Food Industry Prepares to Face a ‘New Normal’
As the COVID-19 crisis continues, the food industry is preparing for a new normal. Already, we can see the beginnings of the transition from operating in a purely reactionary mode to developing procedures and strategies to operate successfully and respond to what will likely be a changed environment.
I’ve had several conversations with food industry executives over the past few weeks. Some common themes have emerged, including:
- Dramatic retail sales volume increases (upward of 400%) driven by shelter-in-place pantry loading while restaurant meal numbers plummet.
- Although still at double digit elevated levels (25% to 50%), the recent leveling off in retail demand over the last few weeks is not expected to change anytime soon.
- The importance of being creative, flexible and responsive in everything from streamlining SKU production to product sourcing.
- Adapting corporate policies regarding sick leave, bonus pay, telemedicine access and other employee- and family-friendly initiatives.
- The challenge in keeping employees healthy, both physically and mentally.
- The importance of over communicating with both employees and customers.
- The challenges emerging in the distribution chain from foodservice refrigerated and frozen warehouses, which are at capacity, to the challenge grocers have in getting product from their warehouses to stores as delivery frequency requirements double or triple.
Not surprisingly, many of these themes came up in my most recent discussion, but it’s also becoming clear that companies are preparing for long-term changes. During that discussion I spoke with four industry leaders on the steps they’re taking to adapt to the new realities:
- Doug Atamian, CEO of Home Market Foods, a Norwood, Massachusetts-based manufacturer of fully cooked protein products sold through the grocery, mass value and club channels.
- Carrie Jones-Barber, CEO of Dawn Foods, a Jackson, Michigan-based provider of bakery solutions. The company, which is celebrating its 100 anniversary, sells ingredients to over 100 companies in foodservice, supermarket bakeries, artisanal bakeries, and small-to medium size manufacturers in the U.S., Europe and Latin America.
- Rob Sarlls, CEO of Wyandot Snacks, a Marion, Ohio-based contract manufacturer of better-for-you snacks and other food products, which is celebrating its 80th anniversary. While the majority of its business is co-pack, Wyandot’s operations also include private label, ingredients and foodservice.
- Ray Sprinkle, CEO of URM Stores, a Spokane, Washington-based food distribution cooperative serving 275 grocery stores in four states. They also serve the convenience store and foodservice sectors through a recently formed partnership that allows them to focus on the grocery business during the pandemic.
Following is a summary of our conversation.
Preparing for the Inevitable
Dawn Foods, like much of the food industry, had to shift gears quickly in response to COVID-19. But because the company has operations in Europe, where the impact of the outbreak preceded the U.S., it had the advantage of taking some preemptive measures based on “early warnings and insights from those operations”.
“We’ve got crisis teams in all three of our strategic business units, North America, Europe, Latin America and AMEAP [Africa, Middle East and Asia-Pacific], so we stood up our crisis teams immediately and made sure we understood our material impact,” Jones-Barber said. “We were able to find alternative sources, we worked with R&D to do some reformulations, and we ordered safety stocks to get us additional nine-month supply. They had global meetings every day. We have people on the teams who have gone through SARS and epidemics before, so they were hugely valuable in saying, ‘Don’t look here, look here; do this, don’t do this right now.’ ”
By applying best practices for both global and regional tactics, Dawn Foods was able to make adjustments quickly. The company’s roster of more than 300 truck drivers, for example, was known for the personal touch they brought to their relationships with in-store bakeries. In the context of the pandemic, however, that required modifications.
“Our truck drivers are a little unique where they actually take product into the bakery and rotate the stock,” Jones-Barber said. “They have camaraderie with the bakers, but we couldn’t let our drivers do that anymore. So we quickly had to create a new policy of how our drivers would interact with customers and make them feel safe doing so. We were concerned about how our customers would react because we could no longer go into the back of the bakery. But by and large most of our customers were fine.”
Jones-Barber pointed out the number of customers who not only understood but were impressed with the company’s focus on keeping their employees safe. “That was something they were not seeing from some of our competitors,” she said.
Keeping Things Running
The psychological component is just as difficult to navigate internally. Atamian noted that as Home Market began dealing with employees testing positive, keeping tabs on the remaining workers’ mindset became essential.
“We are juggling very difficult subject matter,” Atamian said. “Tracking people who have left becomes really important. Did they leave because they were sick? Because they were next to somebody who proved to be sick? Did they stay home because they were petrified out of their minds?”
With that in mind, Atamian said it’s crucial to tightly manage the lines you’re running. “To the extent that you can, track these folks and stay connected with them, so you can help them and coach them back to work,” he said. “Even if you’re down to minimum lines, keep running and then start bringing people back and opening up lines.”
For its part, Dawn Foods has been monitoring their lines and implementing demand planning. “In Denver we took one line down and we’re rotating shifts, so that if you don’t have enough people to show up, you run whichever shift you have the most demand for the production,” Jones-Barber said. “It seems to be working out all right, but it depends on how long it’s going to go on for us to understand the impact.”
On the retail front Sprinkle noted recent initiatives implemented at the store level, including plexiglass shields at cashier stations, allowing employees to wear masks, and marking six-foot breaks at checkout stands and down the aisles.
Everyone knows COVID-19 will change the food industry; the challenge is in figuring out exactly how it will change. The initial consumer response was a return to big-brand prepackaged and processed foods typically found in the center of the store. Sarlls doesn’t expect that to hold when the impact of the virus eventually fades, but the effects won’t reverse course overnight either.
“Long term, we’re going to get back to our consumer base wanting better-for-you products,” Sarlls said. “Although I think it gets diminished and modified in the short and medium term.”
Going forward, Sprinkle sees an opportunity for SKU rationalization as manufacturers, retailers and consumers adapt to a world with fewer product options. He also doesn’t see things going back to the way it was anytime soon.
“I think people will be uncomfortable going back into restaurants once the stay-at-home orders are lifted,” Sprinkle said. “I think people have found out they know how to cook or they’ve learned how to cook. That may change when they have to go back to work, but I think they’ve found tremendous benefit as a family being able to sit down and eat a home-cooked meal.”
As for the overall business impact, Jones-Barber says this recovery will likely have a less clearly defined trough than we’d see in a normal downturn. “We don’t see this as a V-shaped recovery,” she said. “We think it’s a U-shaped, but it might be a little wide at the bottom.”
Given all the moving parts involved with attempting to come to terms with a new normal, Atamian has some advice for his fellow industry executive. “When you have a gut instinct on something, act on it,” he said. “Don’t let your gut instincts get diluted in any way, because you’re probably going to be right.”
Market Executive & Managing Director, Food, Consumer and Agribusiness Group
Erica T. Kuhlmann is a Managing Director and Market Executive of BMO Commercial Bank's Food, Consumer and Agribusiness Group. The Food, Consumer and…(..)View Full Profile >
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