How is the DTC Food and Beverages Industry Moving in 2024?

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Feb 11, 2024

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22 min read

In the food and beverage industry, the Direct-to-Consumer (DTC) model revolutionizes how products are procured and consumed. Unlike traditional brick-and-mortar establishments, food ecommerce is the practice of exclusively or concurrently selling food and beverage items through online platforms.

Yet, distinct considerations set it apart from other ecommerce verticals. Vigilance is important, particularly in matters of transparency, ingredient processing, and accurate labeling of allergens. The gravity of this responsibility cannot be understated, as an estimated 32 million Americans grapple with food-based allergies, underscoring the potential harm that mistakes in this domain can inflict upon prospective customers.

Moreover, adherence to stringent FDA regulations governing precise nutrition labeling is imperative. Navigating these intricacies is a critical facet of the DTC model in the food and beverage industry, where the safety and satisfaction of customers hinge on meticulous attention to detail and a commitment to transparency.

Should a F&B Brand Use a DTC Model?

In this economy, everything has gone digital. However, it is important to assess your needs and targets before you think about making the switch to DTC fashion & apparel industry. Here’s what you need consider:

Factors to Consider

  • Target Audience Preferences In an era where online grocery shopping has become the norm for a significant portion of the population, understanding your target audience’s purchasing habits is paramount. If your brand’s demographic aligns with this trend, the DTC model becomes an enticing proposition.
  • Logistical Feasibility Before venturing into DTC, assess your operational capacity to handle logistics, encompassing order fulfillment, shipping, and customer service. This step is vital in ensuring a seamless DTC fashion & apparel industry experience.

Potential Benefits

  • Empowered Brand Control DTC empowers F&B brands with unmatched control over their product positioning and messaging, fostering a consistent and resonant brand identity.
  • Rich Consumer Insights Direct interaction with customers yields a treasure trove of insights into their preferences, behaviors, and feedback. This data is invaluable for refining products and DTC Performance marketing strategies.
  • Enhanced Profit Margins Bypassing intermediaries translates into higher profit margins, as brands retain a more significant share of the revenue generated per sale.

Challenges to Consider

  • Logistical Complexities Establishing and managing an efficient DTC operation demands meticulous planning and investment in logistics, which can be a substantial undertaking.
  • Market Competition The DTC arena is fiercely competitive, necessitating robust marketing endeavors to distinguish your brand amid the crowded landscape.
  • Regulatory Compliance Stringent adherence to food safety, labeling, and other regulatory standards is non-negotiable in the F&B industry, and brands must ensure unwavering compliance.

Shifting Towards a DTC Model: The Current Scenario

The decision to adopt a Direct-to-Consumer (DTC) sales model holds even greater significance in the current global market. With the global Consumer Packaged Goods (CPG) packaged food market soaring to a staggering $2 trillion in value in 2021, and poised for a continued compound annual DTC growth potential rate (CAGR) of 2.9% from 2022 to 2028, reaching a projected $2.5 trillion by 2028, F&B brands find themselves at a pivotal juncture.

A testament to the shifts in consumer behavior, grocery emerged as the top online CPG category in 2020. According to the Food Industry Association and NielsenIQ, it accounted for an impressive 44% of all CPG ecommerce. This trend persisted into 2021, with online grocery shopping surging to $97.7 billion in sales, facilitated through pickup, delivery, and ship-to-home channels. Astonishingly, more than 70% of U.S. households placed one or more online grocery orders during the year, as reported by the strategic advisory firm Brick Meets Click.

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Strategies In Use for DTC Marketing in F&B

Personalized Marketing and Subscription Services

Personalized DTC Performance marketing involves tailoring product recommendations, offers, and content to align with individual customer preferences and behaviors. This approach creates a more intimate and engaging experience for consumers, as they feel understood and valued by the brand. Using data analytics and customer insights can help F&B brands curate unique experiences that resonate with their target audience. Additionally, subscription services provide a convenient and recurring purchasing option for customers, fostering brand loyalty and driving consistent revenue.

Social Media Engagement

Active and strategic engagement on social media platforms is essential for building and nurturing a community of dedicated followers. F&B brands use platforms like Instagram, Facebook, and TikTok to visually showcase their products, share engaging content, and establish a distinct brand identity. Through interactive campaigns, behind-the-scenes glimpses, and user-generated content, brands create a connection with their audience, driving brand affinity and amplifying their reach.

