Marques where he held management positions at Pizza Hut and Taco Bell. Prior to that, he spent a decade in branding and marketing at P&G, the company that arguably wrote the book on consumer marketing in this industry. He helped Chipotle successfully navigate a series of food-borne illness crises that would have resulted in a company’s demise without his leadership brand. It has also pushed drive-thru and off-site (including digital) sales to a critical juncture. Ok, sign me up with him.
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3. Know a fad when you see it and avoid it at all costs
The truth is, while clothing and footwear tastes can change with the seasons, when it comes to food, people like what they like. That’s why I look for businesses that have been around for a while or that seem to have lasted.
Think about some of the most successful examples in space. Sam Adams beer was launched in 1984, McDonalds was founded in 1955, Starbucks in 1971, Longhorn Steakhouse in 1981, and Chipotle in 1993. Why is endurance important? Because the food and beverage industry is tough – faces low margins, is very competitive and economically sensitive – and businesses that survive through various economic cycles tend to have one product, one customer base. faithful and a formula that counts.
4. Don’t be a snob
Let’s face it, the products and companies in this space that have generated the best returns tend to have wide appeal. As much as I prefer high-end establishments and products, they tend to be more sensitive to the vagaries of the market and changing tastes.
Aim for long, slow embers versus a quick grab
Choose your investments carefully and stick to them. Because some stocks are particularly belittled right now, it might be the best time to do your homework, pick the right one, and then be patient.
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