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What Will 2021 Have in Store for Food & Beverage?

Jan. 8, 2021
In this podcast episode, we talk about how automation, e-commerce, a new administration, and the gravitation toward the center-store will change the food and beverage landscape in 2021.

On our Season 2 opener, the Food Processing team has gone into forecast mode. Listen in as Editor in Chief Dave Fusaro and Senior Pan Demetrakakes talk about what we can expect in the food and beverage industry in 2021.

Throughout the next half-hour we talk about what trends we can expect to play out this year as well as how COVID-19 and a new Presidential administration will continue to impact the industry as a whole.

Enjoy the episode, and be sure to rate, review, and subscribe to the Food For Thought podcast on your favorite podcast streaming app.

Transcript

Erin It is now 2021, we've got a whole new year in front of us, which means we also have a bit of an outlook. This is one of our favorite things to do at the start of every year is look forward and see what we might be able to expect for the food and beverage industry.

So, Dave, as the keeper of the outlooks every year, I have a question for you. Let's talk about trends. Can you give everyone a review of the overall trends that have become apparent during the pandemic and whether or not you see those continuing into 2021?

Dave: Yes, indeed. Well, yeah, that is definitely the elephant in the room. And a lot of the things that got underway in 2020, we'll have to see how they play out in 2021. And then, we're coming up on the one-year anniversary of the pandemic. Although it kind of started, it was relegated strictly to China in 2019, in December of 2019, it didn't really appear over here in the States until...well, there's a little bit in January, the first death wasn't until February 29th, for better or worse, leap-year day. And even then, people didn't quite know what was going on or how severe it would be.

But in early March is when, you know, an abundance of caution, such an overused term lately, some states started closing schools for like a week at a time. And other things started closing and people started to panic, "You know, is this something that's going to last a week? Are the grocery store is going to close?" They see restaurants closing.

So, in March of last year is when things started really heating up in terms of the pandemic in the U.S. So, the first thing was there was round of a panic buying, and, you know, people went to grocery stores and just cleaned the shelves off of, well, toilet paper and hand sanitizer, first and foremost. If you think you're going to be locked into your house, so the grocery store might close, which they never did, you know, what are you going to buy? You buy a small amount of fresh foods, but mostly you're going to buy shelf-stable stuff because they don't know if the grocery stores are going to close for a day or a week or whether it's going to be several months.

So, things like canned foods, especially soup, shelf-stable items, like boxed macaroni and cheese, and frozen pizzas, they were flying off the shelves. And the companies that made them were doing this fabulously.

And then, restaurants started closing and that kind of accelerated the thing and also made some really problematic issues for food companies that had both foodservice and retail customers. Then, there was cooking at home, and baking, in particular, took off. But the cooking at home, you know, when you had the kids home from schools as well, people didn't want to experiment and spend a lot of time preparing food, they were looking for the simple stuff, you know, like Hamburger Helper and the Kraft Macaroni & Cheese. So, that's why pantry staples became very popular very quickly. And companies that made those things, their sales have been flat for years, but suddenly they took off and they had phenomenal first quarters of 2020.

And then, meat plants started shutting down. They became the poster child for worker transmission of the virus. And most of them didn't shut down for a long time, it was usually like a week at a time, but nevertheless, there were some supply chain disruptions, and that only accelerated, I think, the consumer curiosity about plant-based proteins, in particular, meat analogues.

So, a lot of trends were started during the pandemic. It'll be interesting to see if they continue into 2021. And another one is, as the pandemic wore on, and this is something, you know, that happened in the second half of 2020, people started looking to eat for their own health, eating for immunity. And there was quite a pickup in foods that were fortified with vitamins, especially the antioxidant vitamins, things like C, E, and even D is now being considered as something that helps with immunity, anything with antioxidants in it. Probiotics also took a starring role but they play a role in immune health. And, like for instance, my wife has started buying gummy supplements with elderberry in it. So, things like that have really taken off during the end of the pandemic.

