SWOT Analysis of the Food and Beverage Industry

Introduction to Food and Beverage Industry

The food and beverage industry is the sub-category of the Hospitality industry such as hotels and restaurants, where they serve their guests with a variety of food and drinks along with other services. When we talk about the food and beverage industry, then it relies on two major parts; production and distribution. However, production starts with the farmers and fields, then transported to industries. After the process, you’ll get the distribution of your orders along with other stakeholders.

Food and beverage is a very competitive industry with a plethora of competitors in the market. The right SWOT analysis would help you to make good strategic decisions. Like how to identifies core strengths and weaknesses of the company, and to minimize threats and take advantage of the opportunities.

It’s better to coordinate with all the departments while conducting a swot analysis, because it would provide you an insight from the various perspectives.

Here’s a step by step swot analysis of the food and beverage industry.

Strengths of Food and Beverage Industry

Some of the strengths of the food and beverage industry are as follows;

Strong Distribution Network

Hotels and restaurants offering specific foods and drinks usually have chains and networks of hotels across the country. Some brands operate at a global level. However, they have a very good distribution system, which makes the products available to the customers regardless of their location.

Costing

Since the products of the food and beverage industry produced at the economies of scale, therefore, the prices of them are low. Cheap prices make products affordable to customers.

Relations with Suppliers

The relationship between the food and beverage industry has with its suppliers isn’t temporary. In fact, it goes on for years supplying the same products day after day. When you have reliable suppliers, then you wouldn’t face shortages and delays in the delivery of products.

Return on Investment Period

Hotels and restaurants in the food and beverage industry require a huge investment to start, and the minimum profiting period comprises of 5 years. Initial years would cover all the basic costs and expenses, the balance sheet would remain equal in the beginning. Once it starts profiting, you would earn a lot in the long term.

Highly Skilled Workforce

Chef, cook, waiter, and other staff, they may seem simple jobs. But they require a great proficiency in the skill, only then they would be able to produce and deliver the quality service.

Diversity

The interesting thing about the food and beverage industry is diversity. Its workforce usually from different social, cultural, racial, regional, and ideological backgrounds, but they work as one team under one roof. Diversity is not good for innovation and creativity, but it also boosts the team spirit.

Market Expansion

When you have a strong diverse team, and also a diverse portfolio of products, then you can easily expand your business into different areas. That’s how McDonald’s has created a network of hotels across the world.  

Influence of Social Media

We’re living in the world of social media (Facebook, Instagram, Whatsapp, Twitter, etc) if the food and beverage industry effectively uses these platforms. Then they can reach a much bigger audience, and attract many new customers.

Weaknesses of the Food and Beverage Industry

Less Research & Development

The food and beverage industry usually doesn’t allocate a specific budget for research and development. Chef and cook follow the specific cooking style and product the same product over and over again. One thing we all know that customers usually get tired of the same taste. If you don’t change or update your products’ tastes, then they would go to the other brand.

Inventory cost

There should be a narrow margin between the supply of raw products, cooking, and consumption. It would only be possible if you have a punctual supplier. If you’re unable to find one, then you would have to pay for the unnecessary inventory cost. If your business is big, then it would be high.

High Rental Expenses

You would need a crowded public location to attract new customers. Rents are usually very high at such places. Even a great portion of your business profit goes to the payment of rents.

Less Profit

Having discussed earlier that hotels and restaurants in the food and beverage industry usually required a huge investment, and their profit margin is very low in the beginning. Therefore, you shouldn’t be completely reliant on one source of earning.

Limited Cash Flow

If you have started the business in the food and beverage industry without having done sufficient planning in terms of profit period, inventory cost, and other miscellaneous expenses. It’s highly probable that your business would end up limited cash flow and borrow from other loan agencies

Diversity

A diverse workforce is an asset to the company if people are educated, tolerant, and patient. If not, then diversity would create a conflict among workers that would affect their performance.

High Turn Over

Employees working in the food and beverage industry usually rely on the tips of customers, because their hourly wages are very low. They are from the demographic of students and part-time workers. Whenever they get a better opportunity, they leave it immediately.

High Market Share of some Products

When you have a diverse portfolio of food and drinks, then not all the items in the menu list would attract a huge market share. Only some of the items on the list would become successful. In the end, your business would be relying on the few items to cover all the expenses.

Centralized System

The functionality and decision-making system of the food and beverage industry is centralized. The management decides and the employees have to follow. Employees don’t be involved in the decision-making process. Management remains unaware of the public interest and employee’s lack of performance.  

Opportunities for the Food and Beverage Industry

Online Store & Delivery

Most of the world-leading brands in the food and beverage industry are converting their business online. Where people would have the option to choose any of their favorite food items and place their order for delivery. Your store would receive the online order, process it, and deliver the required food items on the customer’s address.

Technology to Reduce Cost

If the food and beverage industry adopts technology in the maintenance of recording, smart broiler and ovens in the kitchen, and online ordering system. Then the whole business would become efficient, there won’t be any delaying cost or kitchen-related safety incidents. Although these events happen rarely; but when they do, then they cost your business a lot.

Higher Income

The income of the ordinary working class has been increasing for the past few years, it’s because of wage laws. When people have extra money, then they would spend by eating well. More sales mean more profit.

Higher Population

Population across has been increasing across the world. Although it has many disadvantages, it’s beneficial for the food and beverage industry. It is because a higher population means more people to feed, more people means more sales.

Inflation and Interest Rate

Industrialization, mass production, and economies of the scale have lowered the per-item cost. More businesses are proliferating because of the lower interest rate. Consequently, people have more salaries and the products are getting cheaper. It’s a win-win situation for the food and beverage industry.

Tourism

The tourism industry is directly linked with hotels and restaurants, and hotels offer food and drinks. When the tourism industry has been increasing, more tourists are visiting different parts of the world, staying at the hotels, and enjoying different types of local foods and drinks.

Training the Employees

Training your employees may seem a waste of time and an expense. But it saves your business a lot of other costs like; proficient service, fewer incidents, and fewer turnovers. When you train your employees to perform better, actually you’re investing it in the future of your business.

Threats to the Food and Beverage Industry

Competition

Technology and online shopping have made the entrance into this industry quite easier. Resultantly, the food and beverage industry has become very competitive. Now, customers have a plethora of choices to order one product. There are many brands offering the same product.

Fewer suppliers

Since the market is very competitive, but the supplying sources of raw material are limited. The functionality of your business depends on the good relations you have with your suppliers. If they supply you the raw products timely, only then you’d be able to complete the orders on time.

Customers’ Changing Tastes

Since the market is crowded with many competitors and customers have many options to order the same product. In such an environment, you have to be unique in terms of food taste. Only then you would be able to capture the market share. Now, customers want not only food but a unique and different taste.

COVID-19

A recent wave of Coronavirus (COVID-19) has caused the lockdown everywhere. Hotels, restaurants, and tourism are badly affected by it. The food and beverage industry also goes side by side. Those hotels that were offering online services are still running, and others have to do the same in order to survive.

Conclusion

After carefully studying the swot analysis of the food and beverage industry, we conclude that the food and beverage industry is a very profitable business. Although very competitive and it requires a huge investment to start. But the current wave of COVID-19 has affected it very badly. Online orders and home delivery is a very good option for the newcomers and also for those that haven’t started it yet.