Regulatory risk in food service industry

In what is a seasonally appropriate development, the idea of a sugar tax has arisen again over the last couple of weeks. After the government pronounced it ‘back on the table’, the NHS has now brought the issue to the fore, by publicly administering a voluntary sugar tax wherever it sells food and refreshments. Politically, this has elicited a full range of reactions, from wholehearted endorsement, through slight bemusement, to unrestrained fury.

For business leaders, however, the philosophical side of the debate is somewhat beside the point. The reality is that the political and consumer climate is changing, and businesses will have to respond. The regulatory risk to the food production and retailing industry is clear, but if it does not materialise, it will only be because the industries themselves are able to respond in a manner that mollifies the politicians and regulators.

In order to do that, it will have to be seen not only to take significant action, but also to be influencing consumer behaviour in a positive direction. Many food manufacturers and retailers have, in fact taken significant strides in this direction over the last couple of years, but it is not clear if these changes can outpace the growing demand for tougher regulation. At the very least, it would be prudent for food manufacturers to have a plan in place to respond to any changes in the regulatory regime.

The interaction of consumer demand (often for sweet-tasting, flavoursome, satisfying food), competitive retail price pressures and complex supply chains makes it hard to allocate research and development resources when the full scale of a threat cannot be known. However, growing public awareness does offer a potential opportunity to offset costs through first-mover advantage, and to capitalise on consumer demand for lower-sugar alternatives.

Finding and exploiting those gaps in the market is a complex task, but one made much easier for business leaders who have a firm understanding of the interaction of costs, price, quality, and consumer expectations in their organisation, as well as the impact of potential regulatory changes. Accurately measuring these factors, and then combining them in a dynamic model of the business makes it much simpler to plan effectively for potential regulatory changes. Such a model can also be integrated with a framework of the risk and reward associated with R&D spending, so as to allocate investment effectively, stay ahead of market trends, and stay ahead of unpredictable regulatory change.