July 06 2021

Rising food prices: The challenges and recovery strategies for the Food & Beverage Industry

Photo by Anne Preble on Unsplash

From the announcement of the pandemic and the beginning of restrictions back in March 2020, there has been huge uncertainty regarding the supplies of goods and services on a global level. This uncertainty is heightened within the food & beverage Industry; pressures to manage demand, keep nations fed, as well as to both maintain and open up new routes-to-market have all been major concerns among supply chain links.
Entire supply chains have been impacted, with each and every link having felt the consequences. In this article we will aim to outline:
- The impacts of COVID-19 disruptions on food prices
- The trickle down effect of these price changes
- What these changes and impacts have revealed about global supply chains
- Responses and tactics used to mitigate further damage and protect supply chains moving forward

Setting the Scene: Rising Supply Costs

May 2021, the UN revealed that global food prices rose for the 12th month in a row, with last month’s rise being the sharpest in over a decade, rising at a rate of around 5% between April & May. (2)
Although trade flows fluctuated in the first few months of the pandemic, global supply chain disruptions are not alarming, but the anxiety lies in the supply of global produce - Due to various factors from staff shortages to the disrupted efficiency of operations, global supplies of raw produce such as corn and wheat have fallen, leading to an imbalance between supply and demand.
The continuation of supply chain pressures and the imbalance between supply and demand has resulted in this spike in food prices. The UN has subsequently warned that a sustained rise in food prices is trickling down to the consumer, with those countries who rely largely on imports being the most vulnerable to these rising costs.
For the UK’s food industry, the impacts of trade and travel restrictions paired with the exiting of the EU & Brexit, to further increase food prices throughout levels of supply, with few exceptions. While Sainsbury’s and ASDA remain in deflation, Tesco and Morissons are experiencing increased inflation, with 1.5% and 0.7% (6), reported in January earlier this year. However, it’s important to note that these statistics show that inflation has not spiked at the same heights as it did during the first lockdown, suggesting an easing of price rises throughout the past year. (6)

Reactive impacts for Suppliers, Retailers and Consumers

For manufacturers, the costs of raw materials and logistics costs, price increases have been inevitable. Within the first week of the pandemic, prices of fresh bread and fruit and veg rose immensely, at rates of 76% for bread and 52% for fresh fruit and veg. (7) This came down to insecurities around food, consumer stockpiling and uncertainty around the short-term reliability of supply chains. More recently, major manufacturers have had to respond to increases in raw food ingredients; General mills have signed a higher cost of grain, and these price rises will be reflected in costs paid by retailers, increasing competition. Sequentially, retailers will likely pass these price hikes onto the consumers, who are predicted to respond by reduced spending.
These UN’s warnings have already taken effect with regards to price rises on the retail level, with restaurant chains in the US increasing menu prices to mitigate the economic impacts of these price rises.
McDonald’s and KFC have released strategies to do just this, rebranding their menus to favor more expensive orders. Meanwhile in the UK, “almost 40% of grocery retail suppliers said they expected costs to rise by more than 7% this year, with more than 15% expecting increases into double-digit figures.“ (1)
As stated earlier, these supplier price rises, if sustained, will continue to be reflected in shelf-prices, and so the need to re-evaluate and maximise operational efficiency is key for all major supply chain links.
For the UK’s Wholesalers, numerous issues have arisen over the last 16 months; from widespread closure of customer-bases to issues of both stockpiling and wastage.
The demand from a retail perspective to promise accountability in the supply chain has also led to a worsening issue of Wholesale bypass, which is said to remain a likely threat to the Industry. (4)
Due to the very nature of our global supply chains, a phenomenon such as COVID-19 resulted in major impacts felt throughout, from production right down to the consumer. These disruptions proved a need for predictability, preparedness and resilience, which leads on to our next subject.

What have these disruptions revealed about our Supply chains?

There is no surprise that an unexpected pandemic would have large impacts on both global and national economies.
Panic buying from consumers, uncertainty surrounding supply and demand management, paired with decreased levels of production proved that our supply chains did not have the levels of responsiveness needed to handle such major disruptions.
Heightened consumption from the beginning of the first lockdown coupled with the “slow reaction of retailers to ration them exposed the limitations of cost-efficient and streamlined supply chains to be agile and adapt to unforeseen shocks.” (3) Inadequate stock management systems resulted in major shortages which worsened national anxieties and exposed a lack of resilience and agility. In the long-term, retailers were able to regain some structure and control, whilst a large number of wholesalers and foodservice distributors continued to struggle due to a widespread closure of existing customers.
Although there have been exceptions, the food & beverage wholesale Industry struggled particularly heavily; widespread customer closures and the subsequent impacts of stockpiling and wastage highlighted a demand for improved organisation and visibility over stocks moving forward. The UK’s Government was criticised on numerous occasions here for a lack of support for the Wholesale and Foodservice sectors, while their retail and hospitality counterparts saw large chunks of economic support throughout the first year of lockdown.

