Basic Economics, Moneymaking, and Costs of the Food and Beverage Industry

What are the basic economics of the industry? How do companies make money?  What are their costs?

Benjamin S. Marks

The basic economics of the food and beverage industry revolve around the industry’s inelasticity as well as its supply and demand. Starting with its inelasticity, the food and beverage industry is an extremely important industry that constantly has the opportunity to expand due to the constant demand for its goods. A report generated by fao.org called The Roll of the Food and Beverage Sector in Expanding Economic Opportunity best captures the inelasticity of this specific market, “The food & beverage industry has a unique role in expanding economic opportunity because it is universal to human life and health.” This expresses the global need for food and beverages, as they are both vital for life. Furthermore, this feeds into the next basic economic fundamental, supply and demand.

The supply and demand of the food and beverage industry tends to remain consistent. This is due to the necessity of food and drinks; however, you can see many changes in the supply and demand of specific items in the industry. Some things that affect the supply and demand of specific goods are stated on Logility.com’s page for this industry. Seasonality may have a tremendous impact on the market in terms of supply and demand. As seasons change, consumers will want different products and because of this the suppliers will need to adapt to the new market desires. This is why supply and demand is one of the most basic economics of the food and beverage industry. It is also one the main ways companies in this industry make money.

We also can see that companies in this industry make money by following what is trendy through research. Trends are a great way for companies to see what specific goods should be focused on producing in order to maximize profits. Business.com states, “A major component of the food and beverage industry is knowing what trends are hot and what trends are not.” This further supports the idea that trends are huge moneymakers as it can make the producer aware of what products are declining or gaining popularity amongst the consumers.

While companies earn money, they also have to focus on their costs. Companies in the food and beverage industry can vary in their costs; however purchasing local ingredients is a relatively new phenomenon to reduce costs for both companies and consumers. This trend begins with companies trying to lower the cost of transporting ingredients by purchasing the ingredients close to where the company will wind up selling the finished product. Since transportation costs are much higher than the ingredients cost, this lowers the cost of companies.

Other costs depend on where you are looking in the supply chain of this industry. You may see farmers paying for fertilizer and tractors while beverage companies will pay for plastic bottles and ingredients. The problem with generalizing costs of companies in this industry is that there are so many different types of businesses, from producing food to packaging. This makes it so you really have to look at the specific stages of the industry.

works cited:

"Food & Beverage Supply Chain Solutions - Logility." Logility.com. Web. 13 Feb. 2012. <http://www.logility.com/industries/food-beverage>.

Krishnaswamy, Ramya, and Marc Pfitzer. "The Role of the Food & Beverage Sector in Expanding Economic Opportunity." Fao.org. Web. 12 Feb. 2012. <http://www.fao.org/fileadmin/user_upload/ivc/docs/UnileverandProjectNovella.pdf>.

http://www.imap.com/imap/media/resources/IMAP_Food__Beverage_Report_WEB_AD6498A02CAF4.pdf

Mealey, Lorri. "Food and Beverage Industry Planning - Business Guides & Articles - Business.com." Business.com - Find, Compare & Research B2B Vendors. Web. 13 Feb. 2012. <http://www.business.com/guides/food-and-beverage-3748/>.