The pandemic and shift to home dining and takeout changed the recipe for the food supply chain. Here’s how food companies are devouring new challenges.
The food supply chain, like many others, was constructed to be “efficient, lean, and low cost,” says Barry Bradley, global supply chain lead with Crisp, which provides retail analytics software for food suppliers. Then the pandemic hit, restaurants closed, and almost everyone was cooking and eating at home.
The shift to home dining required redirecting many food supply chains and adjusting the sizes of food product packages—unlike restaurants, few consumers need to purchase, say, 40 pounds of rice in one shot. Many companies had to alter their manufacturing, packaging, and distribution operations.
The changes decimated many restaurants. About 110,000 have either temporarily or permanently closed, the National Restaurant Association reports.
Some food sectors, however, gained. For example, the North American grocery industry jumped by 12% in 2020, rather than its typical 1% or 2%, McKinsey reports.
To thrive in this new environment, supply chain professionals managing food companies must address numerous questions: When and how will demand shift next? How to determine and meet total demand across multiple channels?
Food supply chain also “need to be nimble, flexible, and creative,” says Lowell Randel, senior vice president for government and legal affairs with the Global Cold Chain Alliance, a family of trade associations. To address whatever challenges come next, the professionals running food supply chains will have to develop strong relationships with their partners across the chain and jointly craft contingency plans.
Grocers bite into E-Commerce
A few months into the pandemic, nearly 80% of U.S. consumers said they had shopped online for groceries, about double the pre-pandemic number. Demand for same- or next-day delivery also soared, says Pete Allen, vice president and general manager of grocery with Berkshire Grey, which provides robotic solutions. Many grocers scrambled to build solutions to meet these shifts.
Now, after a year or so in this new environment, many grocers are saying, ‘We have a solution, but it’s not the solution we would have dreamed up,'” says Dave Charron, senior vice president of operations with Capstone Logistics.
Cub, which operates 80 groceries in Minnesota and Illinois, had engaged a shopping delivery service during the pandemic. While the partnership worked, management wanted to regain control of customer interactions and ensure quality and timely service. The question was “how to create an online platform that represents the Cub brand,” says Chad Bersie, director of e-commerce.
Bersie turned to Capstone Logistics, whose software continually re-routes orders. It can efficiently incorporate a new order into its delivery schedule until minutes before a delivery starts. It also can alert customers and stores when a delivery is on its way.
As important, Capstone interviews and conducts background checks on all its delivery workers. The program is fully branded, so customers order through the Cub website, delivery drivers wear Cub apparel, and totes feature the Cub logo.
The rollout has “gone well,” Bersie says. One reason? Cub and Capstone talk daily to work through any issues.
Management at Ken’s Foods, a producer of more than 60 salad dressings, decided years ago to work with Westfalia Technologies to automate its Massachusetts distribution center through an automated storage and retrieval system. The goal was to “get out ahead of future growth and labor shortages, have more control over our warehouse, and create a more energy-efficient process,” says Jim Bourne, director of transportation and offsite distribution.
The decision proved fortuitous. “Our distribution centers have not been affected to a high degree by recent supply chain issues,” Bourne says.
Nearly one-third of respondents to a recent Food Engineering survey indicated they were changing elements of their supply chain. During the pandemic, as demand surged in certain areas while others were laid low, food processing companies uncovered weaknesses in theirsupply chainsand had to figure out how to work around them, the survey notes.
Robots, for instance, can pick individual grocery items from inventory and pack grocery bags, among other tasks. “The automation allows businesses to operate 24/7,” says Allen.
As more food travels directly to consumers rather than moving on pallets from distribution centers to stores, maintaining the cold chain becomes more complicated and challenging.
One reason is a shortage of technicians who have earned the necessary certifications in these systems, says Dana Krug, vice president and general manager, food and beverage, with Phononic, which provides solid-state cooling and heating technology. Some regulations now restrict passive cooling, like gel packs or dry ice, he adds.
Phononic’s actively cooled totes, introduced in fall 2021, provide on-demand cooling and reduce the need for mammoth, expensive freezers and refrigerators, Krug says. They use water and carbon dioxide as the coolant, eliminating the need for toxic refrigerants. Three of the top 10 grocers and the leading automation partners for micro-fulfillment centers are currently using them, the company reports.
As important as hardware is the software that can provide operational information across channels. Although it has been in business for only two years, RxSugar’s syrups and sugars—all made with allulose, a natural, plant-based sweetener with 90% fewer calories than regular sugar—are available in more than 12,000 stores, across 30-plus e-commerce channels, and in LifeTime Fitness cafes.
To monitor the various channels, founder Steve Hanley turned to Crisp. Its solution aggregates data across all channels, showing which, for instance, needs more inventory. Hanley and his team can accurately gauge demand and use this data to inform production and ordering of raw materials.
RxSugar has gone from next-day ordering to 12-week lead times on materials and packaging. “We live in a supply constrained ecosystem,” Hanley says. “We’re now in a position to be able to forecast and be way ahead with our supply chain.”