Erin: Yeah, for sure. I know, I already had a vitamin D deficiency before all this pandemic and trying to find vitamin D now in a pharmacy or a store has become almost as elusive as finding toilet paper was back in March. So, I get that. On the consumer side of things, that adding the antioxidants and the immunity boosters into the diet.

One of the things you brought up, Dave, talked about the meat plants shutting down. And, Pan, you cover a lot of the plant operation side for the Food Processing brand. And you were the one who, you know, on the website, was definitely posting all of the different things going on with the meat plants. So, I want to talk to you a bit about that. You have a great vantage point to talk about how food company operations changed during the pandemic. So, first of all, what do you make of the surge of popularity in center store products?

Pan: Well, as Dave said, there is a big incentive for consumers to stock up on center store products because they knew that they would be stuck at home for a while and they weren't sure of their supply. And, as he said, that's why a lot of processors like General Mills, Tyson, Campbell, Kraft Heinz all saw huge gains in sales of those products that they are continuing to enjoy. Even comfort foods like snacks, you have potato chips rose up 3% in March, popcorn was up 48%.

Now, the big question that the companies are going to be asking themselves or asking themselves right now, now that vaccine's around the way and the end of the pandemic is in sight is, how long will this last and which of these tendencies will persist after the pandemic is over? And there's a couple of things to take into account here. For one thing, I've seen speculation that more people will remain working at home or at least work at home more than they did before there was a pandemic simply because they found that they liked it and the companies have found that it's something they can do, and it's a way that they can accommodate their employees.

And then, the second one, I think, would be that a lot of consumers have been forced to learn at least the rudiments of cooking, and they may find that putting together a meal every night, or at least most weeknights a week, is something that they want to continue doing. It's something that they can use to keep their family's diet under control, and it helps a lot with the food bill. So, if there is a bit of stickiness or if that trend has legs after the pandemic, then we're going to see a, you know, certain amount of continued demand for center store items and the kind of pantry items that can help people cook. So, it's all speculative at this point, but I think it's safe to say that consumption patterns probably will not be exactly as they were before this all started.

Erin: During our early episodes of the podcast, which happened to be earlier in summer 2020, something we kept talking about was the supply chain, and that hasn't seemed to change a lot. I mean, it has and it hasn't since we first aired those early podcasts. And we know, there's been a lot of disruption in the supply chain due to the pandemic. Why do you think that happened? And are there any permanent changes likely?

Pan: Well, the biggest disruption, initially, was in the need to move quickly from food service to retail channels because as restaurants closed down or switched only to delivery and as consumers, you know, were seeking more and more to get their food from grocery stores, there just was a great suppression in the foodservice channel and a great surge in the retail channel. In many cases, producers were not equipped to handle that.

Probably the biggest example was in liquid milk. A lot of liquid milk is destined for foodservice and especially institutions in the form of those half pints of milk that schoolchildren drink with their school lunches and breakfasts. And switching to retail production was so difficult that, in many cases, it couldn't be done. There were cases where dairy farmers were literally told by their co-ops to dump their milk because it wasn't worth the trouble of coming to pick it up. And that had entirely to do with processing and especially packaging simply because it wasn't easy to switch from, say, half pint for institutions into half gallons for retailers. It's just not something that you can do on a dime or even in some cases at all, without major retooling and rethinking of your business plan.

And so, now, as demand has evened out between foodservice and retail, and as it will continue to even out, you know, after the pandemic, then that situation will alleviate. But it was sort of an abject lesson in the fragility of the supply chain. And then, in terms of permanent changes to the supply chain, what we might see is at least some backing away from the just-in-time model of delivery. You see, conventional wisdom for the last few decades really has been that inventory costs money and the whole drive was to get as much inventory as possible out of the supply chain at every point from processing to retailing, just because the thinking was that sitting on large stocks of food or products, or whatever kind of product, just isn't profitable.

