Technomic forecasts the food industry grow to more than $2 trillion in annual sales by 2025, which certainly seems like a giant number. However, that headline figure comprises growth from many categories, each of which offers the opportunity to gain market share to companies that recognize changing consumer preferences and invest in innovation.
According to Food Industry Transformation: The Next Decade—the report released this week with 10-year sales projections and trend forecasts for restaurants, food retailers, suppliers and distributors—the industry will add more than $700 billion in annual sales over the next 10 years.
That increase works out to annual growth of nearly 4% per year through 2025, which indicates that growth will be about winning market share, not broad sales expansion. Some growth channels to watch in particular include:
- Fresh-format grocery stores, which are projected to grow annual sales 12% per year. Not only will sales skyrocket for the fresh prepared foods and on-site amenities at Whole Foods, Sprouts and similar concepts, but so will unit expansion.
- Online retailers and service-based apps, including fresh meal kit providers like Blue Apron and digital retailers like Instacart and FreshDirect, which will increase sales 13.5% per year. Convenience will be king for food shoppers in future years.
- Independent restaurants and small chains, which are expected to increase their sales 5% per year, compared with 3.5% for Top 500 chains. While restaurants and bars won’t quite attain the 7.5% sales growth per year projected for supermarket fresh prepared foods over the next decade, Technomic expects independents and smaller, younger brands to adapt to trends more quickly than established chains, particularly in the adoption of new technologies that appeal to younger consumers.
Broadly speaking, the forces shaping the food industry over the next several years touch every part of the business and the economy, starting with consumers who will expect and demand more healthful foods at grocery stores and restaurants.
However, the definition of health will continue to evolve to encompass not just calorie and fat content, but also “clean-eating” descriptors like natural, organic and local. Regardless of age or income, those consumers will also push food companies to be more transparent about what’s in their food and where it comes from. This mega-trend has already begun to materialize, including in recent decisions by Chipotle Mexican Grill to eliminate ingredients with genetically modified organisms and McDonald’s to stop using poultry treated with human antibiotics.
The scrutiny on food brands to be good corporate citizens will also intensify, and consumer activism will likely lead to more government regulation of the food industry. Companies will have to audit the policies on the three P’s—people, products and planet—while still being mindful of the fourth P: profitability.
With pressure ratcheting up on companies to sell minimally processed, whole foods while meeting stricter consumer expectations for everything from animal welfare to employee pay policies to their carbon footprint, those brands’ food and labor costs will jump considerably. Fortunately, advancements in Big Data and predictive analytics, as well as sharing economy apps and digital ordering platforms, will help food companies retool and reinvent their businesses to compete over the next decade.
But the revamping process must be continuous for companies to succeed. Just as brands today can’t rely on what they’ve always done, they won’t be allowed to stand pat with just the next round of products and platforms, either.