Beverage & Food Industry in 2024: 10 Hot Topics for Beverage & Food Industry Founders, Investors, and Executives

Early indications are that 2024 will be equally transformative, with new capital standing by to supercharge innovative concepts and products, new technologies promising to further revolutionize the beverage and food experience, and new laws and regulations further changing the relationship between food and beverage companies and their customers.

Here are 10 hot topics that founders, investors, and executives leading beverage and food companies should monitor as the year develops.

1. Preparing for a Hot Financing and M&A Environment in Q3 and Q4

With interest rates expected to decline in the second half of the year and a strong economic outlook in 2024, the financing and mergers and acquisitions (M&A) environment for beverage and food companies promises to improve relative to 2023. Investors and banks are keen to deploy capital and are looking intensely at beverage and food companies with steady cash flow streams and proven concepts or products. Beverage and food company executives looking to finance growth have a good window in Q1 and Q2 to prepare for a financing or M&A transaction in what promises to be a strong Q3 and Q4.

2. Reporting Requirements Under the CTA

The Corporate Transparency Act (CTA) requires entities organized or doing business in the United States that don’t qualify for a specific exemption to disclose their “beneficial owners” and provide certain other information to the US Department of the Treasury.

Beverage and food industry companies, especially those with complicated organizational structures involving multiple tiers of entities, should start evaluating their reporting obligations early to avoid an end-of-the-year rush to file. Operators with more than 20 employees and $5 million in revenue will be exempt, along with their wholly owned or wholly controlled subsidiaries. Companies with minority equity holders or joint venture partners at multiple levels may not be able to rely on the subsidiary exemption.

3. Wage and Hour Claims

Employers across the beverage and food industry, especially in California, continue to face class and representative actions under the California Labor Code and similar statutes in other states. Common claims include unpaid overtime and minimum wages, failure to provide meal and rest periods, untimely wage payments, technical paystub violations, and unreimbursed business expenses. These cases, typically class action suits, often seek to involve all employees within the state, exerting immense pressure on companies to settle, regardless of the lawsuit’s merit. To avoid such claims, beverage and food companies should take preventive measures such as conducting wage-and-hour audits for legal compliance and implementing employee arbitration programs.

4. Web and Social Media Management

On the heels of its updates to the influential Endorsement Guides, the Federal Trade Commission (FTC) has proposed rules on the use of consumer reviews and testimonials that will deal with web and social media issues such as fake customer reviews, review hijacking (i.e., repurposing previously provided customer reviews to endorse separate products or services), buying positive or negative consumer reviews, insider reviews, suppression of reviews, and misuse of indicators of social media influence.

What’s more, plaintiffs’ lawyers are getting increasingly active in this space, bringing class action claims against companies that use deceptive practices to attract or retain consumers for their products and services. Companies also face an increasingly significant threat of mass arbitration. In response to individual arbitration provisions in website terms of use, plaintiffs’ lawyers have begun filing (or begun threatening to file) hundreds or even thousands of individual arbitrations, resulting in overwhelming upfront arbitration fees for the company, which can significantly exceed the cost of litigating in court.

With the added legal risks posed by these developments (in addition to the reputational risks already posed by web and social media activities), it is important that consumer-facing beverage and food companies develop and follow policies that ensure web and social media compliance, while carefully tailoring the terms of use governing their digital assets in order maximize protection while minimizing risk.

5. Heightened Union Activity

Union activity across the beverage and food industry continues to rise with more and more industry workers launching unionization efforts. Big-name players like Trader Joe’s are involved in hotly contested legal disputes surrounding the organization of their employees scattered throughout the country. These disputes are taking place in several contexts, including before the National Labor Relations Board (NLRB) and in courts as high as the US Supreme Court. This recent rise in union action appears to correlate directly with the current NLRB’s willingness to broadly interpret the National Labor Relations Act in a manner that affords greater protections to covered employees. 

More specifically, the NLRB has issued decisions scrutinizing employer work rules and employee handbooks, with an eye toward whether such rules may deter employees from exercising their rights to unionize, banning employers from making discretionary unilateral changes during status quo or contractual hiatus periods despite histories of past practice developed under management-rights clauses, and limiting employer abilities to include confidentiality and non-disparagement provisions in severance agreements. Beverage and food industry companies prone to the effects of unionizing should stay apprised of legal developments to ensure that their management of increased unionization complies with a changing legal landscape.

6. Increased Focus on Plastic and Petrochemicals

Regulators addressed plastic in 2023 in a wide variety of contexts, ranging from pollution prevention and recycling initiatives to extended producer responsibility (EPR). The focus on plastic regulation is expected to continue in 2024, with the US Environmental Protection Agency (EPA) issuing its draft National Strategy to Prevent Plastic Pollution this year. This strategy drew criticism from a group of state attorneys general who called on EPA to withdraw and redraft the draft document. Several state-level EPR packaging-related laws have compliance dates that also start in 2024, including California’s SB 54 and New Jersey’s recycled content standards. Additionally, regulators have increasingly focused on the interplay between per- and polyfluoroalkyl substances (PFAS) and plastic issues, with disputes regarding a type of plastic being litigated.

