The net effect of COVID-19 has put many of the trends that were developing into hyperdrive, making them permanent ways of life in our food supply. Amazon, for example, moved way up the list of grocers to No. 2 and has been able to hold market share post Covid. During COVID-19, a large part of our society was operating from home as remote workers. In the food industry we did not have that option because certain things must be done in person. This makes staffing and supply chain replenishment more difficult. The working consumer however is still being pushed back into the office, and that affects consumption patterns. Only 17% of workers say they prefer to work in an office versus work at home. All the latest trends point to many companies going to a hybrid environment, where part of the time they're in an office and part of the time they are operating from home.

Changes in consumption patterns will continue due to hybrid work and an aging demographic’s demand for different products/services. Convenience was already surging, but changing working habits and eating habits have accelerated that trend. The snack category is now red hot, with cheese/meat snacks being particularly popular. People who spend a high percentage of time at home working change their eating habits dramatically. Not running out for lunch affects the restaurant industry. Traditional meal cycles are changing to multiple snack cycles, up to 20% of U.S. workers, still work from home, which keeps 62.5% of the food dollar based on retail at-home sales, while 37.5% is based on away-from-home sales.

We're in a mild recession, all the technical facts indicate. This recession will not be traditional in nature. This is a full employment economy with record-high inflation. We're at a midpoint with the baby boomer demographic retiring from the workforce. This will continue to shrink available workers and knowledge available, putting increased pressure on wages and the job market. In spite of consumers being squeezed by rising costs from all sectors, able-bodied workers will have a job. U.S. Bureau of Labor Statistics reports. 1.1 million women left the labor force, accounting for 63% of all jobs lost. In recent earnings reports, Walmart indicated that wealthy Americans were now shopping in greater numbers at Walmart and that's the reason they're earnings were not worse. I suggest they set up charging stations. Higher inflation, and low unemployment will continue to put upward pressure on labor costs. Consumers are trading down to opening price point items and private labels to reduce cost. Because retailer shelves are not fully stocked, consumers have been forced to take what's available, which will create a permanent change in consumption habits and adoption of new/different products.

By dan emery

Geopolitics

The war in Ukraine is grinding to a stalemate of attrition with no end in sight. Ukraine's grain exports are down 52.6% year on year at 3.6 million tons in the 2022/23 season so far. Winter is coming, and energy prices and availability will take a dramatic hit as we grind into the cold months in many parts of the world.

Recently, the Russians made a deal with the Turks to allow foodstuffs to exit from Ukrainian ports. Much of last year's crop is still sitting in Ukrainian bins, and upwards of 17, 000 shiploads need to travel out just to remove stored product to allow this year's harvest to be placed there. The crop acres planted in the Ukraine was actually larger than expected, but it's still unknown what will get harvested, where it will get stored and how it will get shipped.

All these will have a major effect on the price of wheat, corn and many other commodities that are prevalent in this region. Spot rates are still more than twice what they were two years ago when exports from Asia began to surge after the latest COVID-19 lockdowns were lifted.

Energy economy and recession

The Federal Reserve continues to raise interest rates in hope that it will slow inflation. Unfortunately, inflationary models are different than they have been historically. Energy prices have been impacted by the declaration of war against the U.S. energy sector by the Biden Administration, followed by the gut punch of the Russian invasion of Ukraine.

The canceling of the Keystone pipeline at the beginning of the Biden Administration signaled a hostile energy business environment. Our shale oil energy sector is very dependent on constant investment. Oil companies are reluctant to risk billions of dollars when the current administration has signaled to them that they will not cooperate.

Energy is a key component of recent inflation. Prices have begun to go lower, adjusting to a dramatic reduction in consumption due to recessionary conditions across the world. Natural gas, one of the bright spots of the energy sector for many years, requires pipelines for transportation, and without cooperation from the current administration much of it has to be burned off because it's impractical to transport safely by truck or rail. This wasteful practice is made necessary by the lack of available pipelines.

Online grocery shopping

Boosted by the pandemic, buying groceries online is here to stay. The pandemic gave omnichannel retail a turbo boost, but it has plateaued, as more shoppers buy their food and drink in the store. Consumer research has implications for brands and grocers, prompting them to invest more in promotions, processes and technologies that boost in-store performance.

The number of retail customers using buy-online-pickup-in-store (BOPIS, now 68% of online sales) is up from 55% last year. The trend is expected to continue through 2022. In-store shopping remains the dominant channel for buying consumer goods and is expected to grow in 2023. For online consumers, 82% start with past purchase as a baseline when placing an online order. Grocery is a highly experiential business, making physical footprints important tools to educate consumers on products, reinforce brand positioning and support e-commerce sales. Options rule the retail experience. Low margins and high costs plague the online grocery market, but there are ways to boost revenue if grocery retailers collaborate with CPG manufacturers.

Consumers are shopping online in multiple ways. Fresh and frozen foods have gained traction, and healthy and sustainable foods are growing in popularity. Consumers will pay more for online groceries — to a point. Shoppers want BOPIS and curbside options. Online shopping experiences inform grocery preferences.