Moving forward: Recovery strategies for food industry

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When looking for ways to predict, prevent or combat future disruptions on a scale similar to those we have experienced, there are changes that have been encouraged from complete SCM (Supply Chain Management) strategies, down to individual producers, manufacturers and distributors.
Obviously, improving resilience and adaptability are leading targets for supply chains, with these challenges consisting of:
- Maintained safety measures to ensure levels of efficiency can be maintained
- Accessing more visibility to improve stock-level forecasting and optimise management
- Decentralisation of supply chains, empowering individual supply chain links to have more control over operations, while encouraging the sourcing of local fresh produce to manage demand rather than a reliance on global mechanics.
- The use of big data to strengthen supply chain processes and promise resilience
Reflecting on a few examples from the heights of the pandemic - JJ Foodservice were seen to be extremely reactive to disruptions, and as a result were able to mitigate the damage and maintain sales throughout the pandemic.
After losing their hospitality-based customers essentially overnight, they were able to recover through “quick thinking and a successful business-to-consumer service”. (8) JJ Foodservice quickly reorganised their promotional strategy, marketing their ingredients to home-cooking audiences, promoting bulk savings when placing large orders, as well as reducing the minimum order costs. (8)
They welcomed over 30,000 new customers, and were proud to announce 100% order fulfillment, with Chief Product Officer, Sezer Ozkul describing the strategy as a tremendous achievement for our team.” (8)
This level of responsiveness came down to incredibly quick-thinking alongside complete operational control and visibility, and proves that even unpredictable disruptions of this size do not have to be catastrophic for businesses with the right systems in place.
Novel technologies that provide E-Commerce capabilities, promise accuracy and consistency for planning, deliveries and stock management quickly proved necessary for distributors during these challenging times. In a survey we conducted last year with participants from all areas of supply chain work, we found that 87.5% thought technologies could help manage fluctuating demand and avoid disruptions, while 100% agreed that manual processes are error-prone and technologies would ease planning processes. (9)
The technological delay between retailers and distributors also became noticeable during these disruptions. The technology-orientated progress of retail may be down to the direct interaction these companies have with consumers, yet it has been urged that the implementation of emerging technologies throughout each stage of supply is the most logical way to improve efficiency holistically.
The Federation of Wholesale Distributors (FWD0 released a report in 2019, outlining the future of UK Wholesaling, and although this report could not account for COVID-19 disruptions, the key areas to ensure Wholesalers (and wider supply chain businesses) stay future-driven are to:

1. Invest in technology to improve efficiency

2. Develop differentiating capabilities

3. Become data-driver

4. Increase business model agility

5. Execute an expanded value proposition (10)

References

(1) Russ, H., 2021. U.S. fast-food chains cut discounts, push pricy meals post-pandemic. [online] Reuters. Available at: https://www.reuters.com/business/us-fast-food-chains-cut-discounts-push-pricy-meals-post-pandemic-2021-06-22/ [Accessed 30 June 2021]. (2) Best, D., 2021. UN food price index hits ten-year high. [online] Just Food. Available at: https://www.just-food.com/news/un-food-price-index-hits-ten-year-high/ [Accessed 30 June 2021]. (3) Wentworth, J., 2020. Effects of COVID-19 on the food supply system. [online] post.parliament.uk. Available at: https://post.parliament.uk/effects-of-covid-19-on-the-food-supply-system/ [Accessed 1 July 2021]. (4) Ibisworld.com. 2021. Super sales: Booming demand for supermarket has supported wholesalers during the pandemic. [online] Available at: https://www.ibisworld.com/united-kingdom/market-research-reports/grocery-wholesaling-industry/ [Accessed 1 July 2021]. (5) CNBC Television, 2021. Grocery prices soar amid Covid pandemic. [video] Available at: https://www.youtube.com/watch?v=QucYJ0gA5m8 [Accessed 30 June 2021]. (6) Mattinson, A., 2021. Supermarket prices rise as Covid and Brexit reignite inflation. [online] The Grocer. Available at: https://www.thegrocer.co.uk/grocer-price-index/supermarket-prices-rise-as-covid-and-brexit-reignite-inflation/652172.article [Accessed 30 June 2021]. (7) Barman, A., Das, R. and De, P., 2021. Impact of COVID-19 in food supply chain: Disruptions and recovery strategy. Current Research in Behavioral Sciences, [online] 2, p.100017. Available at: https://www.sciencedirect.com/science/article/pii/S2666518221000048 [Accessed 1 July 2021]. (8) Rowland, E., 2021. JJ Foodservice Reports 1.3% Growth Despite COVID. [Blog] JJ Foodservice Blog, Available at: https://blog.jjfoodservice.com/2021/03/02/jj-foodservice-reports-1-3-growth-despite-covid/ [Accessed 1 July 2021]. (9) Routemagic.co.uk. 2020. Supply-Chain Productivity: The Missing Link. [online] Available at: https://routemagic.co.uk/blog/supply-chain-productivity-missing-link [Accessed 1 July 2021]. (10) 2019. The Future of UK Food and Drink Wholesalin: A decade of disruption & strategic innovation. [ebook] Kent: Federation of Wholesale Distributors (FWD), pp.9-12, 26-27. Available at: https://www.fwd.co.uk/wp-content/uploads/2019/06/FWD-Future-of-UK-Wholesaling_FINAL.pdf [Accessed 1 July 2021].

Photo Credits

(1) Photo by Anne Preble on Unsplash (2) Photo by Elizabeth McDaniel on Unsplash

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Email: joseph@mobile-enterprise.co.uk

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