Balancing Today, Tomorrow Key for Continuity
NAFFS Staff Report
The impacts of COVID-19 have been extreme and have hit every industry. None has seen more of a seismic shift in demand and offerings during this pandemic than the food industry, Debra Bachar, president of Blueberry Business Group, told attendees of the 103rd NAFFS Convention.
“Impacts of COVID-19 on the food industry are just beginning and truth is hard to find,” she said. “We are navigating through a world of unknowns—much like the pandemic itself.” The tendency, she said, is to take what is happening right now and add “more” or to predict based on preferences. Both can be very misleading,” she said.
Bachar said companies are operating in an unfamiliar landscape, the most challenging time in a generation. “In the last 90 days our industry went from a supply economy to a demand economy; from an overload overrun product supply to products placed on shelves to meet the radical demand of stockpiling consumers,” she said.
Restaurants suffered tremendously, she noted, adding that “some will never re-open.” For many food companies, she said, “five years of gains were lost in three months.” Others thrived as consumers viewed food through a lens of personal safety, family security and personal comfort through familiarity.
Bachar said these profound social and cultural shifts, combined with the relentless technology innovation times the rate of consumer adoption meant that in the years before COVID, “we saw 10 years of progress in the span of two years. COVID considerations shrink that time period to just six months,” she added.
So how does a company prepare for such a quickly changing, unfamiliar tomorrow? Companies must maintain a strong footing in the present by meeting customers’ needs, yet secure the future by testing and experimenting at an effective cost, she said.
Blueberry Business Group created four plausible scenarios given the possible duration of the pandemic and the corresponding length of an economic downturn; Bachar recommends all companies do the same. “Create a list of all plausible scenarios that could ensue and then scope it with the corresponding effects on consumer behavior in the world and on the organization. It’s just guesswork, to be sure, but it will enable your organization to visualize, mobilize and plan against possible impacts – positive or negative.”
The four possible scenarios Bachar’s team outlined were:
As for the food supply, Bachar said the high unemployment brought on by COVID-19 tended to drive consumers to buy in bulk and better-value store brands. “As a result, manufacturers have been forced to streamline operations to focus on high-demand items,” she said. “Further, manufacturers are pulling back on innovation and research and development due to the low ROI and channel complexity.” These difficult times, she said, added to accounts receivables, complicating cash flow problems in the supply and value chains. Bachar believes the sales spike reported over the last few quarters could be temporary.
Customers, she said, “will revert to the need for more variety and choice.” Therefore, she guarded NAFFS attendees against planning just for today. She emphasized how fast the industry is changing, how three months will bring a new environment and six months another. She said burning too much adrenaline and attention on today may not be the best move with the future so unknown.
Bachar said although investment in innovation and research and development seems like a reach at this time, supermarkets and foodservice distributors are expanding their store and private brand offerings to capture a larger percent of sales as key margin generators of their total offerings. This, she said, should create opportunities for those in the flavor industry.
The pandemic has also increased consumer focus on functional foods, Bachar said. “The consumer has slipped from ‘what do you have for me?’ to ‘what can you do for me?’ One in three Americans is suffering from stress or anxiety, weight gain from comforting junk foods on top of low energy, low activity and sleep deprivation during lockdown,” Bachar said. “It’s no wonder so many consumers are reaching for self-care,” saying it’s the ideal time for food and flavor companies to continue working on new physical, emotional and mental health deals.
She said some ingredient companies are ahead of the curve, expanding beyond food categories into new arenas of beauty and food products with functional benefits, such as aesthetic self-care, inner balance and calm, since this is where the growth will be. These factors, as well as the need for trust in ingredients and ethical sourcing and social consciousness, will spill into every type of food company, she said.
As people continue to experience the effects of COVID trauma for the foreseeable future, self-care food products “will continue to evolve,” Bachar said. “Consumers are redefining what it means to take care of themselves through the food they eat. Self-care is a universally embraced trend, embraced by men, women, by minorities and all generations,” she said. Food and flavor companies are ideal explorers of this category, she added. “Organizations should be asking whether a head start is still possible on this newly defined category. Can competitive advantage be gained before there's no shortage of choices? Are new strategic partnerships wise if our current capabilities or expertise is somewhat limited?”
A close look at the goals of ESG (Environmental, Social and Governance) was also of importance to Bachar. “The risks, returns and ethics of ESG are terrifically increased,” she said, “and COVID-19 has raised the requirements on corporations to do the right thing.” The need to “do good” has been multiplied exponentially, even though this industry is still in the “early stages of ESG conformance,” she said.
“Investors are learning that the investment in a company’s environmental, social and governance goals are every bit as valuable in returns as financials.” Because of this, she said, “we can expect ESG to be linked to bank loans.” ESG, she said, has a direct bearing on food and flavoring companies. “These companies will be expected to meet and ensure alignment, efficient reporting and compliance across the supply chain. Buyers and investors will be looking beyond usual financial performance to a company’s environmental, social and governance goals.”
The top four financial firms have gotten behind the standards and scoring produced by the World Economic Forum. According to Bachar, the time to address the incorporation of ESG into one’s organization is right now. Education should include what ESG standards are coming, what the customers may or should adopt, and how a company’s ESG practices are helping or hindering its competitive advantage.
Bachar said aside from the human trauma and tragedy, the COVID-19 pandemic has caused an economic shock three-times worse that the 2008 financial crisis. Winning food and flavor companies, she said, will succeed because of their ability to think outside their own product transactions and productivity during this unprecedented time.
“The trick,” she said, “is to out-maneuver the crisis by executing on customer needs right now. Mapping your own possible scenarios will help you be ready as the future becomes the now. Big problems need big solutions.”
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