Direct and Paid Traffic Acquisition

Understanding customer acquisition channels is crucial for DTC fashion & apparel industry success. Organic search, powered by search engines like Google, is a formidable driver of sales. This emphasizes the importance of choosing the right digital platform with high search engine visibility. The decision between a headless ecommerce site, an online marketplace, or a B2B wholesale platform significantly impacts a brand’s SEO Help DTC retail journey.

Direct traffic, where consumers directly visit a brand’s website, is a potent sales driver. However, it requires a well-established brand presence. In its absence, relying on organic search or high-ranking third-party marketplaces can be a strategic alternative.

Paid search, marked as “Ad” in search results, mirrors traditional advertising. Brands invest in specific keywords and queries to secure a prominent position in search results. This offers an alternative route to acquiring customers.

Importance of a Strong Online Presence

Given that F&B customers frequently turn to search engines, particularly Google, for purchasing decisions, a robust online presence is imperative. Brands must ensure high visibility on search engines to capture potential customers’ attention. If a brand’s website lacks this visibility, utilizing third-party marketplaces or storefronts with established search engine presence becomes essential.

Cultivate Reviews

Customer reviews hold immense sway over purchasing decisions. Research reveals that a staggering 99.9% of consumers peruse product reviews before committing to a purchase, and they are even willing to allocate up to 31% more of their budget to brands backed by stellar reviews.

For online-exclusive food and beverage brands, the significance of social proof is amplified. Since first-time customers don’t have the luxury of tasting the product in advance, reviews become a crucial conduit for sensory experiences that might not fully translate through the online shopping experience. As Steph Carcamo, Customer Experience & Support Operations Manager at conversion optimization platform Justuno, rightly points out, reviews and user-generated content serve as conduits to ensure that factors like taste, which aren’t easily conveyed in e-commerce, continue to drive traffic to your website.

However, facilitating effective customer reviews involves more than just providing a feedback platform. In today’s consumer landscape, ease of use is paramount. Customers are less inclined to share feedback if the process is not seamlessly integrated. Additionally, the quality of the data derived from these reviews is equally pivotal in gauging their impact.

USP and Key Points

Obtaining detailed insights on both the customer experience and product specifics can be a challenge. However, with the integration of the Okendo platform, this process is streamlined. Customers now have the ability to assess their interactions with your product based on customizable features such as flavor, ingredient quality, and value, providing a more nuanced understanding of their experience.

This approach not only eliminates the uncertainty surrounding whether customers will touch upon crucial selling points but also offers potential buyers a transparent glimpse into how reviewers rate attributes such as flavor, ingredient quality, value, nutrition, and packaging. This comprehensive feedback mechanism paves the way for a more informed and confident consumer base.

Researching Customer Attributes

Understanding your customers on a deeper level is crucial in today’s competitive business landscape. Customer attributes provide invaluable insights that enable businesses to personalize their outreach efforts effectively. By gathering data on individual preferences, behaviors, and needs, companies can enhance their offerings, increase conversions, and ultimately drive sales.

For example, brands like Golde and Slate Milk have used customer attributes to great effect. By collecting data on factors such as age range, product benefits, and best uses, they are able to customize their offerings to better align with customer preferences. This not only enhances the customer experience but also opens up opportunities for upselling, cross-selling, and building long-term customer loyalty.

Customer attributes also play a crucial role in product development and marketing strategies. They allow businesses to create targeted campaigns that resonate with specific customer segments. Whether it’s tailoring messaging around particular benefits, use cases, or age groups, this personalized approach leads to more meaningful interactions and higher customer satisfaction.

Incentives to Fuel Customer Reviews

Offering incentives to customers can be a compelling driver for encouraging them to share their experiences through reviews. A notable 73% of consumers indicate that they would be motivated to submit a review if provided with an incentive. These incentives can come in various forms, such as coupon codes, loyalty points, or gift cards. Beyond boosting the volume of reviews, incentives can also significantly impact future purchases and contribute to improving customer lifetime value.

