Keeping the food supply chain stable and employees safe is a major concern today because of the impacts of coronavirus in the food and beverage industry. Consumers are growing increasingly concerned about the uncertainty surrounding the COVID-19 outbreak. To try to prepare for future unknowns, shoppers have started to create stockpiles of supplies, emptying grocery store shelves as they shift their eating habits to stay at home. By the end of February, shoppers moved from overall proactive health-conscious shopping to a preparation mindset. Shoppers have prioritized their focus on stocking their pantries with large amounts of shelf-stable or frozen products to support themselves throughout any potential upcoming quarantine efforts, especially after “shelter-in-place” guidelines continue to be announced across the country. This poses a unique situation for many companies in the food and beverage industry, as they must quickly make adjustments to maintain supply and keep up with demand.
Situational Overview of Coronavirus in the Food and Beverage Industry
Along with many other CPG producers, food and beverage manufacturers are facing extreme conditions because of the coronavirus. Operating under these uncertainties requires constant, thorough monitoring, and companies must review and update their contingency plans to prepare for new challenges. Though sales are currently rising for many nonperishable goods, if the outbreak does not stabilize soon, new challenges and costs could end up outweighing these short-term benefits.
Approximately 94% of Fortune 1000 manufacturers have already been affected by the coronavirus. Companies operating in foreign countries face issues with closed production facilities and reduced labor forces, as well as fewer product sales within these affected markets. As US policymakers have asked companies to permit and encourage remote work policies for their employees, productivity and output capabilities are in question during this time, especially in food and beverage manufacturing. This could cause difficulties for companies trying to meet consumer demand as the outbreak continues. However, well-financed manufacturers that source locally will likely be able to handle changing conditions and longer-term issues.
In response to the coronavirus, the FDA has heightened food security controls by screening, examining, and sampling imported goods, using their risk-based import screening tool (PREDICT) to target certain products under higher scrutiny. Yet, no evidence has been found indicating that the coronavirus is capable of overcoming preexisting contamination protections, and therefore it is almost certainly unable to be transmitted via food. This is one positive aspect of the situation, but the food and beverage industry faces all kinds of changes, good and bad, that have made planning and careful consideration essential.
Over the past few weeks, dried bean sales rose by over 60%, while powdered milk product sales rose by over 125% and fresh meat alternative sales rose by more than 205%. Companies like Conagra Brands, Campbell Soup, Kellogg, General Mills, Mondelez International, J.M. Smucker, and Kraft Heinz are experiencing this type of demand increase for their frozen and shelf-stable goods. General Mills redesigned their distribution plans to match the highest demand in certain regions, and Campbell Soup also took action to maximize their inventory production to serve this growing demand, with little chance of a shortage due to their mostly local sourcing. Coca-Cola also does not foresee any short-term shortages of Diet Coke or Coke Zero, though ingredients for these products are usually sourced internationally. This is because the company has implemented contingency plans to source ingredients locally, as has Nestlé, who is also hoping to keep factories and distribution centers operational.
One compelling trend in beverage is that oat milk companies such as Oatly have seen an almost 350% increase in sales. Milk alternatives company Califia Farms has been working to keep production stable to match rising demand by increasing manufacturing cycles to get weeks ahead on inventory supply. Another beverage company, Corona, received a sales increase of 5% between mid-January and mid-February.
Unfortunately, companies in the food and beverage industry that drive a majority of their sales from restaurant bulk buying may not be as well situated as some of these other companies. And, though the outlook for nonperishable brands is positive right now, this will only remain stable if companies seriously reconsider their supply chain and formulate contingency plans for the coming weeks and months. Considering the potential for ingredient and supply shortages, as well as export restrictions, manufacturers need to do their best to ensure that consumers will have access to their products during this time.
How Brands Can Mitigate Risk
Looking ahead to manage materials sourcing and labor, as well as how to continue meeting supply and contractual obligations, will be crucial for food and beverage manufacturers to stay afloat during the uncertainty caused by the coronavirus.
Considering the impact of any potential limitations on imports, exports, and human transportation in coming weeks, food and beverage companies should focus efforts on securing locally sourced ingredient and storage alternatives. Manufacturers that produce goods through a global supply chain should consider partnering with local suppliers for the time being. In assessing new partnerships, manufacturers should consider any new hazards or risks that would need to be accounted for, in order to continue following Good Manufacturing Practices and Hazard Analysis Plans.
Since the FDA has currently paused their inspections in China, screening of imported goods has become a much slower process, which is another factor that could limit a company’s ability to support demand from consumers. Additionally, manufacturers that export perishable goods should analyze holding costs and management guidelines for any product shipments affected by the coronavirus outbreak. Seeking external storage options to maintain optimal conditions could become crucial to mitigate losses.
Manufacturers should create plans to reduce employee interaction and control access to facilities. Limiting the number of people in contact with each other and with a facility can prevent widespread outbreaks that could harm production. In order to reduce negative impact and to prevent disease spreading, companies should look carefully at their policies surrounding sick leave and pay. By broadening coverage for the coronavirus in the food and beverage industry, asking for workers to self-report sickness, offering paid sick leave, and even implementing mandatory health screenings, businesses can limit the impact of poor employee health. And, in considering the possibility of a facility outbreak, every company should create an action plan for quick operational recovery. Overall, companies should prioritize the wellbeing of their employees and initiate flexible practices to support them.
Meeting Supply & Contractual Obligations
Companies may be worried about meeting customer demands and contractual obligations. In order to maintain stable levels of inventory, communication with suppliers will be critical. Looking far ahead to downstream customer demands will also help companies plan payments. Additionally, companies should consider what could happen if their current suppliers fail to meet their needs, as well as what could happen if competitors become incapacitated. Balancing opportunity with risk analysis can help manufacturers keep products in distribution for adequate supply. In general, to meet the needs of each internal department involved, including sales, operations, finance, regulatory, quality, and legal, it is important for companies to pull together a crisis response team for risk management planning.
Coronavirus has required marketers everywhere to rethink their marketing campaigns. Consumers’ lives have been completely overhauled and, as a result, the strategies that marketers once found successful will no longer work. But rather than shifting strategies, many marketers have paused their efforts in response to the virus. Consumers are spending more time than ever on devices and that gives food and beverage brands an opportunity to communicate with consumers in an authentic, transparent and meaningful way. But in order to resonate today, brands must be flexible and be able to create content and respond to changing situations quickly. Additionally, brand loyalty has taken a back seat as consumers have focused on pantry loading. Brands need to use this time to stay top of mind and create content that will help consumers get the items they need without putting themselves at risk.
Keeping up with increasing demand while planning for risk mitigation will be the most important strategy for companies navigating the coronavirus in the food and beverage industry over the next few months. If manufacturers can find ways to adjust their supply chain as necessary while keeping production and distribution ramped up, they will likely be able to survive this period of uncertainty.
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Contributions by Courtney Loughran.