Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors

2021 food and beverage industry outlook

The US food industry is struggling through the coronavirus pandemic, but the end is in sight. Which of its lessons will become permanent? This article is American in focus, but provides some really interesting global insights…

When you’re discussing the state of the food and beverage industry, the pandemic isn’t just the elephant in the room. It’s the elephant who’s sitting on your lap and sticking its trunk in your ear – impossible to even pretend to ignore.

As America and the world enter the second year of the pandemic, the food and beverage industry is struggling to come to terms with it. The crisis has reversed some trends, accelerated others, and created still others from scratch. As the industry works through the crisis, with the end hopefully in sight due to vaccines in development, it remains to be seen which of the lessons will carry over afterward.

Arguably the greatest disruption was the profound changes in demand among consumers forced to shelter at home. Demand shifted away from foodservice, as consumers found themselves having to prepare most or all of their meals at home.

Non-perishable centre-store items, long on the decline, saw a sudden surge in popularity, for several reasons: People who were suddenly faced with cooking at home needed staples; panic buying took hold in the pandemic’s early stages; people turned to comfort foods in uncertain times.

As a result, sales of pantry and other home staples soared. Canned soup sales were up 200% year over year in March, and frozen food sales were up 40%. Demand especially surged for comfort foods like snacks, with potato chips up 30% in March and popcorn up 48%. This helped the processors who made such items: General Mills, Tyson Foods, Campbell Soup and Kraft Heinz all saw sales gains between 10% and 20% in March.

Planners at those companies and throughout the industry have had to deal with two events that are inevitable but unknowable in timing and scope: the second wave of the pandemic and its eventual end.

As long as COVID is a threat, the food chain will have to put up with fluctuating demand, says David Gottlieb, a managing director for Trax, a retail intelligence service for consumer goods companies.

“We expect to see preferences for fresh and centre-store items continue to whipsaw until fears caused by the pandemic subside,” Gottlieb says. “To manage these changes, many retailers are offering more centre-store options to combat fears of out-of-stocks.”

One measure of the disruption is how demand has shifted among contract manufacturers. For Hearthside Foods, one of the biggest (and Food Processing’s 2019 Processor of the Year), the pandemic meant handling a surge in demand for the cookies, bars and other pantry staples it co-packs for several major brand owners.

“There were a number of cases where their demand was more than they could do internally and they came to us and asked us if we could help out and take on some products for them,” says Hearthside CEO Chuck Metzger. This included packaging product that was delivered in bulk, along with manufacturing.

The end of JIT?

Out-of-stocks were a major problem at the beginning of the pandemic, which exposed the fragility of the food supply chain. For decades, food processors, in tandem with retailers, worked to take as much inventory out of the system as possible, getting as close as they could to a just-in-time (JIT) model. But when the pandemic required massive shifts among channels and big changes in production plans, the JIT approach proved problematic.

During the second wave and beyond, the industry will have a motive to evolve to more of a “just-in-case” model. In fact, that is already happening in some cases, says Roland Fumasi, head of the North America food and agribusiness sector for Rabobank’s RaboResearch unit.

“We are already seeing more blending between just-in-time and just-in-case,” Fumasi says. “Where possible, value-chain participants are holding more inventories. This tends to raise carrying costs but allows more responsiveness during unforeseen events that cause demand surges. The industry continues to evaluate what ‘correct’ inventories should look like, given recent COVID case surges and potential for more lockdowns.”

The JIT model is probably here to stay but will require tweaking, says Corey Chafin, a principal in the consumer practice of Kearney.

“As food companies continue adjustment to the ‘no normal,’ they will tweak their inventory strategies for high-risk items, but we do not expect a categorical abandonment of JIT inventory practices nor a step-change expansion of warehouse capacity to accommodate increased inventory levels,” Chafin says. “Instead, food companies are focusing on managing supply chain risks end-to-end.”

Reliability over price

Maintaining the supply chain is, fundamentally, a matter of maintaining the relationship between food processors and their grocery trade customers. That relationship can be fraught at the best of times since, in the end, both sides want the best price. But the pandemic has taught some grocers a lesson: Reliability in supply is often more important than price, and the big players are in a better position to furnish that reliability.

“COVID-19 and related disruptions have absolutely affected the relationship between grocery and their suppliers,” says Tim Alexander, a managing director for Harris Williams, a global investment bank that specialises in mergers and acquisitions. “What we’ve seen is that the partnerships have grown stronger, particularly for larger grocers. The pandemic has illustrated the importance of reliable suppliers that allow grocers to keep product on the shelves.”…

FoodProcessing.com: Read the full article

Spread the love