UGC for Authenticity

Today’s market is heavily dominated by social media, which makes generating user-generated content (UGC) essential for building authenticity and trust. UGC, including photos and videos shared by actual customers, offers a genuine and unfiltered perspective on your food and beverage products. This authenticity is challenging to achieve through traditional, professionally staged photoshoots. UGC creates a sense of credibility and social proof that resonates with consumers and reinforces their confidence in your brand.

Incorporating incentives to encourage reviews that include UGC can be a potent strategy to not only boost the quantity of content but also enhance its authenticity. This user-generated content is invaluable in shaping a brand’s image, fostering customer engagement, and driving sales in the modern consumer landscape.

Micro Surveys

In light of evolving privacy regulations, adapting marketing strategies to collect customer data effectively has become paramount. Despite the longstanding practice of using post-purchase and micro-surveys, many food and beverage brands have yet to harness the potential of this strategy fully.

There may be hesitancy in approaching customers for additional information or feedback. However, it’s crucial to recognize that when customers engage with your website, they already demonstrate an interest in your brand. The simple act of asking for their input can provide valuable insights, and the worst-case scenario is that they decline.

Micro-surveys, strategically deployed throughout the customer journey, offer a powerful tool to gain deeper insights into customer preferences and behaviors. Using the information gleaned from these surveys, brands can enhance customer experiences, refine marketing efforts, and ultimately drive revenue growth. This iterative process allows businesses to consistently improve their outreach campaigns and cultivate more meaningful interactions with their audience.

Oversee Customer Satisfaction

Studies have shown that even a modest 5% improvement in customer retention rates can yield a substantial boost in revenue, ranging from 25% to an impressive 95%. This underscores the tremendous impact that retaining satisfied customers can have on the bottom line.

Implementing a Net Promoter Score (NPS) survey is an effective way to gauge customer satisfaction. By asking customers how likely they are to recommend your product, you gain valuable insights into their sentiment. Following up with questions like, “Do you plan on purchasing this item again in the future?” provides further context. These surveys serve as a direct line of communication with your customer base, offering a clear understanding of their preferences and intentions.

Accurately gauging customer responses to your products is pivotal in shaping your future strategies. It informs decisions on product development and DTC Performance marketing initiatives, ensuring they align with customer expectations and preferences. This iterative process enables businesses to refine their offerings for sustained success.

Knowing where customers primarily purchase your products is equally crucial. Whether through mass retailers, grocery stores, convenience outlets, or online platforms, this insight informs inventory distribution strategies. Knowing where your inventory should be strategically located ensures that customers have convenient access to your products, driving long-term success.

Utilizing Post-Purchase Surveys

Post-purchase surveys serve as a valuable source of zero-party data, offering unparalleled insights into customer preferences and behaviors. Beyond generating insights, this data can be aggregated into comprehensive customer profiles. These profiles encompass a range of information, including preferences, product usage, and key demographic details. Such profiles enable businesses to segment their customer base for targeted offerings like subscriptions or to deliver personalized messages and promotions through channels like email or SMS. In an industry where customers can’t physically sample products before purchasing, this information proves invaluable in making tailored recommendations.

Personalization for Customer Retention

Personalization is a powerful strategy for driving customer retention and enhancing Customer Lifetime Value (LTV). By utilizing customer profiles, brands can reengage customers in a personalized manner, fostering longer-term brand loyalty. This approach, often underutilized, holds considerable potential for strengthening customer relationships and increasing brand affinity.

Real-Time Adjustment of Marketing Efforts

Post-purchase surveys, particularly those focused on understanding how customers discovered the brand, offer real-time insights into the effectiveness of marketing campaigns. By consistently gathering feedback, brands can adapt their marketing spend and efforts based on actual customer-sourced data. This ensures that future campaigns are guided by tangible results. This is especially crucial for online food and beverage companies operating across both online and offline channels, as it allows them to allocate resources effectively to areas yielding the highest returns.

Seamless Integration

Choosing solutions that seamlessly integrate with existing tech tools is essential. This ensures a cohesive and streamlined operation. Integrations with email/SMS and marketing automation platforms, as well as managed subscription systems, enhance the functionality and effectiveness of the chosen solution. This integrated approach enables businesses to utilize zero-party data from reviews and surveys in creative ways to boost conversions and encourage repeat purchases.

