Executive Summary
May was defined less by what happened inside the food and beverage industry than by what happened to it. The single dominant variable was the ongoing Iran war and the effective closure of the Strait of Hormuz, now in its third month, which has turned a sector-wide story about soft-commodity deflation into a story about logistics, energy, and fertiliser. The paradox of the month: the raw ingredients that punished manufacturers through 2024–25 (cocoa, coffee, sugar) are now cheap and getting cheaper, yet the cost of moving food and the cost of growing next year’s food are both climbing.
Underneath that macro shock, the structural themes of 2026 continued on schedule — Big Food breaking itself apart, GLP-1 medication quietly reshaping demand, the US “Make America Healthy Again” reformulation wave, and a consumer who is trading down, drinking less, and demanding visible value. First-quarter results from the majors (Coca-Cola, PepsiCo, McDonald’s) were broadly resilient, but management commentary turned noticeably more cautious about the back half of the year.
1. The Macro Story: Hormuz, Energy, and Food Security
The war that began in late February (“Operation Epic Fury”) and the subsequent halt of traffic through the Strait of Hormuz have produced what the International Energy Agency has called the largest supply disruption in the history of the oil market. For F&B the relevance is threefold:
- Freight and energy. With roughly a fifth of seaborne oil and a large share of global LNG normally transiting Hormuz, energy-intensive parts of the chain — bottling, dairy, cold chain, and packaging — have been hit first and hardest. Brent spiked toward a four-year peak near $120 early in the conflict.
- Fertiliser. More than 30% of globally traded urea is exported from Gulf producers, and the FAO has warned of fertiliser price rises in the 15–20% range. This is the slow-burn risk: cheap cocoa today does nothing to offset a constrained harvest in 2026–27.
- Stranded cargo. Industry reporting through April–May described thousands of vessels effectively immobilised in the region, with grains, edible oils, sugar, cocoa and coffee among the delayed cargoes. UK and UN officials publicly warned of a potential “global food crisis” if the lane is not reopened within weeks.
Where it stood at month-end: sentiment improved late in May. Reports of a draft US–Iran framework to restore commercial shipping “within a month” pushed oil to roughly six-week lows — Brent around $96 and WTI near $89 on 27 May — though both remained more than 30% above pre-war levels, and refined-product availability stayed tight. Treat any reopening as probable-but-unconfirmed; the downside scenario (a failed deal) re-prices energy, freight and grain sharply higher again.
Gulf note (relevant to readers in the region): GCC states import up to ~85% of their food, which makes the region structurally the most exposed to a prolonged closure despite being the geographic centre of the energy story. Local sourcing, strategic reserves and alternative routing are the obvious mitigations.
2. Commodity & Input-Cost Watch
The defining feature of the soft-commodity complex in 2026 is the reversal of the 2024–25 crisis as surplus replaces deficit — now partly offset by war-driven logistics friction.
| Input | Direction | Notes |
|---|---|---|
| Cocoa | Sharply lower | Trading around $3,100–3,300/t, roughly 60% below a year ago and near multi-year lows, on a bumper West African crop, rising ICE stockpiles and favourable Ivory Coast weather. (All-time high was ~$12,900/t in Dec 2024.) |
| Coffee | Easing from highs | Arabica still historically elevated but expected to soften; improved Brazil flowering and stabilising supply. Illy’s CEO has guided green-coffee toward roughly $2.50–3.00/lb over the coming year. |
| Sugar | Multi-year lows | Pressured by strong Brazilian cane-to-sugar mix and favourable Indian/Thai prospects. |
| Grains / oilseeds | Mixed | Corn firmer, wheat softer; the bigger near-term risk is Hormuz-related shipping delay rather than fundamentals. |
| Palm oil | Higher | Up on the month. |
| Fertiliser / energy | The risk line | Urea and energy are the channels through which the war reaches food cost — directly now, and via the 2026–27 harvest later. |
Takeaway for buyers: ingredient deflation is real and should support gross margins for chocolate, confectionery and sweetened-beverage makers through 2026 — but the savings are being partially eaten by freight, energy and packaging, and the fertiliser overhang argues against assuming the benign input picture persists into next year.
