Before the pandemic, the food industry was already facing challenges. The pandemic brought new challenges to the food sector. A whole new set of problems are emerging now that the pandemic has subsided.
Foodservice revenue almost dried up during the pandemic. Schools, restaurants, and entertainment venues were closed. Retail demand grew dramatically at the same time. This led to significant production changes in high-volume packages of consumer-size.
Many companies made the transition successfully. Some companies were unsuccessful. As states relax COVID restrictions, foodservice channels are now reopening. As seen in the states that have reopened, there is an immediate increase in restaurant demand. Although most food processors have strong liquidity positions, it is difficult to transition back into foodservice products. Many will fail without careful planning and the consequences could be severe.
The industry is not new to labor issues. It was hard to find reliable, long-lasting workers before the pandemic. This situation has continued. The high level of government support available to workers has only exacerbated the labor shortage.
Because they make more money from unemployment and stimulus payments than regular jobs, workers are less likely to go back. A typical response is “Call me within a few months.” Because of the potential for workers to be attracted to their company, owners have been reluctant about raising wages in order to keep them occupied. This additional cost is not feasible for already thin margins.
Logistics and transportation have been another challenge. The U.S. port problems are the main focus, but businesses have difficulty moving goods within the country. Trucks are scarce, but the orders are in. At the end of 2019, the United States was down 60,000 drivers, and closings of training facilities due to pandemics severely restricted the supply of drivers.
According to the American Trucking Association, one million additional drivers will be required to meet demand in the next ten years. This is a long-term problem. For the foreseeable future, companies should expect higher transportation costs.
Processing companies face the third problem: a lack of inputs. Plastics, cardboard and corrugated products are in short supply. COVID-related plant shut downs and transportation problems have been causing a rise in domestic plastics shortages for many months. High ocean transport costs and hurricane season are making resin imports difficult. These shortages will continue into the fall.
Corrugated cardboard and cardboard are seeing unprecedented demand. E-commerce grew rapidly during the pandemic, and it shows no sign of slowing down. This means that cardboard and corrugated demand will continue to be high. Price increases for companies can reach 20%. Insufficient U.S. papermill capacity is one of the reasons. The same issues are also affecting packaging companies.
What does this all mean for the industry? Many of the existing problems were amplified by the pandemic. Even more fragile is the supply chain. Managers have many areas to monitor. Management teams must also plan for higher costs in the coming two years. There are four actions companies can immediately take:
- Maintain liquidity in a tight manner regardless of revolver availability. There is always inflation. There are many bottlenecks. To maintain production, companies will need to look for higher-cost alternatives.
- Check the supplier base to identify risks and make contingency plans. Higher packaging inventory may be necessary due to reduced lead times.
- Evaluate both customer and product profitability. Determine which customers or items need to be addressed based on new cost assumptions.
- Review your one-, three and five-year business plans. Pay particular attention to capital expenditure plans and cost assumptions. With a renewed focus on investing in automation and reducing costs,
Food processors and manufacturers are now facing more challenges because of the pandemic. They are supply-based, so it is not common. Fast foodservice demand is rising. A fragile supply chain is being tested. Companies can be prepared and may even become stronger by following the steps. It takes planning, vision, and maybe even a little luck.