Strategic integrations with tools like Attentive can revolutionize customer engagement for food and beverage brands. Combining the capabilities of these platforms will help businesses send personalized content to customers, gather actionable insights, and create richer customer profiles. This, in turn, leads to increased revenue and deeper brand-consumer connections.

Incorporating conversational two-way text messages into customer communication strategies further amplifies the impact of these integrations, providing a more personalized and effective means of engaging with customers at scale. This dynamic approach not only enhances customer experiences but also drives revenue DTC growth potential for food and beverage brands.

A combination of these elements, if done strategically, can help brands establish a direct and meaningful connection with their audience, driving loyalty, revenue, and long-term success in the competitive market

Industry Trends in 2023

Sustainability and Transparency

Addressing sustainability has emerged as an essential concern for our generation. This encompasses the production of sustainable products and eco-conscious packaging.

Recent research from Cargill reveals a significant shift in consumer behavior, with 55% stating they are more inclined to purchase a packaged food item if it carries a sustainability claim. The motivation behind this shift is clear, as customers now associate several positive factors with sustainable products, according to insights from the National Retail Federation:

  • Comparable pricing to other products and trends (35%)
  • Perceived higher quality compared to other products/brands (32%)
  • Improved product availability (21%)
  • A better understanding of health and wellness benefits (21%)
  • Awareness of how their purchase contributes to social responsibility (21%)
  • Accessibility to information on reusing, returning, or recycling the product (21%)
  • Transparency on product sourcing, production, and manufacturing (20%)

In addition to sustainable packaging, F&B brands are exploring sustainability through partnerships with local suppliers. This not only aligns with the growing trend of supporting local businesses (embraced by up to 70% of consumers), but it also reduces the vulnerability to supply chain disruptions.

Kate Flynn, CEO of Sun & Swell, predicts a continued shift towards consumers valuing authentic, purpose-driven brands, emphasizing the importance of genuine marketing efforts. Highlighting the contributions of proud suppliers can be a compelling aspect of this narrative.

Transparency and a personal connection form the cornerstone of sustainable practices in food ecommerce. An overwhelming 94% of Americans assert that front-of-package (FOP) food labels greatly influence their purchasing decisions. Nutrition facts and ingredient-specific labels on the packaging are especially influential.

Beyond label information, consumers actively seek out local businesses they trust, particularly those offering convenient options like same-day delivery or click-and-collect pickup.

Eli Weiss, Director of Customer Experience at healthy soda retailer Olipop, underscores the significance of emotional connection in driving sales. Deep customer-brand relationships were vividly demonstrated when a new Olipop flavor was launched, resulting in a staggering $30,000 in revenue within just 15 minutes through targeted SMS announcements.

Despite potential budget constraints due to rising living costs, consumers are willing to invest in what they perceive as high-quality products. The organic food industry serves as a prime example, with steady growth even in the midst of the pandemic.

Stephanie Hunter, Brand Manager at Egglife Foods, reinforces the notion that consumers are seeking transparency regarding product composition and brand values. Clear nutrition statements, compelling brand narratives, and transparent values have become essential for CPG brands aiming to resonate with the modern shopper. In a market teeming with options, consumers are inclined to choose brands that align with their values and offer products they can genuinely feel good about.

BNPL

The Buy Now, Pay Later (BNPL) market is experiencing remarkable growth, with an anticipated size of approximately $576 billion in the current year. This marks a staggering 380% increase from its 2021 value of $120 billion. Notably, the grocery and food vertical is among the few sectors that have been slower to embrace BNPL, but this reluctance is likely to change in the near future.

The advent of prominent BNPL providers like Klarna, Shop Pay Installments, Affirm, and Afterpay, coupled with major retailers both in physical stores and online, offering BNPL options, has initiated this transformation. Notable retailers in this movement include Costco, Wholefoods, Walmart, Target, Kroger, and Amazon Fresh.

Consumers, particularly younger generations, are increasingly receptive to BNPL becoming a standard offering in the food and beverage sector. For instance, 40% of millennial shoppers express significant interest in BNPL, and this sentiment is echoed by 37% of “bridge millennials,” referring to mobile-centric individuals aged 30 to 40.

While traditional brick-and-mortar grocery stores are playing catch-up in adopting BNPL, food ecommerce businesses have a distinct advantage. They are already digitally oriented, making the integration of BNPL options into their checkout processes relatively straightforward.