In addition to the environmental issues with plastics, there are fresh concerns surrounding nanoplastic consumption resulting from the use of plastics in beverage bottling, which will likely be reviewed by regulators in the coming months. With regulators clearly focused on plastic regulation and reduction, the beverage and food industry has similarly focused on how it might work with regulators to ensure compliance with upcoming legislation, avoid litigation involving plastic waste, promote their own sustainability initiatives, and potentially shift some of their packaging to plastic alternatives. Beverage and food companies will need to continue monitoring plastic regulation to ensure that their packaging practices align with evolving requirements.

7. AI Revolution

2023 was a transformative year for artificial intelligence (AI) in the beverage and food industry, as companies adopted the use of AI in customer interface, sales forecasting, supply chain and logistics, marketing, and customer engagement. These developments promise to change the beverage and food industry, allowing companies to tailor food products and services to customer preference and to improve efficiency at all stages.

But these developments will surely face hurdles in 2024. Several ongoing lawsuits are challenging a core assumption of generative AI (GenAI) developers: that the use of third-party copyrighted works to train GenAI tools constitutes “fair use” under the US Copyright Act. If this assumption is incorrect, developers could face copyright infringement damages and be forced to either rebuild their models from scratch or pay licensing fees to copyright holders.

Executives of beverage and food companies incorporating AI into their businesses should ask some questions as they do so, including:

1. Whether works created by GenAI are protectable under US copyright laws;
2. Whether existing contracts need to be updated to reflect AI-related uses and services;
3. Whether AI tools could expose them to liability under fair wage and hour laws; and
4. Whether certain AI tools may require pre-clearance and safety testing by federal regulators.

8. Managing Noncompetes

The states and the federal government remain heavily focused on noncompete provisions. While New York Governor Kathy Hochul vetoed a measure that would have effectively banned noncompetes in New York, many states continue to threaten broad restrictions. Further, failure to comply with limitations (i.e., including an offending noncompete in an employment agreement) does not merely invalidate the provision or employment contract. Rather, it can result in monetary penalties for the offending company in certain jurisdictions.

Buyers in M&A transactions in the food and beverage industry with valuable proprietary information may have heavily relied on noncompetes to protect acquired proprietary information. However, with recent legislative trends eroding noncompete protections, more careful consideration should be paid to other tools available to protect proprietary information, such as trade secret protection and confidentiality agreements. Buyers should also conduct thorough diligence on food and beverage trade secrets to ensure that they have been adequately protected.

Additionally, beverage and food companies, especially those in California, would be well served to review their employment agreements and policies to ensure compliance with state and federal rules surrounding noncompetes. Beginning February 14, 2024, California will require employers to send written notices to employees (via mail and email) that void noncompetes.

9. Estate Planning

Founders and investors, including those in the beverage and food space, have a unique opportunity until December 31, 2025, to transfer up to $13,610,000 ($27,220,000 for a married couple) during their lifetimes or at death without incurring federal estate or gift tax. In 2026, these exemption amounts will be cut in half, adjusted for inflation. With transfers in excess of the exemption amount subject to federal tax at a rate of 40% (in addition to state taxes in some circumstances), acting before December 2025 can result in nearly an $11 million tax savings for a married couple.

Additionally, beverage and food industry founders looking at a transaction in the near term should start considering making any estate transfers as soon as possible. Making transfers well in advance of a transaction may help mitigate gift/estate tax exposure when transferring equity to a trust or other estate planning vehicle.

It is also crucial to note that transferring wealth in trust rather than outright provides flexibility and creditor protection, and assets transferred need not be liquid, but instead can include closely held business interests. The transferor can dictate many of the terms of the gift — in some cases in perpetuity. Finally, trusts can be structured to remain outside the reach of creditors under most circumstances.

10. Ransomware

The presence of ransomware attacks rose in 2023, affecting as many as two-thirds of all organizations. Beverage and food companies are no exception, with big-name players such as Yum Brands, Chick-fil-A, and Five Guys having reported data breaches. Such attacks can encrypt sensitive data, including trade secrets and personal data, forcing companies to pay hefty ransoms for decryption keys or to prevent data exposure. Companies considering ransom payment should be aware of US Office of Foreign Assets Control (OFAC) sanctions restrictions.

Ransomware attacks can disrupt business operations for weeks, necessitating swift legal action. From notifying insurance carriers to coordinating with response forensics and crisis communications firms, companies must review numerous policies and agreements. Companies also face contractual obligations to notify business partners and navigate over 50 state data breach laws with tight notice deadlines.

Ransomware attacks and other data breaches can lead to liability from regulatory investigations, litigation, and commercial contract indemnity provisions. An updated data security program to prevent attacks and tested incident response plan to deal with any attacks are crucial.

Companies should also be aware of the rapidly evolving regulations. In 2023, the US Securities and Exchange Commission (SEC) mandated annual disclosure of material cybersecurity incidents and risk management strategies, the California Privacy Protection Agency initiated a rulemaking on detailed cybersecurity audit regulations, and the FTC updated data breach notification requirements for non-bank financial institutions.

Overall, 2024 will be an exciting year for the beverage and food industry. With some care and attention, founders, executives, and investors in the industry stand to reap many rewards after several years of challenges. The Beverage & Food group at ArentFox Schiff is standing by to assist.