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  4. FOOD SAFETY TESTING A MAJOR FOCUS FOR CPG COMPANIES
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Food Safety Testing a Major Focus for CPG Companies

September 10, 2019 | Professional Services Blogs

As consumers grow increasingly health-conscious, CPG companies could incur significant financial losses from product recalls or litigations arising from a laissez-faire approach to food safety regulations. The impetus is now on CPG companies to stay abreast of constantly evolving food safety norms and regulatory practices, which now look beyond simply whether a food or beverage is safe to consume and are instead centered on the potential long-term health benefits for the consumer.

It’s expected that the growth in food safety testing will be driven by factors such as the implementation of more stringent food safety regulations, the globalization of food supply and the availability of advanced technology. The modern food consumer is also evolving. Burgeoning demand for convenience foods and increasing food trade across borders, particularly in emerging markets, are expected to provide major opportunities for CPG companies and food safety testing companies.

Market Consolidation Through Mergers and Acquisitions

Today, CPG companies increasingly expect their food safety testing suppliers to provide them with a diverse portfolio of tests. This disincentivizes CPG companies from changing suppliers, as switching costs are considerably high. Meanwhile, economies of scale play a significant role in testing and logistics, which can create a large cost advantage for market-leading CPG companies. This combination — where high switching costs dissuade CPG companies from exploring more supplier options while simultaneously giving them an advantage if they strengthen their relationship with food safety testing companies — incentivizes food safety testing companies to consolidate their operations in mature markets and open start-up labs in high-growth markets, where options are limited.

In 2018, testing laboratories company Eurofins Scientific acquired Covance Food Solutions from LabCorp for $670 million, a move targeted towards making Eurofins the global leader in food testing. Similarly, the Swiss-based testing laboratories company SGS has also expressed its desire to accelerate M&A activities in the future and has been exploring various opportunities. A few large CPG players have also started investing in food safety companies. Recently, Tyson Foods has invested in US food safety testing company Clear Labs, a leader in pathogen testing innovation noted for its purpose-built automated food safety testing platform.

Smaller Players Drive Growing Demand for Outsourcing

The passing of the Food Safety Modernization Act (FSMA) in 2011 was a key driver for greater awareness about the importance of accurate sampling and analysis. Small and midsize CPG companies are becoming increasingly aware of the risks to their brand, as it is now more difficult for them to justify the capital expense for a laboratory to analyze a small number of samples. As a consequence, demand for outsourced testing is growing. Since larger testing companies have possessed established testing programs for a while, we are seeing this outsourcing decision being made in smaller and midsize companies that are paying closer attention to the capital expense of their programs.

Improving Traceability, Building Trust: Blockchain in CPG

On the other end of the spectrum, consumers are starting to attach greater importance to detailed visibility of a product’s life-cycle, to ensure safety, quality, and ethical business practices. In 2018, Bureau Veritas launched Origin, a blockchain-based traceability label that gives consumers an end-to-end description of a product’s journey, from farm to fork. This solution benefits players throughout the value chain, from agricultural producers — who can use the improved visibility in brand-building exercises — to CPG companies, who would be able to better control supply chains through better traceability and the real-time management of product recalls. The implementation of blockchain in the CPG industry is expected to go a long way toward creating a feeling of trust in consumers and boosting the reliability of CPG companies.

Conclusion

As consumers grow increasingly aware of the health risks of packaged food products, the demand for safe and high-quality food will continue to drive the growth of food safety testing. The increasingly global nature of food brands creates an additional layer of vulnerability for food safety standards; but with new technologies enabling focus on transparency and traceability, it is expected that more CPG companies will invest in food safety testing.

Sources:

  • https://foodsafetymagazine.com/signature-series/recall-the-food-industrys-biggest-threat-to-profitability/
  • https://www.prnewswire.com/news-releases/companies-strive-to-simplify-food-safety-procedures-300875957.html
  • https://cdnmedia.eurofins.com/corporate-eurofins/media/12146614/eurofins-corporate-presentation-october-2018_final.pdf
 

Tags: Food & Beverage Companies , risk management , chemicals

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