Diversification of Payment Methods

In addition to the burgeoning adoption of BNPL, the food and beverage direct-to-consumer (DTC) landscape is witnessing a broader trend of diversifying payment methods. This shift reflects a response to evolving consumer preferences and the dynamic nature of digital commerce. Key elements of this trend include:

  • Mobile Payments With the proliferation of smartphones, mobile payment solutions have gained substantial ground in the F&B DTC sector. Apps like Apple Pay, Google Pay, and various mobile wallets offer consumers seamless and secure ways to make purchases. Mobile payments provide convenience, speed, and enhanced security, making them an appealing choice for modern consumers.
  • Cryptocurrencies Some forward-thinking F&B DTC brands are exploring the integration of cryptocurrencies as a payment option. This reflects a growing interest in digital currencies like Bitcoin and Ethereum. While the adoption of cryptocurrencies in the F&B sector is still relatively niche, it appeals to tech-savvy and crypto-conscious consumers seeking alternative payment methods.
  • Digital Wallets Digital wallets, such as PayPal and Venmo, have become an integral part of online shopping. They store payment information securely and streamline the checkout process. The convenience offered by digital wallets aligns with the broader trend of simplifying the payment experience for consumers.

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Food Subscriptions

Subscriptions have become a powerful and rapidly growing trend, reshaping the way consumers engage with products and services across various industries. In the realm of food and beverage, while the concept of subscriptions is not new, it has gained substantial momentum. The global subscription economy, which encompasses diverse sectors, is projected to grow at a remarkable Compound Annual Growth Rate (CAGR) of 71.45% from 2020 to 2025, catapulting the total market size from $51 billion to an estimated $442 billion.

Within this burgeoning landscape, ecommerce subscriptions in the United States are poised to claim a substantial share, amounting to approximately $38.2 billion in 2023, according to insights from eMarketer.

The subscription model offers food and beverage brands a dynamic and customer-centric approach to payment and engagement. A popular variation of this model is “subscribe and save,” which incentivizes customers with discounts for regular, recurring purchases.

A prominent example of a brand successfully implementing this strategy is Hello Fresh, renowned for its subscription-based meal kit offerings. However, this model is not exclusive to large players. Smaller food and beverage brands are now utilising the “subscribe and save” approach alongside one-time purchase options.

For instance, coffee and tea brand BLK & Bold provides customers with the flexibility to subscribe at various intervals, simultaneously enjoying cost savings on recurring shipping:

CPG brands have several avenues to explore when offering subscription services:

  • Product Trials Subscription boxes featuring curated products with customization options. Brands can enable customers to sample items or receive seasonal food boxes tailored to their preferences and dietary needs.
  • Refills Product refill subscriptions ensure customers receive item replenishments regularly over a predefined period, streamlining their shopping experience and saving them money.
  • Membership Subscriptions This model grants customers access to exclusive products, discounts, or special perks. For instance, memberships like Thrive Market offer consumers access to a range of healthy products at guaranteed savings for a nominal monthly fee.

An exemplary case study is Fire Dept. Coffee, a veteran-owned coffee roaster based in Rockford, Illinois. An upgrade to Shopify Plus and the introduction of subscription services helped this small but dynamic brand experience a substantial boost in sales. In 2021, Fire Dept. Coffee achieved nearly $10 million in revenue, with subscriptions contributing to a noteworthy 25% of their earnings.

The food and beverage subscription model is not just a trend; it represents a transformative shift in how brands engage with customers, fostering loyalty, convenience, and savings while also opening new revenue streams and DTC growth potential opportunities.

Non-Alcoholic Drinks

The non-alcoholic beverage market saw a significant upswing, reaching a remarkable $11 billion in sales for the year 2022. This surge can be attributed to a shifting cultural perspective on alcohol consumption. Particularly, the emerging Generation Z cohort is adopting a more restrained approach to drinking, diverging from the patterns of previous generations. They associate excessive alcohol consumption with a range of societal issues, including sexual abuse and anxiety.

