The Food & Beverage Industry is always one of the fastest-moving in regards to the changes that come every year in terms of consumer tastes, preferences, packaging, manufacturing, storage and transportation and more. For every familiar item that seems to have remain unchanged for generations (see “ice cream” or “eggs”), there are dozens of others ways it evolves visibly and invisibly and constantly creating new opportunities – and challenges. “Regenerative vertical farms” in the aquaponics industry, Plant-based substitutes for meat, but , coconut and oat-based dairy products and more are all creating challenges up and down the supply chain from the logistics supplying the manufacturers, the packaging, storage and even the marketing. In 2020, we expect to see some of these challenges create bigger obstacles than others. Which ones should you be paying attention to?
The Long Decline of Plastics
“Single Use Plastics” (SUP) accounts for about 50% of all plastic consumption in the US. Ironically, much of the “innovation” in food and beverage in the last few years has been built on INCREASING the use of SUPs as single-serve, ready-to-eat items like hummus, cheeses, snacks, ready-to-drink coffees and shakes. But consumer preferences are forcing the industry to look for alternatives, or at least ways to reduce consumption. While it is unlikely anyone will see plastics completely eliminated in an industry that has strict requirements for preservation and sanitation, the solutions that will be deployed that reduce use of plastic will create new challenges throughout the supply chain.
On the smaller side, straws made of pasta, wood, metal or paper and compostable coffee cup lids are already becoming mainstream ideas. But on a more macro level, SUPs (specifically plastic cutlery, plastic cotton swabs, straws, and coffee stirrers) will be completely banned in EU countries from 2021, while businesses like Iceland Foods (UK), Nestle, McDonald’s, Nestle, ASDA and more are going farther and putting plans in motion to remove all plastics from their production entirely.
On the extreme end of what is possible, “Original Unverpackt”, a German supermarket in Berlin, opened in 2016 with much fanfare as the first “Zero-waste grocery store” with no packaging, plastic or big-name brands. While consumers enduring desire for freshness and convenience will make elimination of all plastics unlikely in the foreseeable future (barring a scientific miracle that would make them obsolete), businesses need to think through all the possibilities this move to plastic-free might entail:
- Does cold storage increase or decrease in importance and required capacity? Both scenarios are possible.
- How does a “zero-plastic” requirement look up and down the supply chain? i.e. How do pallets get wrapped? What are pallets made of?
- How does labeling work when packaging is minimal or non-existent?
Catching up in E-Commerce
Having to deliver products that are either perishable, easily damaged, or not typically distributed in less than a case, the food and beverage industry has been slower than most to embrace and expand E-Commerce. But after lagging other industries for years, Food and Beverage now seems to be taking off in a big way. According to eMarketer, eCommerce Sales are now projected to reach $19 billion in 2019, and globally is expected to grow by a factor of ten from 2016 to 2025.
As delivery times decrease and expectations for speed have increased, consumers are more open to food delivery than ever, with some data showing that over half of those surveyed have already tried it. And the definition of what’s included in this area has expanded beyond the use of retailers like Amazon to replace what they already purchase in the supermarket. There are now dozens of fresh meal-kit home delivery services like Hello Fresh, Blue Apron and Purple Carrot that result in a complex type of operation that could result in tens of thousands of unique combinations being shipped in every box (including over 150 in the US alone!).
E-Commerce has some particular challenges that while may not be unique, have less margin for error than in other industries:
- Trust always matters in E-Commerce (or in any direct sales situation), and being a B2B supplier of someone serving the B2C market means a supplier needs to be up to the B2C standards expected.
- As time-to-market for new products get shorter, pressure on inventory management and turns grow and is difficult to manage with perishable items.
- Food and Beverage require a higher level of transparency than most products, so having tools and systems in place that make as much of your supply chain as transparent – and accurate – as possible will matter.
- Inventories are sensitive and need to be managed even MORE carefully than ever. Because anything in oversupply is likely going to waste.
For one vision of the future of food & beverage E-commerce that is already here, take a look at this solution by Ocado Technology, seen here in a deployment in London, UK. It features up to 1,100 robots working in tandem over 250,000 storage locations, stacked in a three-dimensional grid about the size of a standard soccer pitch (about 77,000 square feet).
Kroger announced a partnership with UK-based Ocato to build out 20 new warehouses in the US to give it the technical muscle to compete better with the Amazon/Whole Foods E-commerce giant.
The Complexity of Inventory Management
The limited shelf life of food products creates unique challenges for inventory management in the food industry. Along with the issue of perishability, food and beverage inventory is susceptible to foodborne pathogens if not handled and stored hygienically. Any losses due to foodborne bacteria or spoilage are hazardous to the bottom line, but even more hazardous ot a business’ Brand and reputation. These stringent requirements imply the need for automation, advanced software technologies and testing processes that will be a core element of solving the challenges that both a more direct-to-consumer marketplace AND a global supply chain will create.
The range of requirements in logistics and distribution in F&B have grown exponentially with services like meal-kits, where there is a handling element to the processes along with the perishability elements. The velocity required of your facility could mean planning for quite a few turns more than a typical consumer goods warehouse. And while first-in first-out (FIFO) is generally a best practice in most industries, it is MANDATORY in food & beverage, adding one more critical element to many of the challenges here.
- Space management is critical. Facilities with high utilization and fast turns can waste significant hours tracking locations and moving inventory around to access what is due to go out first.
- Enhanced inventory management software is needed to keep up with the traceability and transparency that are part of the growing demand for detailed information about food products. From the origin of ingredients, processing locations, dates of each value-add process, etc., not only capturing, but efficiently and clearly communicating the information is critical.
- The assembly of packages with thousands of possible combinations can make it both more difficult to automate processes while also making it even more of a priority in regards to both productivity and quality of handling processes.
And Yes, There Are More
In a fast-moving industry like food & beverage, there will always be a growing list of challenges to match the growing number of innovations and consumer needs. In addition to those share above, other macro-level challenges like the growth of veganism, increased regulatory requirements, environmental pressures like climate change and political earthquakes like Brexit – which can impact or disrupt supply chains – are also factors that need to be considered in planning ahead.
With the markets continuing to grow in many new and often unexpected ways, and with consumers demanding an ever-increasing variety of innovations and specializations, the ability to move quickly and leverage evolving technologies that keep your operations flexible, traceable and transparent will be a critical skill to acquire going forward – internally or with a partner.
Got your tickets to MODEX 2020 yet? AMG will be there with both our own booth, a new product launch and an on-stage presentation. Ask us for information about attending.