Food Manufacturing: Trouble Brewing in the Coffee Industry: Revenue Challenges Ahead

July 18, 2016

By Kelly Donoghue

Brace yourself coffee lovers. There’s trouble brewing for your morning cup of fuel if coffee production worries pan out. While global demand for caffeinated beverages is rising, it’s reported that warming temperatures in Brazil and Central America are threatening crops. Scientists predict that nearly 80 percent of the region that grows the most popular type of coffee, Arabica, will become unsuitable by 2050. In addition to the effect on local farming communities, coffee buyers could be faced with the expensive task of shifting bean suppliers and supply routes.

Already, the coffee threat has prompted Starbucks to take action, helping coffee farmers improve their ability to grow plants in places like Chiapas, Mexico, where farmers lost 60 percent of their coffee production to disease spurred by increasing temperature and rain.

The coffee industry isn’t unique. From chocolate manufacturers to sugar producers to dairy producers and more, environmental threats and other industry challenges constantly crop up and are part of doing business. What makes these challenges so difficult for companies to navigate, however, is their lack of predictability and the drastic impact – usually adverse – that they can have on the bottom line.

Environmental factors are a fact of life, but so are high expectations from executives and shareholders. Annual revenue growth targets remain high, and companies are expected to deliver, no excuses. So how can they compete and not only survive, dare even thrive, despite constant uncertainty?

Leading food and beverage manufacturers have found some answers. They are investing in new ways to drive a competitive advantage and help their sales teams drive success, using technology that helps them ride the tides of environmental challenges and hit their growth objectives. While they still can’t control global stockpiles or commodity costs, they are using levers they can control. They’re finding it’s not impossible to maximize margins while balancing supply and demand constraints, or coordinating raw material inputs, inventory, capacity, and demand forecasts to optimize product and channel mix. These new technologies enable pricing managers to quickly analyze forecasted demand, supply and pricing to make more profitable decisions, and guide their sales teams toward selling the right product mix at the right price. Pricing managers will know if a price is too high or – perhaps even harder to detect – if a price is too low. And, it’s helping sales teams retire quota while the company meets its revenue goals.

This new approach is putting competitors who are still relying on traditional methods at serious risk of getting left behind. A study conducted by the Massachusetts Institute of Technology (MIT) outlined specific advantages in using today’s newest technologies: If when only Company A uses pricing software, it gains revenue at the expense of Company B (scenario 1); If both companies use pricing software, both companies gain (scenario 2).

A successful price optimization and management implementation could increase a company’s margins by 50 basis points or more, according to research by Gartner, and increase revenue by 2-4 percent. (PROS)