Takeout Growth Challenges Restaurants
Even the restaurants that remain operating face supply chain challenges. One is the number of ingredients that can go into a single menu item. “The availability of the item is potentially constrained by any component,” says Chris Gaulke, a professor at Cornell University.
One solution is shifting to more flexible and/or smaller menus, Gaulke says. Rather than featuring sauteed green beans, a menu might offer sauteed vegetables of the day.
The accelerated shift to delivery and takeout—it reached $45 billion in 2020, versus the previous estimate of $41 billion by 2021, Morgan Stanley notes—means higher food packaging costs and a shift in the menu mix.
While traditional takeout foods, like Asian dishes and pizza, tend to travel relatively well, items like French fries are another story. “After a 30-minute car trip, they can be a soggy, oily mess,” Gaulke says.
New packaging can help. Peel & Stick squares by SAVRpak, for instance, pull condensation from the air to prevent food from going soggy.
Like retailers, restaurants can avoid some supply chain delays and offer fresher foods by working with local farms and suppliers. The downside? This often requires engaging with a larger number of vendors, which takes more time. And because product uniformity tends to be lower, chefs need to be more skilled in using these items.
The gig economy is poised to become a larger part of the food supply chain, and particularly last-mile deliveries, says Alex Dale, senior retail solution consultant with Dematic, a provider of material handling solutions. While protections for these workers remain a concern, many individuals like the flexibility gig work provides.
“There’s not one black-and-white answer,” Dale adds, but companies and policy makers will need to balance worker protections and flexibility to maintain this pool of workers.
Shortages Hit DTC Companies
Before the current supply chain challenges hit, Sushify, a sushi meal kit experience, could leverage just-in-time inventory management, says founder Kent Scholla. For instance, he could purchase supplies for June in May. Now, however, he’s working several months in advance.
Sushify sources many supplies and fish from Asia and especially Japan. On almost every recent order, an item has been missing, he says.
Scholla’s quest for additional freezers, which would allow him to boost inventory levels, has been hampered by the number on back order. He’s considering the used market, although cautiously, as the equipment is prone to breaking, he says. He’s also working with more local vegetable suppliers.
Even so, Sushify has had to do a few last-minute ingredient swaps, and let customers know. “They’ve been gracious, about the changes,” he says. The biggest concerns arise when the change is to a shellfish, due to potential allergies.
Along with the food, packaging, cold packs, and other material surrounding it can pose logistical challenges with direct-to-consumer orders, says Paul Chambers, chief executive officer with SUBTA, an association for the subscription trade community. He recommends maintaining a strong roster of backup suppliers for non-food items and using more domestic food sources when it’s possible.
Sourcing, Employment Changes Also Key
While technology is key to tackling food supply chain challenges, experts say it’s not the only change needed. More flexible sourcing is another, says Richard Volpe, associate professor of agribusiness, California Polytechnic State University.
By offering produce from local farms, retailers can take advantage of shorter supply chains and support local businesses. The interest in organic and local food also “pushes against the long-term wave in consolidation,” he says. Consolidation is efficient, yet “if anything goes wrong, the supply chain falls apart,” he adds.
“Farmers markets are essentially pop-up grocery stores that aren’t bound to a set of SKUs, don’t rely on long national transportation routes, and don’t have to pass through bottlenecks at ports,” says Katie Myhre, technology research manager with the Farmers Market Coalition. The presence of multiple farmersand redundant offerings provides resilience in the event of a disruption.
Farmers markets face their own challenges. The farmers tend to be small businesses. To become profitable, many need to diversify into multiple channels, like Community Supported Agriculture shares (CSAs), wholesale, or online sales. Engaging across all these channels can strain resources.
Safety remains an ongoing concern across all food supply chains. In ensuring food safety, microbiology and food science will remain front and center, says Thomas Burke, food safety and quality assurance traceability manager with Chipotle. However, “their methods will be further informed and augmented through digitization,” he says.
Burke anticipates greater uptake in digital traceability to meet regulatory requirements, like proposed section 204 of the Food Safety Modernization Act. This requires the FDA to designate foods for which additional recordkeeping requirements are needed to protect public health, based on the frequency of outbreaks and occurrences of illnesses, the severity of illnesses, and other criteria. This “will also lead to the proliferation of end-to-end traceability,” Burke says.
Building Stronger Chains
Normally, the food supply chain operates with little fanfare. Lately, however, it has captured more attention, including from policymakers. In June 2021, the U.S. Department of Agriculture announced a commitment of more than $4 billion to rebuild the U.S. food system and to strengthen and diversify supply chains for food production, processing, distribution, aggregation, markets, and consumers.
The focus on the food supply chain offers those involved an opportunity to tell their story—largely a positive one—and to engage policymakers and build more nimble, stronger supply chains.
“I’m optimistic the added attention to supply chains will help us come together and find solutions,” Randel says.