The food industry is bracing for major adjustments as concerns over the spread of the coronavirus (COVID-19) grow. While the full extent of the outbreak’s impact remains uncertain, labor and supply chain disruptions are major areas of focus.
A surge in sales of shelf-stable foods and beverages in the United States may boost profits for some food manufacturers and retailers in the near term. Sales of powdered milk products surged 84% during the last week of February, according to Nielsen. Sales of staples like bread and eggs along with rice, beans and frozen foods also have increased as consumers rush to stock their pantries.
Companies are adjusting their operations to meet increased demand. Buying teams are shifting focus away from traditional negotiations and toward ensuring an adequate supply of in demand products. Food manufacturers, including Conagra Brands and Campbell Soup Co., said they are increasing production on top-selling items. General Mills said it is adjusting its distribution to ensure inventory is going where demand is highest.
Supply chain infrastructure
Meeting short-term demand shouldn’t be a problem for most companies, but business leaders and industry analysts expressed uncertainty over the degree and length of the outbreak’s impact.
Some companies, including The Coca Cola Co., began experiencing delays last month as a result of industrial stalls related to the spread of COVID-19 in China.
Many companies have instituted contingency plans to prepare for deeper supply chain disruptions, both internationally and within the United States. Food retailers are focused on ensuring local sourcing to overcome the risk of cross-regional transportation bans. Food manufacturers with facilities in other countries have begun working with local suppliers to keep product moving.
The Consumer Brands Association, in a March 15 letter to the US State Department and Trade Representative, expressed concerns about potential ingredient shortages.
“In times of pandemics … essentials include over-the-counter medicines, cleaning and disinfecting agents, personal care products and non-perishable staples,” the letter said. “Absent early intervention, Consumer Brands fears that efforts by other countries to restrict the export of base materials, nutritional and food inputs, chemicals and other essential manufacturing supplies and ingredients will prevent manufacturers from being able to increase production, ultimately leading to consumers being unable to obtain products that are vital to treating and stopping the spread of COVID-19 and remaining healthy.”
Others said the supply chain infrastructure in the United States may be strained but is flexible and resilient enough to withstand the impact of the outbreak.
Greg Steltenpohl, founder and chief executive officer of plant-based milk maker Califia Farms, said well-financed companies and those who rely on local ingredients may be better positioned to respond to the situation as it evolves.
The company has prepared for several scenarios, ranging from light, medium and heavy impacts on business.
“We’re already past the light, we tossed that out,” he said. “Even two weeks ago, we were obligated to keep that one in there. We’re in what we would call a moderate heavy to a full-on cataclysmic scenario. That does not mean we’re talking about Armageddon, but it means that there is no business as usual in a two to three months framework. Virtually everything that we think is regular is now totally disrupted.”
Califia Farms is gearing up for a surge in demand for shelf-stable plant-based milks, which saw a 323% increase in sales during the last week in February, according to Nielsen.
Califia Farms is taking several steps to keep product moving, including getting to the front of the line with key suppliers and copackers and doubling down on manufacturing cycles. It currently is ahead of inventory by three to four weeks.
“I think all companies should be thinking all the way through their supply chain, around vulnerable ingredients with what happens if a supplier goes down,” Mr. Steltenpohl said. “This has been challenging to say, ‘Well, what if our biggest competitor has an outbreak in their plant?’ Then they might not be able to ship at all for three to four weeks, so we have to be prepared even for way more demand that our own brand would typically take. It does involve entrepreneurial risk taking or risk management because you don’t want to be stuck holding the bag on behalf of your retailers, but you also don’t want to have empty shelves for the whole category.”
Adding to the uncertainty are potential impacts of the COVID-19 outbreak on labor. Companies across all industries are banning travel for employees and instituting work-from-home programs.
Business leaders also are making plans to deal with the potential impact on line labor and manufacturing plants.
“It’s such unchartered territory, in terms of production,” said Tarick Gamay, vice president of sales and marketing at Dreampak, a developer of liquid mixes for the beverage industry. “You can still squeeze value out of remote workers. You’re probably not going to see 100% productivity and output, but if you can get to 50%, that’s pretty good, I think. But when it comes to essential employees in manufacturing, you’re going to get zero value. That’s where you really test out the hard questions you have to ask yourself. I don’t know if anyone has a perfect answer for that.”
Companies are instituting measures to sustain operations by minimizing contact between workers and limiting who is allowed to go in and out of facilities. Many have extended sick pay and encouraged workers who feel sick to self-report. Some have begun screening employees’ temperatures.
In the event of an outbreak at a plant, companies are developing plans to get back online as quickly as possible.
Atlantic Natural Foods, LLC, manufacturer of plant-based brands including Loma Linda, Tuno, neat and Kaffree Roma, restricted access to anyone who is not an employee at its facilities in Thailand four weeks ago. The measure was successful in preventing the spread of the virus and has been implemented at its production location in the United States, the company said.
In addition to extending its sick policy for the year, Atlantic Natural Foods implemented financial support to assist workers. Effective March 20, the company is giving a $100/person supplemental allowance to assist with purchasing supplies and tending to other needs. The supplements will be available every two weeks and will continue through the end of April.
“We are in uncharted territory and chose to respond proactively,” said J. Douglas Hines, chairman of Atlantic Natural Foods.