Top 9 business risks in food and beverage industry

Running a business in the food and beverage industry is not without risks. And because food has extensive impacts on our lifestyle and health, its risks are much more significant compared to other industries. Just a small incident can be fatal to the growth of your business, as they may lead to product recalls and even boycotts. Knowing what these risks are can give you enough knowledge and confidence to prevent these accidents from occuring in your supply chain.

The most common problems for the food and beverage industry

From years of experience as an OEM beverage manufacturer, we have compiled a list of 9 most common issues that a food and beverage company can face.

1. Being unable to keep up with customer preferences

New trends in diets and eating habits are popping up every day at a breakneck speed. The choices seem to be endless, from the Paleo diet, Keto diet, and gluten-free diet to juice cleanses and other healthy eating lifestyles.

These changes are a major business risk in the food and beverage manufacturing industry. They all reflect a health-conscious push away from overly processed, industrial products. As a result, F&B companies must stay vigilant for a sudden trend that could damage their brand image.

Take Jell-O for example, in the late 20th century, it was a household name thanks to its “no fat” property. Back then, fat consumption was regarded as a major health hazard. But as health science developed and sugar gradually showed its dark side (which Jell-O is chock-full of), consumers ditched the “non-fat” for the “zero-sugar” label. Consequently, Jell-O quickly lost its popularity.

This all means that companies need a steep improvement curve and active product development processes to follow market trends. If not, there’s a high chance they will become a relic of the past.

Read more about popular types of beverages here.

2. Losing customers and sales to local businesses

Customers are now offering more support to local businesses instead of giant international brands. They consider giant conglomerates to be lacking in intimacy and ignorant of their individual needs.

Thus, people choose to shop from local vendors to enjoy the most personalized products. Small, mom-and-pop shops can provide much better customer services, build better customer relationships, and have higher credibility among locals.

It can be argued that local businesses have higher price than those competitive, mass-produced brands. But, they still can inspire more repeated purchases with larger sales volumes than mass-produced brands. If large companies can’t adapt and customize to specific markets, they won’t win these market shares from local brands.

3. Fire hazards from ingredient storage

Fire and explosion present a major concern for food and beverage production companies. Business factors like a flexible supply chain, energy saving initiatives, storage improvement, and stockpile optimization require storing combustible ingredients and finished products close together on campus. Some stages in the production process require bulk storage of flammable material, such as cooking oil for deep-frying or ethanol for sterilization. Fine, dry powder like potato starch, flour, and milk powder can also act as a combustible agent.

4. Risks from inaccurate and misleading labeling

Health-conscious customers are now scrutinizing product labels for many reasons. They seek products that have tags suitable to their lifestyle, e.g ‘organic products’, ‘juices not from concentrate’, or ‘no added sugar’. They also prefer ‘clean-label’ products, with none of the allegedly harmful, but common, food and beverage ingredients like preservatives, artificial food coloring, stabilizers, etc.

Yet, to maintain low production costs and consistent product quality, these additives and industrial production methods must be kept. Thus, companies look to circumvent this matter in different ways, for example swapping sugar for certain types of sodium that do not affect the quality of their beverage.

The industry is also experimenting with a new development to keep up with the market: nano-material. This technology is used to develop better additives, improve the safety of the production process, reduce contamination risks, and improve packaging quality.

However, since the technology is still relatively new, they lack thorough regulatory oversights. And while this can be one less thing to write on the label, the absence of regulation is a major concern moving forward. Especially now, customers are becoming aware of this trend and lawmakers are looking at it more closely.

Solutions like these may be effective in the short run, but they can turn into massive publicity scandals and health crises if not managed carefully.

5. Risks from contaminated prodution lines and storage

Contamination and spoilage one of the biggest business risks in food and beverage industry.

During the production stage, ingredients, packaging material, and manufacturing equipment are all susceptible to contamination. There can be some infestations/infection in the input material (pests, fungus, bacteria, etc.). Contamination can also be in water used in production or other purposes, packaging could also have damages, or contamination (dust, smoke, and so on).