3. Corporate Strategy & M&A: Big Food Keeps Breaking Up
After a decade of consolidation, the conglomerates spent the month continuing to simplify:
- Unilever has operated without ice cream since the December 2025 demerger of The Magnum Ice Cream Company (Magnum, Wall’s, Ben & Jerry’s), retaining a residual stake to sell down. It continues pruning ~$1bn of smaller local food brands; Hellmann’s and Knorr now make up the large majority of remaining food sales, and management has not ruled out a broader food separation.
- Kraft Heinz halted its planned split in February under new CEO Steve Cahillane, opting instead for a ~$600m turnaround investment in core brands — a notable reversal of the deconglomeration narrative. Earlier exploratory talks with Unilever about combining condiment/food assets (a Heinz-ketchup-meets-Hellmann’s entity) were reported and then ended.
- Nestlé continues to step back from ice cream and parts of its water and supplements portfolios.
- The prior 12 months’ deal wave — Mars–Kellanova, Ferrero–WK Kellogg — has now been digested, with brand-level rebrands (Lay’s, Suntory’s Ribena) layered on top.
Commentary during May (e.g. trade coverage on 11 May) was openly questioning whether these splits create value: both Unilever and Kraft Heinz saw share-price weakness around the announcements, and the academic base rate for value-accretive spinoffs is unflattering. The honest read is “execution-dependent.”
Earnings scorecard (Q1 calendar 2026):
- Coca-Cola (reported 28 Apr): a strong start — net revenue +12% to ~$12.5bn, organic revenue +10%, unit case volume +3%, comparable EPS +18% to $0.86; full-year guidance raised. Worth noting an outstanding IRS transfer-pricing dispute with a sizeable disclosed exposure. A small but telling competitive signal: McDonald’s is bringing Red Bull into its beverage line-up, a notable crack in a long, deep Coca-Cola relationship.
- PepsiCo (reported 16 Apr): beat expectations; the struggling North American food unit returned to volume growth after price cuts on Doritos and Lay’s, and international food volumes grew ~9% in both EMEA and APAC. Management flagged a more “volatile and uncertain” backdrop from the Middle East war while saying it had not yet seen consumers pull back on fuel-cost grounds. Innovation is tilting hard toward protein/fiber/prebiotic (Pepsi Prebiotic, Doritos Protein, SunChips Fiber, a Starbucks coffee-and-protein line).
- McDonald’s (reported 7 May): global systemwide sales +6% in constant currency, comparable sales +3.8% (US +3.9%), adjusted EPS $2.83, market-share gains in most top-10 markets — but executives explicitly cautioned on the consumer environment and signalled a slower Q2. Growth is coming more from check than traffic, and the chain is weighing selling weaker company-operated US units to franchisees.
4. Beverages: Soft Drinks Resilient, Alcohol Recalibrating
Non-alcoholic remained the relative bright spot. The category leaders are leaning into functional positioning (protein, fiber, prebiotic, electrolytes) and a fragmenting “craft beverage” channel at foodservice — Coca-Cola flagged the rise of Dutch Bros, 7 Brew and similar beverage-led formats as a genuinely new competitive set.
Alcohol is at a clear inflection point:
- Volume softness persisted across beer, wine and spirits. Notably, beer demand stumbled in May as surging gas prices squeezed discretionary spend — a direct line from the energy crisis to the cooler aisle.
- Moderation is now mainstream, accelerated by GLP-1 adoption. Survey work cited by EY suggests a large share of GLP-1 users drink less and keep the habit after stopping; wine shows the steepest decline among reducers.
- No-/low-alcohol and RTD continue to take share — RTDs are now north of 12% of alcohol dollars — while broad premiumisation has faded toward smaller pack sizes and occasion-based trade-up.
- Regulatory wildcards: a proposed US federal limit on hemp-derived THC beverages (~0.4 mg/container, potentially effective late 2026) could reshape the adjacent “social intoxicant” set; and Canada moved this month toward cross-border direct-to-consumer alcohol sales, with provinces working to a May 2026 deadline to let consumers buy domestic wine, beer and spirits directly from producers.
