Financial Strategies in the Landscape of Food and Beverage Manufacturing

Chaithanya Agasthyaraju is a Chartered Accountant from The Institute Of Chartered Accountants of India. He has over 20 years of experience,across industries- Automobiles, Start ups and Food Manufacturing. Prior to joining Griffith Foods, Chaithanya was with Hyundai Motor India and Ashok Leyland for 18 years, where he held several leadership positions including leading the Corporate Finance, Treasury, Financial Planning & Analysis and Controllership.

In a recent interaction with Industry Outlook, Chaithanya discussed shifting consumer preferences towards alternative proteins and nutritious foods. He alsohighlighted CFO challenges, focusing on supply chain agility, food traceability, and financial strategies amidst economic shifts.  

What are the latest trends and developments in the food and beverage manufacturing industry? 

The most prominent and significant trend is the visible shift in consumer preference towards alternative sources of protein. Traditional sources of protein are animal-based and are generally considered to have the highest greenhouse gas emissions. Alternate proteins are plant-based and lab-grown protein sources that contain the same protein content and are considered less harmful to the environment. Consumers are increasingly aware of the impact of consuming traditional sources of animal-based protein on the environment and are willing to try alternative proteins. 

The second most significant trend is awareness about consuming nutritional food. Consumers are increasingly conscious of what they consume and put into their bodies. Foods that can deliver multiple benefits are what consumers are looking for. Consumers are not just looking at taste. They also look into the aspect of how it promotes their health. 

What are the major challenges faced by the food manufacturing industry? 

Every industry is different, and each industry has its own challenges. Supply chain adaptability and managing supply chain risks are the biggest challenges in the Food Manufacturing industry. Supply chains have become more global, increasing the risk of disruptions caused by geopolitical tensions and aggravating the existing risks of price volatility and supply shortages. Food Traceability is another important trend in the food industry. When we speak about food traceability, we are referring to tracking the product from raw material to finished goods at every stage of the supply chain. It includes tracing where the raw material is sourced. Consumers demand information about where the ingredients used in the product are sourced and what fertilizers are used. Keeping traceability at every stage of the supply chain is highly demanding and complex and involves an overhaul of existing supply chain methods and practices. 

What financial priorities should food and beverage CFOs consider in light of changing consumer preferences? 

We did discuss in the trends consumers shift towards alternative protein and nutritional products. Alternative protein, referring to plant-based protein and lab-grown meat, requires significant investments and efforts in R&D and product development, not only meeting the nutritional content of traditional animal-based protein but also the taste and texture. Increased consumer awareness about the nutritional content of what they consume also requires significant investments in the development of products that can deliver multiple benefits. It is also crucial to have in place, systems and technologies like blockchain, without which it is not possible to meet consumers’ requirements for food traceability.

‘Food as Medicine’, ‘Alternative Proteins', and ‘Food Traceability’ may be at a nascent stage in India, but it will not take long before these find traction similar to the western world and drive the growth of the food industry. 

How do inflation and supply chain disruptions impact the financial stability of the food and beverage manufacturing sector? 

Globally, inflation has been inching up. Now that the supply chains are more global, they are more prone to geopolitical disruptions. All these will have an impact on financial stability. While these aspects are common to most industries, the challenges are more pronounced in the food industry. The price volatility of raw materials is exceedingly high in the food industry due to weather patterns, yields, and supply-demand gaps. The input costs can go up significantly in a short span of time, bringing down the margins on the finished product. Hence, it is necessary for CFOs to have margin protection measures in place to defend the margins against disruptions in supply chains and inflationary pressure on inputs. 

What are the unique challenges faced by CFOs in the food industry regarding inventory management and working capital optimization? 

It is the endeavor of every CFO to bring down the inventory holdings to optimize the working capital and free up cash flows. The challenge we have in the Food Manufacturing industry is that some of the critical raw materials are seasonal in nature. The inventory holding will, therefore, be higher, given that the entire raw material for the year will have to be procured in the season it is available. This is unlike in the case of industries like automobiles, where we can afford to have just-in-time inventory (JIT). 

The second aspect of this is that the raw materials are perishable, which makes inventory management all the more challenging. Inventory maintenance costs will be significantly higher, given that the raw materials in stock need to be maintained in usable condition throughout the year. While the seasonal nature of raw materials locks up the working capital in inventory and increases the inventory storage cost, the perishable nature of the inventory increases the inventory maintenance cost and the possibility of a higher write-off of raw materials. Working capital management, especially inventory management and margin protection, are the most important priorities for CFOs in the Food Manufacturing industry.