This not only means a loss of money, but also without thorough inspections and quality control procedures, they can enter the production process and cross-contaminate all elements of the production line.

Poor logistic practices can also pose risks to ingredients. Since the industry mainly works with perishable items, storage conditions and timing can create a lot of risks at the beginning. Schedule disruption and prolonged storage time can push past the material’s expiry date. Inadequate storage facilities or transportation services open up the chance for dust, smoke, bacteria, and other types of contamination.

Moreover, in certain areas or during long haul transportation, the power supply to the cold storage could be cut (due to lack of fuel or black-outs), which can cause spoilage to the ingredients.

Bad employee hygiene is another risk, especially during the Covid-pandemic, the risk of viruses on the packaging was a major concern. Without proper protective equipment and procedures, employees can infect the production line while performing tasks.

6. Failure to control costs in response to fluctuating demands

Many F&B businesses run into quality issues when they try to speed up or slow down production in response to market demands. This level of flexibility requires them to have a robust supply chain that can expand/contract as needed. But such a supply chain has streamlined processes and is extremely vulnerable to disruption. Failure in a single step can halt the entire production line.

Find out how you can control the cost of your beverage business here.

7. Lacking food safety certifications for different markets

Understandably, the food and beverage industry is heavily regulated by governments around the world. Besides international standard certificates, each nation has a separate set of laws that protect its own citizens. This is why exporting food and beverage faces so many regulatory barriers.

Manufacturers must be able to track the origin and quality of their raw material, ensure consistent quality throughout their products, and maintain the standard of their production lines. Only then can they successfully get past lawmakers and place the products onto shelves.

Some of the most common guidelines and regulatory bodies are:

Food Safety and Modernization Act (FSMA)
Hazard Analysis and Critical Control Point (HACCP)
Occupational Safety and Health Administration (OSHA)
International Organization for Standardizations (ISO)

It is also important to note that modern production processes don’t just happen in one country but spread out over many. For example, the raw material may come from Africa, get shipped to South-East Asia to be processed, get packaged in China then shipped to the US for consumption. At each stage, each country has its own quality assurance guidelines, and complying with all of them is a difficult task. Without careful quality assurance, a product can be easily banned or recalled in a foreign market.

8. Faulty products recalls

All of the risks mentioned above can disrupt production and cost money. But they can trigger another terrifying consequence: product recalls.

Thanks to modern manufacturing systems and intense quality control/quality assurance practices, the frequency of recalls is quite low. Yet, whenever they happen, the manufacturer will suffer a big hit, some can even go bankrupt because of it.

In a recall crisis, the company must bear all the cost of recovering, transporting, investigating, and destroying the faulty products. They are not only losing all the capital and potential profits in these products but also need to invest more to minimize the consequences for consumers.

There are also compensations to be paid and lawsuits to settle for customers affected by their defective goods. Moreover, scandals on this scale drastically undermine a company’s image and credibility among the public.

Small companies may never recover from recalls because they operate without a robust cash flow and brand recognition. Larger corporations are better equipped to deal with the short-term impacts of recalls without suffering any long-term consequences.

9. Workforce and Production Disruption

In recent years, global geopolitical and economic crises have deepened all the weaknesses in the global economy. For the food and beverage industry, the consequences have been frequent reductions in manufacturing capacity, scarcity, and rising costs of raw material along with difficulties in deliveries.

Social distancing measures during the pandemic reduced production output by half, port congestion increased the risk of spoilage for all consumable goods, and global conflicts created ripple effects on economies across the globe.

These weaknesses have existed long before the crisis and experts expect them to continue in the future.

How can you mitigate these risks?

For a small company looking to mitigate business risks in the food and beverage industry, the best way is to outsource production to an OEM/ODM company.

An OEM/ODM beverage company can shoulder all the risks in the beverage industry related to storage, supply chain and hazards. They also offer flexible production capacity, which can quickly respond to market demand changes

And if you are a beverage company looking for an efficient and low-risk outsourcing company, you should contact us to find out more.