5. Foodservice & Restaurants
The National Restaurant Association’s 2026 outlook frames the year well: US restaurant and foodservice sales are expected to surpass $1.55tn (+4.8%), but most of that is menu pricing — inflation-adjusted growth is closer to ~1%, and around 40% of consumers report dining out less often. Traffic, not demand for value, is the constraint.
- Value remains the battleground. McDonald’s (Extra Value / “McValue”) and a planned Under-$3 menu, alongside non-discounted cultural tie-ins (KPop Demon Hunters, Super Mario), illustrate the dual playbook: defend the budget consumer while protecting check with premium LTOs like the Big Arch.
- Starbucks‘ “Back to Starbucks” turnaround is showing traction, including a return to US transaction growth and accelerating comps in its most recently reported quarter — a watch item for whether the momentum holds.
- Breakfast and the low-income cohort remain the soft spots industry-wide, partly offset by return-to-office.
6. Consumer & Product Trends
- GLP-1 is now a demand variable, not a curiosity. Beyond alcohol, it is reshaping snacking and portion behaviour; Hershey, for example, noted GLP-1 users driving higher gum and mint sales. Expect continued reformulation toward protein, fiber and satiety.
- The US reformulation wave (“MAHA”) is accelerating. Synthetic-dye phase-outs are moving up timelines: General Mills targeting cereals by summer 2026, Nestlé USA mid-2026, Kraft Heinz and General Mills full portfolios by end-2027, and Walmart private label by January 2027. May saw the consumer-facing edge of this — e.g. a dye-free Kool-Aid electrolyte launch tied to the broader Kraft Heinz overhaul. The constraint is the natural-color supply chain, where capacity (e.g. Sensient’s expansion) is being built to meet mandated demand.
- Flavour and format: functional sodas, prebiotic and electrolyte drinks, fermented and globally-inspired flavours (yuzu, calamansi, koji-aged, miso), and “freezer fine-dining” convenience all continued to gain shelf and menu space.
- Value engineering: shrink/price-pack architecture, “better-for-you” justification for higher prices, and SKU rationalisation across both CPG and on-premise are the defining margin tactics.
7. Regional Snapshot
- Middle East / GCC: the epicentre of the macro story and structurally the most import-dependent region; food-security planning, reserves and routing are the priorities. The energy disruption is a regional cost shock even as Gulf economies are central to its cause.
- North America: resilient but cautious consumer; value-led foodservice; reformulation and dye rules the dominant regulatory force; Canada opening interprovincial DTC alcohol.
- Europe: Big Food restructuring (Unilever, Nestlé) is most visible here; modest demand; EU anti-deforestation timing continues to shape cocoa/coffee flows.
- Asia-Pacific: the relative growth engine for the multinationals (Pepsi’s APAC food +9%); pockets of supply stress (e.g. tightening ube supply out of the Philippines as the ingredient goes global).
8. What to Watch into June
- Hormuz reopening — the binary that swings energy, freight, grain and fertiliser. A confirmed, durable deal is disinflationary; a failed one re-prices everything higher.
- Fertiliser — the lagged risk to the 2026–27 harvest even if the strait reopens.
- Q2 consumer read — McDonald’s and peers signalling a softer Q2; watch whether trade-down deepens and whether fuel costs finally dent staples spend.
- Cocoa floor — how low the surplus pushes prices, and whether chocolate makers pass savings to consumers or rebuild margin.
- Big Food next moves — any revival of Unilever food separation or Kraft Heinz strategic action.
- THC-beverage rule and continued dye-reformulation milestones (mid-2026 deadlines arriving).
Sources include reporting and data from the IEA, FAO/UN, WEF, Deloitte, EY, the National Restaurant Association, NielsenIQ, company filings and earnings releases (Coca-Cola, PepsiCo, McDonald’s, Starbucks), and trade press (FoodNavigator, FoodDive, Restaurant Dive, DairyReporter, Reuters, CNBC). Commodity levels are period readings and move daily.