The food system supply chain has been impacted by COVID-19 as much as any industry aside from healthcare. With restaurants closed, food service businesses shuttered, and grocery stores struggling to stock products, the landscape of America’s food industry has drastically changed as a result of a globally-scaled focus on health and safety.
Some of America’s food business leaders such as Tyson Foods are struggling to address this crisis in the short term and are raising concerns that “the food supply chain is breaking” due to closures of processing facilities in the interest of employee health and safety. The extent of the long-term impact on the food industry is still unclear and depends heavily on the response plans that supply chain actors enable to address employee health and safety as well as shifts in market demand. Producers, processors, distributors/retailers, and restaurants are currently facing separate challenges that have ripple impacts across the supply chain and will need to be collaboratively addressed to survive.
With planting season approaching, producers are scrambling with how to address the new reality for their farms. Lack of market access and change in customer needs will become a priority.
Need for new market channels: The loss of foodservice demand and closure of processing facilities due to health and safety concerns have left producers struggling to find new markets. This is even more challenging for high-value, labor-intensive goods such as organic produce and fruit that are often sold through farmers markets and channels that may no longer be available. These goods also require a higher markup, further limiting their potential in a time when income loss and unemployment is prevalent.
There will be a new level of uncertainty for foreign producers. Imported food – commodities such as coffee and vanilla – will be increasingly difficult to manage due to the anticipation that devaluation of exchange rates will impact behaviors of exporting companies. Trade policy changes and port closures will also further complicate the scenario.
Moving forward, producers will need to focus on identifying new, local market opportunities to overcome supply chain challenges, diversify their customers where possible, and identify ways to innovate on forecasting to reduce labor and product waste. Local farms that have lost restaurant business are now finding success in standing up direct-to-consumer e-commerce businesses, finding a market for individuals in rural areas with less grocery delivery options and customers who have been unsuccessful with their online experiences due to a surge in demand.
The mass shutdown of processing facilities for companies of all sizes has had an emerging impact on the food supply chain. As of April 23, meat processing plants responsible for 10% of the country’s beef production and 25% of its pork have closed. As processors look to maintain operational facilities, they are faced with two core challenges on health and safety that put their service, speed, and productivity at risk. Facilities will struggle to maintain service, speed, and productivity if they fail to address these areas:
Increased risk of workforce safety: Across all areas of a processing facility—receiving, evisceration, cutting/packing – and common spaces, drastic changes are required for current operating procedures to limit human contact. Additional pressure will arise as processors are asked to shift their demand from food service to retail and adapt SOPs to serve this market segment. On an individual employee level, facilities must look to technology capabilities such as daily health screenings or temperature checks of employees to monitor health.
Increased risk of food safety: In addition to workforce safety challenges, the safety of food products is also at risk. The FDA, which monitors and regulates 77% of the food supply, halted their routine surveillance last month. This leads stressed food systems to see increased vulnerabilities as basic regulations go unchecked. Processors should ensure strict adherence to current FDA-approved procedures and ensure additional visibility into this area by the current leadership to monitor potential risks.
Change in product portfolio demand: With the drastic drop in foodservice demand, distributors and retailers must realign their product portfolio and packaging to the burst in retail and online sales. These sales are less focused on high-frequency single-serve items and more on bulk purchases with less frequency throughout the pandemic. This shift will take collaboration with processors, who may need to reconsider their corrugate strategy and retool their packaging lines to meet the capacity in retail demand.
Rise of the direct-to-consumer delivery model: Distributors and retailers must build capabilities to manage the rise of e-commerce grocery, including warehouse flexibility, last-mile delivery, and digital customer experience. It’s estimated that online grocery sales over the next five years will drive an additional 75 to 100 million square feet of industrial freezer and cooler space. There was 100% growth in daily sales for U.S. online grocery shopping in March. Now that consumers have experienced the value and ease of grocery delivery, this trend may be here to stay post-crisis.
Safety before store experience: As grocery stores remain an essential business, retailers need to enable new-reality procedures to ensure the safety of their workers and customers, including policies such as no-touch payment, proper customer spacing, and plastic shields at checkouts. Bulk sections, samples, and pre-prepared foods also need to be assessed for their likelihood of remaining in this new space.
Up to 75% of independent restaurants are not expected to survive the pandemic. Many will need to enable a business operating model that allows for no-touch service and relies less on the dining experience – of which of the timing of its return is uncertain.
Lack of digital infrastructure: Many restaurants lack digital capabilities such as online ordering/payment and inventory planning. Utilizing a third-party delivery app has its benefits but also includes drawbacks in the commission fees charged to orders, which can at times be upwards of 25%. Restaurants must look to innovate and improve their delivery models where possible and ensure cyber secure payment methods.
Inapplicable menu: Restaurants are finding that their usual menus are too complex to prepare on-time and are not as enjoyable as a takeout meal. They must innovate to fulfill consumer demand that matches their new lifestyles such as moving toward family-style meals or take-and-bake options.
While there are challenges facing each supply chain actor, there still is uncertainty around the long-term impact COVID-19 will have on human behavior and the food system. But failing to adjust to the this new normal will not be an option. Supply chain actors should enable a response plan to assess and address the issues that face their business today, with a focus on enabling technology and insights to drive better collaboration and increased agility through the uncertainty. They also must enable workforce health and safety measures to maintain service, speed, and productivity of operations.
How are you managing your unique supply chain challenges? West Monroe has the expertise to help your business enable the capabilities required for the new reality.