- CPG companies are stocking up on raw materials and ingredients, rather than hoarding cash, after supply chain issues tied to the coronavirus left many companies in a lurch and unable to fulfill demand, according to Bloomberg. Bobo’s, Saffron Road and canned coffee startup Taika, located in San Francisco, have all doubled their inventories of raw materials to guarantee supply for retailers, should there be another spike in coronavirus cases.
- Campbell Soup also has stocked up on certain ingredients to make sure it doesn’t run out. This strategy is a major shift for food companies that have spent years minimizing storage costs by keeping minimal inventories of product ingredients on hand.
- With additional cash going toward ingredients for existing products, Bloomberg reported this has caused innovation and new product development at many companies to take a backseat, as they focus on ensuring adequate supply for their core offerings.
Despite an easing of shelter-in-place orders in the U.S. and the slow reopening of economies around the world, food and beverage companies are continuing to prepare for the worst. After more waves of the coronavirus in Hong Kong, China and South Korea, scientists and manufacturers are bracing for the possibility of a similar occurrence in the United States.
In an effort to avoid food shortages resulting from widespread panic buying, food companies of all sizes are using their cash reserves to invest in the raw materials they need. For newer companies especially, this approach is insurance against the unknown.
While there seems to be a growing consensus that stockpiling ingredients for the future will help food manufacturers meet consumer demand, companies are facing logistical questions in the process of doing so. Along with the question of storage space, most supply chains are not designed to handle sudden increases in demand, particularly because some are already struggling to provide for current levels of demand.
Whole Brain Consulting Co-Founder Brandon Hernandez recently told Food Dive the concentration of the supply chain to source ingredients from the cheapest locations has resulted in a bottleneck for manufacturers looking to access raw materials during the pandemic. He noted herbs and spices sourced from India have become particularly difficult to access.
However, he said the experience manufacturers had trying to access ingredients from a single source, when ports were closed and workforces were insufficient, will stimulate a push for supply chain diversification.
A diversification in sourcing could lead to easier access for materials. It could also prevent shortages resulting from fierce competition as companies hoard months of ingredients in storage. Successfully diversifying supply chains, however, may prove to be a challenge.
Hernandez said agile companies with time and resources to dedicate to this process will come out ahead. At the same time, smaller companies may also be able to pivot sourcing effectively, as long as they are capable of tying up a greater percentage of their revenue in physical goods and are able to sacrifice investment in other areas, such as innovation.
The future of innovation will depend largely on consumer eating habits that emerge in the coming months. As people learn to live in a “new normal,” demand for products will begin to equilibrate, allowing manufacturers to better assess where their ingredient investments should fall, and whether the future holds a return to basics or if creative products will still have a place at the table.