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At Innovation Endeavors and through our Farm2050 Ecosystem, we think a lot about our food systems. There’s no doubt that 2020 brought an entirely new set of challenges, and one area we’ve been examining closely is the pandemic’s effects on the food supply chain. A few themes, underscored by stark statistics, demonstrate the transformative impact COVID has had:
- Siloed distribution channels caused enormous amounts of food waste — In the early days of COVID we saw huge volumes of food — thousands of gallons of milk, millions of pounds of onions — being tossed at the farm without customers to buy the products.
- As restaurants have reduced service or shut down completely, food suppliers need to find new customers — Over 100,000 restaurants have closed permanently across the US since the onset of the pandemic. The “new normal” has abandoned the previous balance of 45% grocery, 55% food service in 2019 toward a world that’s heavily-weighted toward grocery.
- Grocers’ inventory forecasting systems were upended as customers were left empty-handed — We’ve seen significant stockouts of paper products, eggs, pasta and more with over half of stores out of sanitizing wipes on a given day in June, 2020.
- Demand in new grocery channels — like online sales and curbside pickup — need new technologies to support high customer demand — Grocers are seeing YoY sales growth of 15–30% with online sales accelerating rapidly, up ~75–300% from a year ago.
In order to better understand these shifts and their ripple-effects across the food system, we recently hosted our first Food Supply Chain Working Group that included key stakeholders across the food supply chain — including the Western Grower’s Association, Tesco, Rich Products Corporation “Rich’s”, Target, Good Eggs, Grocery Outlet, The Oppenheimer Group ‘Oppy’, and Nestle, among others — to discuss lessons learned from 2020, how we can build more resilience into the food supply chain, and what’s needed to accelerate positive outcomes.
We need a more flexible food supply chain.
There is a desperate need, given the rapid changes in customer demands, for the food supply chain to adapt quickly. Our belief is that this flexibility is built upon both present visibility and go-forward predictability, both of which are lacking. The need for increased visibility, predictability, and flexibility exists up and down the supply chain, from grower to grocer.
We heard stories of some production facilities running 24/7, alongside others where production had to shut down completely due to inability to meet demand. For example, kinks in the supply chain made it virtually impossible for a facility that produces wholesale sizes of butter and cheese to quickly adapt to producing consumer-friendly end products because that requires huge process shifts: new machining, packaging, and more. Other participants talked about ingredients going unused — generating new food waste — because of drops in demand for specific product lines from restaurants and commercial kitchens.
Siloed channels create rigidity, driving simultaneous waste & stockouts.
Food supply chains have historically been siloed into two parallel tracks — food service and grocery — and products are largely unable to move fluidly between the two. During the depths of pandemic-driven spending, some retailers met elevated consumer demand by manually scraping together supply from disparate food service outlets. Ahold famously met consumer demand not only by having a technology-enabled supply chain, but also by creatively redirecting truckloads of paper goods from college campus bookstores. We have even heard stories of CPG companies turning to OpenTable data as a reference point for where there may be excess supply. You can imagine this would be a proxy at best and isn’t the wide-scale infrastructure required for grocers to easily access traditional food service suppliers. We are still sorely lacking the needed data visibility or marketplace platforms for product to smoothly find its way to demand.
The underlying tension we see in building a more resilient supply chain is a tradeoff: flexibility vs. efficiency.
Let’s look at production: the more automated a food production facility is, the more efficient it is on a per unit basis; however, a less automated, more manual facility provides more flexibility but at a much higher cost per unit. There are clear incentives to invest in automation, even though inflexible, if you expect to produce predictably and at high volumes. But add a pandemic to the mix, which creates extraordinary fluctuations in demand — and the result is those empty grocery shelves, ironically paired with food waste. “Resilience” in supply chains is effectively surplus or inefficiency.
So what future should we build toward — an efficient one or a flexible, resilient one? Can we have both? And how do we get there?
We think there are myriad ways to tackle these problems: better data platforms, new marketplaces, smarter optimization tools, and more that we haven’t even dreamed of yet. We’re excited about teams that are building technology, such as intelligence-backed automation that tolerates less structured environments, that can help us break out of the efficiency-flexibility paradigm.
We’re beginning to see teams with the right interdisciplinary talent and experience tackle these problems with gusto. Below we’ve mapped out a few startups that we think are exciting, from grower to grocer, and from visibility to flexibility.
Ultimately, we don’t think the food supply chain will return to the traditional modus operandi. We think our experience in 2020 will help us create something even better on the horizon. If you’re a startup tackling innovation in the food supply chain space or you’re a corporation looking to test new technologies, reach out. We’d love to get to know you.
