World events and technological innovations have ushered in a new era for the food supply chain sector. How consumers look at, purchase, and consume food has changed drastically over the past several years in response to the COVID-19 pandemic and an increasing desire for complete transparency.
Here is how consumer behavior has shifted in such a short period, the ways that online shopping growth will affect the food supply chain, and what companies can do to provide greater transparency moving forward.
How Consumer Behavior Has Shifted
Consumer spending on food in the United States was relatively stable until early 2020. According to McKinsey, sales in this sector grew by about 4 percent annually, roughly split between food-service companies and retail outlets.
Then the COVID-19 pandemic hit, and everything changed. With lockdowns and physical distancing, consumers shifted their buying patterns dramatically. Spending at food-service outlets plummeted, and sales on groceries and supplies soared about 29 percent over the prior year.
According to recent figures by Mercatus, online grocery’s percentage of the $1.04 trillion market in 2020 was about $106 billion, or 10.2%, up from just 3.4% the prior year. By 2025, consumers could be spending as much as $250 billion online for groceries. The five-year forecast represents a 60% increase over pre-pandemic sales estimates for this space.
In short, the pandemic moved consumers out of their grocery shopping comfort zones. Those who were loyal to brick-and-mortar stores or unsure about using technology to order food online felt that a global health emergency had forced their hand.
When asked in a recent survey why they chose to shop for groceries online, consumers responded: 62% cited pandemic concerns, 62% cited convenience, and 42% cited time savings. Even when the pandemic is over, 90% of e-commerce food shoppers claim they will continue the practice. Even though many shoppers (87%) say they are satisfied with their online shopping experiences, the transition hasn’t been without its struggles for the industry.
Online Shopping Growth and Its Impact on the Food Supply Chain
The explosive growth in online shopping hasn’t been without its challenges. What was once a balanced system quickly felt a string of ripple effects throughout the supply chain as consumers shifted buying preferences virtually overnight.
Suppliers to food service companies, for example, faced abrupt order cancellations, leaving many with excess stock that was tough to redirect to consumers due to serving-size or packaging constraints. Few families, after all, have the storage capacity for restaurant-sized containers of vegetables, fruit, and other perishables.
To meet the rising demand for online shopping, there must be a commitment from all stakeholders in the supply chain to make some significant adjustments.
Many farm operations require significant amounts of labor, which has continued to be a pressing challenge during an ongoing pandemic. This hasn’t changed whether consumers are buying goods in a store or online.
What is important to note is that the demand for these products still exists, even though some farmers may have previously catered to service-related industries instead of retail ones. Instead of taking measures to eliminate or change crops, many farmers can simply search out new opportunities in the growing e-commerce market. If they don’t, it could lead to product shortages and price increases down the road.
Food producers, such as meat and produce processors, have been facing volume declines coinciding with lower service-related and in-store sales. Some producers have also invested in facilities and equipment to produce and package food in bulk format for canned, frozen, processed, and value food chains.
These businesses face some of the toughest challenges due to labor issues coupled with pressure to rebalance the operation to match consumer shopping preferences. They can reinvest in changing their operations entirely. Or, in the short-term, revert to manual packing of products in small and single-serving sizes.
Consumer and Packaged Goods Companies
Packaged goods and other retail-facing consumer goods companies are also facing supply chain issues due to shifting consumer preferences. First, there has been a change in the types of products consumers are purchasing, such as smaller sizes for home consumption and ones that are more shelf-stable.
Businesses in this space have begun engaging new suppliers as well as expediting raw materials to avoid roadblocks in the supply chain. Some companies have opted to offer direct-to-consumer options, but this comes with its own set of distribution challenges.
Distributors in the food supply chain have faced a host of challenges over the past several years. Once the pandemic hit, neither outbound nor inbound orders were anything close to what distributors anticipated. This led to logistical bottlenecks throughout the network thanks to canceled orders, supplier shortages, labor issues, changing demand, and storage space constraints. Further, many distributors have found that they either have excess warehouse space in one location or not enough in another.
Some distributors have adapted by implementing online ordering and delivery services. This can speed up the turnaround in warehouses for perishable goods and other grocery items. Many of these operations continue to face dilemmas connected with stabilizing the supply chain and dealing with an unstable labor force.
While most grocery outlets are benefitting from the increased demand in this sector, they face additional challenges to serve customers that want to order goods online and/or get home delivery.
Services like Instacart have filled the gap to address the issue of last-mile delivery for many retailers. In the first half of 2020, the service added 300,000 more “shoppers” responsible for picking up and delivering groceries to consumers.
Even with services like Instacart and Shipt, consumers and retailers alike want reassurances that food will show up when it is promised and that it is safe to consume.
The Need for Greater Transparency in the Supply Chain
The past several years have really underscored the need for greater visibility in the food supply chain. Businesses at every point in the supply chain must be able to react quickly to market changes and shifts in consumer behavior.
Technology solutions and automation at the warehousing and distribution level are excellent ways to achieve transparency. Some examples include:
- Warehouse Management System (WMS) - A WMS is a software solution that offers visibility into the entire supply chain and inventory. It’s a system that automates daily activities like planning, organizing, staffing, and controlling available resources inside, outside, and around a warehouse or distribution center.
- RFID Solutions - Radio Frequency Identification (RFID) technology is a cost-effective solution that can be used to manage and track inventory more efficiently than bar code systems.
- Mobile Sensors - When it comes to perishable goods, you need real-time data in the food supply chain. There is increased use of mobile sensors in cold chain distribution, that provides data on products related to temperature, expiration date, and more.
Greater visibility in the food supply chain not only satisfies the wants and needs of consumers. It also allows companies to act on information quicker, making smarter business decisions and managing risks. As more businesses take advantage of the technology solutions available to deliver this transparency, there will be increased efficiencies throughout the system as well as more satisfied customers.