Americans were quick to stock up on packaged foods during the first wave of the coronavirus, and some major producers felt a ripple effect in the supply chain due to the heightened demand.
Now that companies have learned from the supply chain impacts of COVID-19, they have started to think about a shift in strategies to ensure that their businesses are prepared if a second wave hits, especially come the colder fall months after peak flu season.
Food manufacturers, producers and suppliers at all levels of the market saw various forms of disruption due to the first wave.
“We’ve seen some cracks in the food supply chain,” Glenn Pappalardo, a food and beverage strategy and initiatives partner at JPG Resources told ABC News.
Early on, he said staples like canned goods and dried beans “saw a big jump due to uncertainty as to general food availability.”
“Established, major brands in categories like snacks and cereal have seen a resurgence, in part by an initial move to nostalgia triggered by the uncertain times, and in part because they maintained more shelf space versus newer entrants as retailers chose to focus on the larger manufacturers,” Pappalardo said.
In an earnings call earlier this month, Campbell’s Soup Co. CEO Mark Clouse sounded confident about the company’s supply, but said they have increased some ingredients that could cause an interruption to production.
Clouse commented on the call that they “feel secure about our ingredient levels, and that while yes we have some elevated levels of inventory on ingredients where we perceive there could be some risk, I can’t point to any specific impact to our business as it relates to us not having what we need.”
Bobo’s Oat Bars — a Boulder, Colorado-based packaged baked foods company that saw a 50% growth in the months before the pandemic — has since bolstered its bakeries with additional base ingredients ahead of a possible second wave this fall.
“We’ve really elevated our relationships and dialogue with our suppliers and identified a secondary supply. We took all inventories up about 50%,” CEO T.J. McIntyre told ABC News. “We can’t build finished food inventory, but we can definitely make sure that we have enough of our most important ingredients: organic oats, organic coconut oil and organic sugar.”
He continued: “Our suppliers were already in pretty constant contact with us to make sure that they were going to be able to meet our demands, as we were exceeding our own plans. They were ready. They were already hedging to be there for us.”
The Campbell’s CEO said there are four clear consumer and retail trends that he believes will continue to shape the landscape for these businesses in the immediate future.
The first, he noted, is quick scratch cooking, which involves simple ingredients that can be easily assembled to make a great-tasting meal.
“We expect this will be sustained due to a slow return to away-from-home occasions, growing cooking skills and a continued desire for low-cost meal solutions,” Clouse said.
The company behind popular products like Goldfish crackers, V8 beverages, Swanson broths, Prego pasta sauce and more, also expects to see the online ordering and delivery “click and collect” model will accelerate.
“We believe the platforms and the convenience they provide will result in continued usage going forward,” Clouse explained.
Pappalardo added that, “Smaller players were forced to push more of their products through e-commerce.”
Bobo’s tracked a dramatic surge in their online orders both from their website and from Amazon, McIntyre told ABC News.
“Our e-commerce in this time period is approaching 25% to 30% of our revenue — it has absolutely surged,” he said.
In 2020, online grocery sales grew nearly 40% compared to 2019, according to Supermarket News.
For Bobo’s — where they carry everything on their website in house — McIntyre said that they have “brought on some new external partners to guide us on how to best market ourselves in the e-commerce world.”
With the current increase in demand, McIntyre said that a second wave is “at the bottom of our seasonality,” and in the meantime, “we feel really good about the next 90 days.”
“Ultimately, many of the major trends that were driving the evolution of the packaged foods industry — such as a desire for the natural, for variety, for more on-the-go options — haven’t gone away,” Pappalardo said. “We will see them resurface as various structural restrictions are eased and companies and consumers get more used to living their lives among the pandemic.”
Campbell’s has also planned for the possibility that shelves will evolve in light of consumer trend changes, as will center aisles in grocery stores. Foods like canned goods will become more relevant and demand increases will “require more in-store inventory.”
HighKey, a packaged keto and low-carb snack food company, “did not experience significant disruptions in the supply chain,” co-CEO Joe Ens told ABC News. But they had to “build and hold inventory which put added pressure on our cash position.”
As a precautionary measure in advance of a potential second wave of coronavirus, Ens said they are “making sure we have alternative sources of ingredients in the event our partners are faced with shortages or supply issues.”
“You need an agile supply chain that can flex more than it did pre-COVID,” Ens explained. “That includes being able to increase with unexpected demand, but also implement new safety measures to ensure our team members are safe.”
Spikes in grocery sales for items with a long shelf life wasn’t just a preference among U.S. consumers when coronavirus hit, it was a survival tactic.
Pappalardo explained that much of the change experienced by packaged food producers was a direct result of volatility in the supply chain and compressed consumer purchasing.
“The net effect of all of this is that the availability of raw materials, processing production bandwidth and, ultimately, finished products can swing dramatically and quickly, leading to things like scarcity and price surges,” he said.
With the country now in an “official recession,” Pappalardo predicts there will be “a higher emphasis on value for consumers over the next 12-18 months, with value being a relative term depending on the consumer and occasion in question.”
Clouse explained that “value will continue to play an important role as we anticipate the impact COVID will have on the economy.”
“While we expect the economy to recover, it may take time,” he said, adding that it’s “critical” for Campbell’s to “have affordable products that support consumers through some tougher times ahead.”
“If there is a second wave,” Pappalardo said, “we are likely to see a lot of these same behaviors resume or continue, although likely in a tempered fashion, as the entire industry is a bit more educated and prepared for it at this point.”
Source: ABC News