Supply chain pains

The market continues to struggle to regain its balance. U.S. consumers are accustomed to having what they want, when they want. If they fear a shortage, they will immediately resort to pantry loading.

Companies who were purchasing components, equipment or packaging from China/offshore were disrupted by Shanghai shutting down for 60 days, snarling ports in Long Beach, Calif.,  and elsewhere with hundreds of thousands of containers.

There's a shortage of trucks and truck drivers. Not having a product to ship is where it all begins. Federal regulations are limiting our truckers, impacting the ability to find enough truck drivers and to keep trucks on the road.

Unfortunately, supply-chain issues also wreaked havoc on the foodservice industry in 2022. Import shippers are facing an escalating number of blank and sliding sailings on trans-Pacific trades in December, consultant and carrier data shows, with U.S. West Coast services particularly hard hit. That comes as carriers are also skipping ports in both Asia and the U.S. in an effort to recover sailing schedules

Staffing difficulties abound

As a president and chief operating officer, I understand the severe staffing environment we are in. Ever-increasing pressures are being put on wages and benefits.

Selecting the right people is also very critical, your screening process is vital. Employees expect more and are looking for a desirable place to work. You're competing with many other sectors for your staff.

As a drug testing executive, I am constantly talking to presidents and COO’s about not testing for THC in safety-sensitive industries, it’s a difficult decision to make. Accidents and safety-related issues are accelerating with those who do not test.

We are tracking events as state laws are changing daily. Droves of employees are leaving the restaurant industry.

As brands struggle to keep up — even experimenting with role replacement through automation like self-service kiosks — employees are making their job decisions based on pay, benefits and the sentiment of fulfilling work. When asked why employees are planning to part ways from their current restaurant jobs, 22% indicated it was because of pay and benefits.

Plant-based proteins

The category continues to grow. Many companies now offer plant-based proteins. Taste, texture and mouthfeel are critical for success. Plant-based protein market is valued at $12.9 billion in 2021, and it is expected to reach nearly $22 billion by 2030, with a CAGR of 6.20% during a forecast period of 2022-30.

Consumers continue to alternate their eating habits, with the number of vegans, flexitarians and vegetarians accelerating. Many younger consumers switch between dietary habits, creating confusing demand surges and reductions.

Foodservice

Impacted by rising restaurant prices, consumers eat at home increasingly more often than away-from-home. Restaurant food costs 3.4 times more than in-home food sourced from retail.  At-home food has grown 8.7% sales growth versus a year ago. Away-from-home food is up 6% versus year ago despite the fact that inflation is more moderate for food away-from-home (7.6% versus a year ago) compared to food-at-home (13.1% versus a year ago, according to Information Resources Inc. and NPD Group research).

The away-from-home food market (nearly $1.5 trillion) is forecast to grow around 8% in 2022. Traffic will persist at the drive-through window, the pandemic drove people out of dining rooms. While carryout and curbside pickup have returned to pre-pandemic 10% share, drive-through is still replacing a section of what was once dine-in traffic.

Pre-pandemic, 22% of the fast-casual customers and 61% of quick-serve restaurant customers used the drive-through. Those percentages have increased to 31% of fast casual and 71% of QSR customers post-pandemic.

Digital technology is driving customer engagement. Now that QR-scanning is native in most smartphone apps, adoption of this easy-use smart technology within the restaurant sector has grown. With a strong desire in the industry to expand digital presence, 23% now place orders digitally, and 19% make a digital payment

New product exploration

Innovation has been stuck in neutral the last two and a half years. It’s been frustrating because great ideas are backed up on the drawing board because we cannot execute the things that we already produce and supply in sufficient quantities.

As Covid continues to affect travel, interest in authentic ethnic flavors has intensified. Consumers are trying to find ways to experience tastes from other countries outside their homes and gravitating toward foods from foreign lands to deal with not being able to easily travel abroad to taste the dishes.

Online searches for “Filipino recipes authentic” have increased 35% over the previous year, “Norwegian recipes traditional” searches 120% and "South African recipes traditional” searches 150%. If you're a food brand, help people replace the modern meal with global cuisine. Inspire them to turn a basic chicken dinner into a South African or Filipino delicacy with specific spices and ingredients.

Summary

The state of the food supply is volatile. You have a war between the Russians and the Ukrainians. Both geographies contain significant inputs necessary for fertilizer and food supplies. The global and U.S. supply chains are very fragile. Different strains of Covid continue to circle the globe, causing additional shutdowns and disruptions. Current vaccines are leaky, and outbreaks will continue much like the Spanish flu (1918) still requires a flu shot every year. The Chinese do not have a dependable vaccine and are too proud to use ours.

Retailers are and foodservice operators consolidating and will continue to do so. Online grocery will continue to grow as consumers get more comfortable. Online pickup at stores will continue to grow versus home delivery.

Consumers will demand diverse products that meet their changing geopolitical dietary and economic needs.

Populations have migrated to the Sunbelt, smaller cities and lower taxes as globalization gives way to regionalization.

www.provisoneronline.com   |   october 2022