However, when we saw a ramp and out of stocks at the beginning stages of the pandemic with certain popular items being unavailable or scarce, that sort of exposed the fragility of the just-in-time model. Now, will we go back to having massive inventories in groceries' backrooms? No, of course, not. That's never going to be viable, and especially not at the pandemic. However, the supply chain might very well be tweaked so that there is a greater ability to meet surges in ads and demand and to supply retailers on a more local basis. So again, we'll have to see what happens, but I really think that the JIT model is going to be altered at least a little bit when we come out of this.

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January 28 2p.m. ET
Food Processing's Pan Demetrakakes and Dave Fusaro will look at the trends, twists and turns that will likely shape the food & beverage industry in 2021—such as changing consumer behavior, the prospects for an economic recovery, immunity-enhancing ingredients and plant-based products, how cultured meat has advanced and what our annual Manufacturing Outlook Survey reveals for manufacturing plants. And of course what food buying will be like after the pandemic.

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Dave: You know, those videos of farmers dumping milk and the conditions in meat plants that circulated on the internet, and on your evening news on TV as well, probably motivated at least some people to try plant-based proteins in both the milk category and in the meat category. And if those images were burned into their psyche, a lot of those people who tried non-animal protein sources will probably stick with them in 2021.

Erin: Plant-based protein is going to be definitely something interesting to watch in this coming year. Pan, I wanted to touch back on something about when you were talking about retail, that's an element that we don't cover a lot on food per se, but it's something that obviously food processors deal with constantly is the retail partners. Has the pandemic brought any changes in the relationship between processors and food retailers, at least from what you're seeing, and are any of those likely to endure?

Pan: Before I answer that, let me give a little bit of background as I see it. The relationship between food processors and the retail trade customers is always going to be fraught for one simple reason, they both want the best price. The processors want the highest price and their trade customers want the lowest price. It's never going to change.

However, there's always been a debate in the industry over exactly how much information and sharing and cooperation is appropriate between the processor community and food retailers. And that debate has only gotten more intense as we plow further into the digital age for this reason. Grocers have a wealth of information and data about their shoppers that they gather through digital means, loyalty programs, just generally tracking consumer purchase patterns. And there's been a debate for a long time over how much they can and should share with processors to shape further, you know, future strategy.

And then, on top of that, there's the question of how much processors can and should spend on trade expenses, such as slotting fees and promotions. Generally speaking, the more willing processors are to spend money on those things, the less demanding their trade customers become on price. And according to what I've been told, the industry had been moving toward a greater cooperation in that regard.

Now along comes the pandemic, and grocers have a lot of trouble getting the stuff that their customers suddenly are demanding. And the lesson that a lot of them are taking away is that it's good to be in bed with the big boys. It's good to have large processors as your suppliers because those people are in the best position to find what you need and to make the adjustments that need to be made to make sure that you have in your stores what your customers want.

We saw that with companies like Kraft Heinz and Mondelez and PepsiCo cutting back on marginal SKUs so that they could devote more resources to pumping out the mainstream products that were suddenly in greater demand. So, I'm guessing that at least some of the major food retailers, the major grocers are grateful that their major suppliers were able to come through like that. And the bottom line, as I see it, is that this can only help the nature of cooperation between retailers and processors in many respects going forward after the pandemic is over.

Dave: One interesting thing that didn't happen during the pandemic that has happened in previous economic downturns was a movement toward private label, store-brand products. It's interesting that, you know, when the economy starts crashing, most people tend to gravitate toward cheaper stuff, but it didn't happen this time. They seemed to take comfort in the familiarity of buying real Oreos made by Nabisco or Mondelez, and cereals that were made by Kellogg or General Mills and not going to private-label products just out of saving a few dollars.

Erin: Yeah. That is a great observation. I mean, and who could have predicted, you know, that sort of purchasing behavior. Speaking of purchasing behavior and, you know, maybe some of the business decisions behind things, Dave, you cover a lot of the business side of food and beverage. Can you talk to me and talk to the audience about what kind of business trends you're seeing?

Dave: Well, for one, the big food companies, as I said earlier, they've had a difficult time over the last five years in growing top-line sales. They managed to do some things internally to save money and their profitability has been okay, but their top-line sales have been going down. They did phenomenally well during the pandemic. Most of them had familiar products, famous brands, and as a result, you know, they did just fine. They had great fiscal years or years during 2020.

