2022 predictions: Foodservice’s bounce-back to trigger increased investment and sustainability to drive consumer choices

M&A advisor Mark Lynch and Mark Johnson of Estrella Galicia provide their thoughts on likely trends to strike the food industry next year

Many in the industry are predicting the continuation of many trends experienced this year in the food industry into 2022. Earlier this year, M&A advisory Oghma Partners reported deals in the food world reached an 11-year high, hitting £3.9 billion in the four months to 31 August.

This level of interest is likely to continue next year, with a particular focus on plant-based and alternative-protein options. Good news for the many disruptive start-ups looking to scale their businesses.

Another key talking point this year, particularly in the wake of The UN’s COP26 climate change conference in November, was sustainability and how to minimise the carbon footprint of the food supply chain. Consumer interest in brands that are transparent about how they are working to reduce their impact will certainly grow and likely put some strain on the global giants that are seemingly making little to no progress in this area.

Here’s another selection of predictions for the food industry in 2022:

Mark Lynch, partner at Oghma Partners

Plant-based food space will remain an active area for M&A

2021 has seen a lot of excitement around the plant-based food space. The IPO of a number of businesses in the US like Oatly attracted a lot of attention as did the recent sell off in Oatly shares and that of its peers due to disappointing revenue numbers. Despite the near-term negative news we see continued strong interest in the space from an M&A perspective. Many of the traditional protein companies are looking to re-balance their portfolios building more exposure in the plant-based space. Acquiring a plant-based brand is a quick route to establish a presence in the market and it saves the challenges of re-purposing a meat-based factory to plant-based assuming, of course, that one was available.

PE activity in ingredients will step up

Ingredients suppliers remain ever active in terms of problem solving through their products which, in turn, creates the ideal environment for re-pricing and adding value. The pricing strength of the sector, combined with the currently high multiples that the equity market is placing on the quoted ingredients businesses, has not gone unnoticed by private equity firms. Given the ingredients sectors’ relatively fragmented nature with many smaller country and regionally-focused ingredient firms still in existence, buy, build and sell strategies appear appealing. We foresee private equity, which historically has been less interested in the ingredients space than say branded food products, stepping up their activity in this food sub-sector in 2022.

Foodservice businesses will come back into vogue

For almost a year after Covid-19’s initial hit there was a hiatus in deals involving foodservice companies. With many businesses shuttered, from restaurants to pubs and even airline catering, foodservice companies were struggling to survive in many cases. As the hospitality industry opened back up again those businesses that did survive have shown their resilience. Many armed themselves with a more streamlined cost-base and have bounced back strongly. The fundamental resilience of the sector will not, in our view, go unnoticed. With a toxic cost inflationary environment now hitting the food industry at large, pricing power will be critical. 

Undoubtedly, on/off Covid restrictions will have an impact on trading but, what we expect to come to the fore, is the relative pricing power that foodservice suppliers have over suppliers to the major food retailers. The superior pricing position is built on two factors; firstly the customer base in foodservice is more fragmented than in food retail, aiding the relative pricing ability of the aforementioned sector. Secondly, hospitality menus tend to change two to three times a year, each change is an opportunity for re-pricing and value engineering. Against a backdrop of squeezed margins across the food sector overall, the relative performance of the foodservice sector is likely to make it more popular again amongst industry investors.

Mark Johnson, MD for UK and Ireland for beer maker Estrella Galicia

Consumers to reduce their carbon footprint

In 2021, consumers have shown an increasing interest in choosing environmentally-friendly brands, where possible. 35% of consumers have chosen their alcohol brand in the last 12 months partly because of its commitment to reducing its carbon footprint. This trend will still be strong in the New Year and is likely to grow even stronger.

At Estrella Galicia, we want to respond to our consumers preferences, that´s why we advocate for the use of circular economy, and we declare our commitment to fight against climate change, investing in green energy and more sustainable ways of transport, improving our headquarters’ water consumption, etc. In this sense, one of our major successes has been becoming carbon neutral in our headquarters in Spain.

Our main offices and installations in Spain became carbon neutral in 2020. Furthermore, we are committed to adopting the best market practices in terms of sustainability, as it is reflected in our commitment to being part of the UN Global Compact and our efforts to make our packaging more sustainable.

Sustainable packaging will becoming increasingly important

In the same line, one interesting trend that we can see this year is consumers’ preference for sustainable packaging as one of the reasons why they would choose one brand over another. 36% of consumers this year have taken this into account when choosing their alcohol brand of preference.

One of our main goals as a brand is to become more sustainable and environmentally friendly and this led to us redesigning our packaging.  We have lightened our bottles by 12%, reducing the production of 10 million kilograms of waste each year. Also, our new labels come from sustainable forests and tare FSC certificate approved. We reuse all the carton waste we produce to make boxes and carton trays. And finally, 50% of the plastic we use has been recycled. With all these changes we are reducing our carbon footprint by more than 9,000 tons.

Authentic social responsibility from businesses

Consumers are responding extremely well to businesses that are openly reporting their efforts towards establishing a more sustainable supply chain and manufacturing model.

For us that means, working responsibly, offering excellent products and services, taking care of our employees, suppliers and customers and protecting the environment,. We advocate for proximity to the provider and encourage the development of the local economy in our region of origin.