As moderation in alcohol consumption becomes the prevailing attitude, major players in the alcohol industry are redirecting their focus towards crafting beverages tailored to the “sober curious” demographic. A notable example is Heineken’s introduction of their 0.0 non-alcoholic beverage earlier this year, placing emphasis on its exceptional taste sans alcohol.

Simultaneously, a wave of native ecommerce brands such as Mingle Mocktails, Unspiked, and Sans are championing the idea that it’s entirely possible to revel and celebrate without the need for alcoholic beverages. This movement underscores the notion that sobriety need not be synonymous with a lack of enjoyment or festivity.

Social Media’s Effect

Social commerce has emerged as a critical avenue for direct-to-consumer (D2C) sales, employing the influence of social media platforms to facilitate seamless purchasing experiences. In 2022, social commerce sales in the United States witnessed a substantial surge, reaching an estimated $51.8 billion. This figure is expected to experience exponential growth, projected to reach an impressive $145.2 billion by 2028.

The rise of social commerce can be largely attributed to the integration of in-app shopping functionalities on major platforms like Facebook, Instagram, and TikTok. This development gained substantial traction since 2020, with notable enhancements, including the ability to make purchases directly through posts. Brands can now seamlessly tag their products within photos or videos, streamlining the buying process.

TikTok, currently the fastest-growing social media platform, has captured audiences with its focus on catchy tunes and creative, bite-sized content. This unique combination creates an ideal environment for food advertisements. Advertisers are capitalizing on TikTok’s engaging format, using catchy hooks and trending challenges to connect with and captivate the Gen Z audience.

Beyond advertisements, recipes and food ingredients that go viral on TikTok are piquing the interest of food retailers. Trends like mini pancake cereal and pink sauce have evolved into products available for consumers to purchase and experience firsthand. For instance, the highly popular pink sauce, as showcased by Chef Pii on TikTok, is now accessible both in physical stores and online on Walmart’s website.

To maximize exposure for your products, consider collaborating with emerging food influencers on TikTok. Demonstrating how your product can be seamlessly integrated into a recipe or conducting taste test reviews are effective ways to showcase your offerings.

A prime example of a brand effectively employing this strategy is BLK & Bold Coffee. The brand extends an invitation to customers to make purchases seamlessly without leaving the social media platform. This eliminates potential friction points, significantly reducing the likelihood of abandoned sales.

For small Food & Beverage brands, the social commerce method represents a potent tool for audience expansion. With over half of the global population actively engaged on social media platforms, there exists an unprecedented opportunity to connect with customers right where they are.

Social commerce not only streamlines the path to purchase but also nurtures a dynamic and engaging brand-customer relationship, ultimately driving sales and fostering brand loyalty. As this trend continues to evolve, staying attuned to the latest features and functionalities on social media platforms will be pivotal for brands seeking to maximize their reach and impact in the ever-expanding realm of digital commerce.

Brand Collaboration

In 2021, Pepsi teamed up with the candy brand Peeps, sparking considerable social media excitement. Their limited edition release became such a hit that it ended up on the resale market, with some products fetching hundreds of dollars.

Now, Pepsi and Peeps are back with another collaboration, but this time on a larger scale. They’ve introduced a marshmallow-flavored cola drink, set to become a must-have seasonal beverage for spring.

For fans who purchase this drink, there’s an interactive element. They can scan the can using a Snapchat lens, which allows them to engage in a virtual egg hunt. As part of this experience, participants have the chance to win limited edition Pepsi x Peeps merchandise and other exciting prizes. This creative blend of flavors and augmented reality gaming adds an extra layer of enjoyment to the beverage and builds anticipation among consumers.

In Conclusion

Adapting to evolving consumer preferences and industry trends is not just an option—it’s a strategic imperative. To thrive in this landscape, F&B brands must be agile, innovative, and attuned to the shifting tides of consumer behavior. Embracing SEO Help DTC retail models empowers brands to forge direct connections with their audience, while harnessing the potential of authentic reviews and customer attributes refines product offerings and messaging.

This is an era of unprecedented change, and staying ahead requires not only a keen understanding of market dynamics but also the right tools. Experts at Saffron Edge provide the technological edge needed to navigate this evolving landscape seamlessly.

Embrace innovation, connect directly with your audience, and harness cutting-edge solutions. This is the recipe for success in the modern Food and Beverage industry. Thrive with Saffron Edge. Contact us today!