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The little ones seem to suffer a little bit. If they didn't have a reliability in your supply chain...and somebody like a General Mills or Coca-Cola can, of course, exert whatever pressure they need to keep their supply chain coming. But if you were a smaller company, you probably had more difficulties and it wasn't a great year for small companies. But the question will be whether they can sustain the sales growth that they've endured during 2020, whether that'll continue into 2021.

Also, a kind of an oddity, there were few big acquisitions last year. I mean, Mars bought Kind late in the year, and earlier in the year, Ferrero bought the Keebler cookie and cracker business from Kellogg, but there were no real blockbusters, I think, during the year, which is kind of odd too when you consider how low interest rates have been. But I think the big companies were busy just trying to keep up with demand and, you know, maybe they'll look to acquisitions during 2021 because certainly, interest rates are going to stay low throughout this year.

You know, this pandemic started in China and I was at the financial analyst meeting in February and companies like, I think General Mills and PepsiCo were talking about, they were warning the financial analysts early in February that there was some little flu going around in China and, "We're going to close our plant in Wuhan, yeah, probably just for like a week. You know, it's not a big deal. It's never going to affect our U.S. sales, but we just want to warn you, financial analysts, that our Chinese sales are probably going to be a little depressed for, you know, maybe this first quarter."

But you know, obviously, it's spread throughout the world, and I think a lot of companies are rethinking overseas production. There's a lot of uncertainty in the world and with trade issues with China. China is not the, you know, the pot at the end of the rainbow that it used to be. Pay scales in China are growing, Chinese competition is growing, so it's not an automatic place where you can make the cheapest and good quality products anymore. So, I think there's going to be a movement to on source, to bring a lot of production back to the United States or at least to countries that we feel more comfortable with.

Another thing that comes out of the, you know, business side, and someone mentioned it earlier that everybody's been working from home. We right now are working from home, aren't we? And it caused, to some extent, a pause in R&D. I think, as I said earlier, that a lot of companies just wanted to hunker down and produce more of the familiar products that people were buying, but that caused the pause in R&D. But also we did some stories recently about R&D teams that were having to work remotely and, you know, Zoom meetings are helpful, but they're not as good as in-person contact. And especially when you get into the tasting and going back and forth about a new potential food product, working remotely is not as good as working in the lab and in the office.

Pan: That's really true. And it was also mentioned to me that that's a factor in building new relationships between processors and retailers during the pandemic. You can't really go visit people in stores anymore and trying to sell a new product over a Zoom call just isn't as effective, so that's another reason why there's a big or a better bond between retailers and larger processors because they have those relationships already in existence.

Erin: And shameless plug to all people listening. Pretty much half, at least half of our 2020 Food For Thought podcast episodes, because we did actually, I spoke to all three of our R&D teams, and that was one constant. I definitely kept asking how COVID impacted that product development and R&D cycle. And yes, I know with our processor of the year, they talked about, you know, they really took to Zoom. And even when we did a report on our formulation trends, one of our recent podcasts as well, talking about those relationships of not being able to go and meet face-to-face and just that impact, yeah, you can only have so much fun over a video call or so much relationship building and networking over a video call. So it'll be interesting to see how that goes back.

But Dave, you were saying about just the relationships and the networking and the digital side of things.

Dave: Well, speaking of the digital side of things, one more business and plant operations impact of the pandemic is, and especially maybe in the meat plants, there's going to be, I think, a look toward more automation, not only because it increases flexibility in manufacturing, but if you can take workers out of some of these processes...a robot, they're not going to call in sick and they're not going to be affected by the pandemic.

And there also was a lot of remote monitoring of equipment and troubleshooting. So, this pandemic forced food companies, who have, you know, in terms of the big picture of industry, food has probably been a little behind in terms of automation in the higher levels, like the industrial Internet of Things, but the pandemic forced a lot of progress in that area. And I think the experience has been good. So, that's probably something that's going to carry into this year.

