19 September 2023

HSBC Worldviews – John Church

An in-depth look at key sectors and how they influence international markets.

“I kind of chuckle at the perception of traditional farmers back in the day. Farmers are very bright individuals – they are astute businessmen and women, botanists, mechanics, and engineers.”

- John Church, Head of Food & Beverage, Managing Director, US Commercial Banking

John Church considers himself an agrarian by birth. During his childhood, he spent most weekends and summers working on his family’s 7,000-acre farm just outside Chicago, which has been in operation since 1916. Today, in his role at HSBC, John combines his firsthand experience in farming with his 30+ years of corporate banking expertise. As US Commercial Banking Head of Food & Beverage, he oversees financing services for global food, food distribution, beverage, and agriculture companies. In this edition of HSBC Worldviews, John discusses sector trends through a personal and professional lens.

What is top of mind for food and beverage companies?

Though very much in the embryonic stages, we are seeing a cultivated push towards lab-based proteins. Consumers are becoming more cognizant about reading labels and being aware of what they are putting into their bodies. They’re also taking into consideration the environmental impact of the products they’re buying and how they’re made. For example, the traditional farming practices that bring us the conventional proteins we’ve long enjoyed are known to produce high levels of methane gas emissions. Given these two consumer trends, it makes intuitive sense to see explorations of what new protein consumption means.

At the same time, commercialization and scalability of lab-based protein operations are expensive propositions. Ensuring the end consumer will not have to pay a premium for the protein alternative, while also replicating taste and texture, will be a big area of focus to their value propositions.

All of this is to say that product innovation in the food and beverage sector is very top of mind for companies. Consumers are seeking new products with new flavor and “better-for-you” profiles, an emphasis on sustainable practices (i.e., alternative protein) and conveniences (i.e., ready-to-drink adult beverages/cocktails in a can), which companies are delivering with higher margins.

How have changes in the macro-environment affected clients?

This takes us back to the early stages of the Covid-19 pandemic. Clients were running thin on inventory. Supply chain shortages and halts didn’t allow for them to adequately satisfy demand levels. This raised natural questions for our clients: Do we invest in bringing our production back to the United States? Where can we deploy capital most effectively, especially when the cost of capital is high?

While many of these bottlenecks have been somewhat alleviated, the general premise of strategically investing in the business remains essential. Look at the impact of artificial intelligence in the food industry. Clients now have the ability to know at what hours of the day certain products are being consumed and at what volume, thanks to artificial intelligence enhancements. Quick service restaurants (QSRs) allow McDonald’s and Wendy’s to maximize their inventory, while delivering the best possible products and services to the client. It’s no wonder that so many restaurants are doubling down on drive-through and automated ordering systems; 70% of register rings from consumers are through these automated services rather than the traditional encounter.

So more and more companies are sitting on a mountain of information from their automated services, which allows them to invest strategically in the automated and digital technology space. Inversely, less capital is being deployed to physical footprints because smaller dining rooms no longer mean less purchasing.

How is the food and beverage industry transforming with consumer demands?

Financing the food and beverage industry is a necessity because the industry is somewhat recession resistant. Not recession proof, but recession resistant. What I mean is that as consumers, we have some flexibility in what we choose to consume, but food is non-negotiable because we need nutrition to survive.

The industry is also one of the most transformative. Lab-based proteins are just one great example of how clients are constantly trying to introduce cutting-edge alternatives at the behest of consumers. The demand for food will never go away, but the applications and constructions of those foods evolve. It is our job at HSBC to help our clients achieve those goals.

How are events around the world impacting food and beverage companies in the US?

There are two events that appear to be impacting food and beverage companies the most currently. They are the Russia-Ukraine conflict and climate change.

The conflict between Russia and Ukraine has had - and will continue to have - an impact on price and availability of commodities, energy and fertilizer. That said, work is being done to mitigate the constraints by identifying alternative distribution/transportation channels and increasing production where possible.

Additionally, the extreme changes in climate we’re seeing around the world may have an impact on production and prices throughout the food chain.