During a meeting with one of the top materials handling trade journal editors in the U.S. last week, I asked him what he thought were the hot topics in the Food & Beverage industry. He immediately and enthusiastically mentioned Material Track and Trace, Food Spoilage Safety, SKU Proliferation, Green Supply Chain and a few others.

Then I noticed a slight frown come across his face as he said, “but then again, Food & Beverage has always been seen as a key future market for Materials Handling Equipment automation like WMS-driven solutions that eliminate human errors, but for some reason it continues to lag all other markets.”

Why is that? It would seem that few other markets, short of pharmaceuticals, would have such a strong convergence of positive contributing factors: Good non-cyclical growth, better margins in the branded segment, competition more via innovation, brand image and convenience – all factors other markets that have more embraced automation investments would envy.

On the other side of the coin, negative aspects of the industry continue to dominate the news, even though those challenges can be successfully addressed via automation. Here is a one-week sample of headlines that came across my
E-Mail in-box:

• Thousands to attend Food Safety Summit
• Beef Producer: Victim of Mass Media Power?
• Getting a Handle on Food Allergens
• Is Europe winning the Salmonella Battle?
• Food Safety Modernization Act – What you need to know on Track & Trace
• Raw Milk Quarantine Lifted in California
• Opportunities Thrive in Food Safety

All these headlines revolve around the central topic of safety. Observed a career distribution industry consultant: “It remains surprising to me that the penetration of advanced automation systems still lingers in the low single digits as a percent of total warehouse and distribution center operations in the U.S.”

Logisticians Lose in Budget Fights

I discussed this topic with the head of logistics for one of our major food clients the end of last year. What did he see in his corporate structure that made getting capital such a huge challenge for the logistics function? His comment was that he felt that capital investments for logistics lagged for two reasons:

1. On an absolute basis, management attention is clearly focused in other areas
2. Relative to other business processes, logistics lagged in the fight for capital vs. what are seen as direct business processes

Capital planning for major concerns remains focused on core business processes, which for Food & Beverage are driven by manufacturing/bottling capacity, product line launches and expanded geographic coverage. The past decade has seen a continued rise in cash piling up on corporate balance sheets. But at least in the US, corporate investment has basically stayed at the same level when measured as percentage of GDP (see chart). As a consequence, the fight for budgets within corporations is as fierce as ever. “It is a tough battle for ROI and payback in the short term, when the ‘product guys’ are posting their revenue projections,” noted our food client.

Cash piles up, investment slides down / Source: The Economist, March 17th 2012

One bright spot in the U.S. F&B industry has been the growth of the private label producers as they seem to be more open to warehouse automation investments. This may be directly related to the capital fight aspects of the industry, as private label manufacturers do not have branding issues to consider.

So Where Will This Lead in the Short Term? I’m Just Putting Forward Some Scenarios:

A. Driven by safety aspects, firms eventually embrace automation and put their cash 
    into investments to improve their logistics operations
B. Only ‘Best-in-Class’ firms invest, separating themselves from the pack….
C. Food & Beverage will forever remain the automation market of the future

Is the Future Now? Want to Learn More?

This link takes you to a series of case studies that highlight how some companies are already benefitting from the use of automation within their businesses.