Erin: For sure. One of the things you've mentioned as well is, you know, the consumer analyst meeting, and I remember that, I remember you were at the meeting and mentioning in an email, you know, "Back to the office, hey, people are talking about this." You know, we were posting a couple of articles about COVID at the time, and now here we are, over many months later, and less than 11 months later, here we are. So, and you also mentioned something about international relationships and kind of where we are in the world and how we are working with other, you know, just global trade. There's a lot to unpack there too.

But let's do ourselves a favor and put the pandemic aside for a second, and let's talk about 2021, which, you know, the whole gist of why we're here today. Let's talk about what's coming up in 2021. Dave, give me your thoughts on that.

Dave: Yeah. Well, the new year is underway and vaccinations, to bring the pandemic back into the picture for a minute, vaccinations are well underway. So, it'll probably be not too long, hopefully, that we at least achieve herd immunity and, you know, before too long, you know, maybe near total inoculations. So, that's the bright spot going into the new year.

In a couple of days, there'll be a new presidential administration taking over and, you know, Biden and Harris and the Democrats, in general, are perceived to be probably more pro-labor unions than the administration in the past, probably a little more lax on immigration too. And while the labor situation will financially be a negative impact for some of the big food companies, in terms of worker retention and worker recruitment, having a better, a happier labor force will probably, you know, serve them well. You know, $15 an hour minimum wage, if that ever comes to be, again, will hurt financially, but probably feel pretty good when you have a lot of qualified workers who are happy to work at your company.

The stock market responded very positively to the Biden election, you know, back in November and December. So, the bigger financial markets seem to be comfortable with the new administration.

There are two regulatory issues, labeling-type issues, that are coming up this year. One is the nutrition facts panel, which should have been done last year. The effective dates for different companies were actually during 2020, but because of the pandemic and because the FDA had other things on its mind last year, the enforcement of that was pretty lax, but the FDA has already sent out some notifications. It's going to start enforcing the new nutrition facts panel in 2021, and they're going to be pretty strict about that.

The other labeling issue is, this is the year finally to get your act together on the bioengineered foods or GMOs. The effective date for that is actually January 1st of 2022, but obviously, you have to get the new labels printed and figure out what strategy, what tactic you're going to take on that. So, those are two regulatory labeling things that have to be done this year.

And again, on the issue of worker recruitment and retention, it's going to be interesting to see how companies continue this work at home thing. Again, the three of us are working from home and I don't know that I'll ever go back to an office. It's working pretty well for both me and my employer. So, companies are going to have to invest in some technology to make sure that works well. Workers seem to be happy doing it, that can't hurt in terms of recruitment and retention. So, working from home, not a thing for factory workers, of course, but for office workers, executives, and maybe even the R&D teams, that's something that's going to have to be accommodated in the new year.

And you know, despite all the things we talked about, and trying to remove, again, the pandemic from the discussions, still the million-dollar question is going to be, how will consumers consume and buy foods in this new year? So, it'll be a question of whether or not they go back to high-end products and exciting ethnic products and sampling new and exciting things that supposedly were going on, you know, more than a year ago, or whether they've rediscovered their love of frozen foods and boxed macaroni and cheese dinners, and simple things from trusted brands.

Erin: Well, 2021 is definitely going to be an interesting year to watch just to see how we unravel and kind of unpack from, you know, everything that 2020 brought us.

Dave: Yeah. Hopefully, it will be a little less interesting than 2020.

Erin: It'll be interesting to watch, you know, you brought up to the R&D element. And so, a lot of people being at home, I wonder if the R&D teams, also working a little more remotely, might play into some of the development, some of the products that are developed early 2021 and going forward. It'll be interesting to watch for sure.

But with that, especially from our respective home offices, I want to thank you both for sitting down with me today. It's always informative to listen to both of you, Pan and Dave. You have so much knowledge and intelligence about food and beverage industry.

From everyone on the Food Processing's Food For Thought podcast team to everyone listening, thanks for joining us. And we will talk to you again.

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