Last spring’s COVID-19-induced product unavailability of essential items such as beef and poultry highlighted structural weaknesses across the global food supply chain. From farms to consumer packaged goods (CPG) middlemen to retailers and restaurants, the industry received a wake-up call to adapt to massive changes in consumer behavior and to fortify supply chains with increased resilience, transparency and sustainability. Digital technologies will be critical in achieving these intertwined objectives.

Interestingly, in a survey we conducted in late 2019, food industry executives worldwide were bullish about artificial intelligence (AI), but only about one-third said they had implemented such tools broadly. That mindset, which led to a massive gap between intent and action, probably has many industry decision makers kicking themselves. For starters, the coronavirus crisis made it clear that the food industry was not equipped to handle either global emergencies or the cascading effects product dislocation has on customer behavior.

Rebuilding the food industry will require organizations to make tough decisions regarding where and how they source, produce and supply products. The pandemic exposed weaknesses in an industry that was already facing significant challenges, including a complex supply chain, concentrated production and waste.

In part one of this series, we’ll examine the challenges unleashed by pandemic; part two provides recommendations to help companies across the value chain overcome these challenges.


A transformed customer

Before the pandemic, restaurant-goers in the U.S. were spending more eating out than on groceries. As 2020’s lockdowns brought this streak to a screeching halt, consumers reassessed their lifestyles, especially their eating and buying habits, thus creating novel challenges for the food industry. For example, many moved to fresh and healthier options and cut down on processed foods such as meat. In general, concern over how food is sourced increased.

There are indications suggesting this change is here to stay. More than ever, consumers are deeply invested in transparency and ethics. A recent survey found that 80% of consumers expect food companies to implement food safety solutions and have an ethical responsibility to ensure safe handling of food. There is also a pronounced move toward organic, plant-based and lab-grown alternatives. In a nine-week period ending in May 2020, “faux meat” sales increased 264%, while sales of fresh meat rose only 45%. Concerns over health have boosted the already fast-growing organic foods segment, which jumped 20% in the wake of the pandemic.

In another development, 85% of Americans plan to continue to buy some or all of their groceries online, continuing by choice a practice forced upon many by COVID. Businesses across the value chain must rapidly adjust to meet this shift in demand in terms of inventory management and customer engagement. For example, according to one estimate, 75 million to 100 million square feet of additional industrial cold storage space will be needed in the next five years. Customers are also more brand-, price- and quality-conscious; 63% say they research products online before buying.

This preference for online shopping makes digital the primary channel for engaging with an increasingly frugal customer. For food industry players across the value chain, this means a complete overhaul of online business models, based on a deep understanding of their customers. This requires not just data, but also the ability to collect data from disparate sources and employ advanced analytics to glean insights that can be used to derive a competitive edge.

Technology indigestion

Historically a labor-intensive business, the food industry is making a decisive move toward automation and broader digital transformation. Investments in food and agriculture technology accelerated in the first two quarters of 2020, reaching $4.8 billion and $2.2 billion respectively; and the food automation industry is set to grow from $7 billion this year to $14.2 billion by 2027. From autonomous crop seeding to fully automated grocery stores, digital is set to drive the industry.

The pace of this digitization varies across the value chain. For example, while food packaging was automated long ago, meat processing still requires manual intervention — thus far, machines lack the coordination required.

Another obstacle: The global food supply chain is complex and fragmented. Add to this rampant increases in food-borne diseases (remember, the coronavirus is said to have originated in bats), and it’s clear the supply chain is in need of greater transparency than ever before.

As food safety becomes a top priority worldwide, food producers, processors and retailers are on the lookout to maintain produce provenance and supply chain integrity. Technologies such as blockchain and sensors have shown much promise. Large retailers such as Walmart and Carrefour have piloted the technology to bring much-needed transparency in their supply chains. Large-scale, pan-supply-chain implementations, however, are a different story. For large blockchain implementation to be valuable, every participant in the supply chain must cooperate and share network infrastructure — which is often anathema to business rivals.

Given current complexities, this can be challenging. To begin with, regulators across the globe need to make appropriate laws. And suppliers need the necessary technologies and capabilities to participate in such an effort.

However, as technology advances, so does the digital skills gap. Our survey found that AI and Internet of Things skills are seen as the most critical skills over the next two to five years. In fact, 90% of respondents believe AI will boost their need for skilled labor at a time when these skills are in high demand.

Addressing today’s challenges will require industry players to deploy digital at critical points across the supply chain. Part two of this series sheds light on the steps necessary to do so.

To learn more, read “AI, Automation and Appetites: How Technology Will Feed the Future,” visit the Grocers Solutions section of our website, or contact us.