This past June 27-28, 2022, the WSJ Global Food Forum convened to conduct world-class forums on the forces driving the food industry. More than 20 speakers representing different companies, farmers, suppliers, consumers, investors, and governments, focused on assessing the factors of cultural changes in the future of the food industry.
Rising food prices due to the conflict between Russia and Ukraine
One factor influencing grocery prices is the Russia-Ukraine conflict. QU Dongyu, Chief of the Food and Agriculture Organization, pointed to Ukraine and Russia as key players in global commodity markets. He explained that the war’s uncertainty has led to further price increases. These high prices were also driven by strong demand and high input costs following the recovery of COVID-19.
It must be understood that the Sea of Azov, located between Russia and Ukraine, is closed due to the Russian conflict, preventing Ukrainian ships from crossing the Black Sea to connect with the rest of the world. The prominent grain and steel cargoes used to leave from that port. In addition, the ports of Berdiansk and Mariupol are blocked, further intensifying the crisis since Ukraine is the world’s fifth-largest wheat exporter.
As a consequence, raw material prices are going through the roof. Not just the cost of production, but a large part of the cost you pay at the grocery store is associated with food transportation, which has increased 50% even this year. Products are now priced more expensively, and consumers are starting to feel the pain of inflation. Clients are investigating how to save by spending less at the grocery store or looking closely at the value of their choices.
Private label attracts more buyers
One of the trends that food retail specialists have observed is the behavior of customers when faced with value options. Especially when they see private label products. Harvard Business defines a private label product as one that a retailer sources produced by a third party but sells under its brand. In this scenario, the retailer controls the products. That includes the product’s specifications, packaging, and everything else.
Compared to 10 years ago, private label and brand-name products are no longer as different. Today, private label quality levels are much higher and more vital than ever, especially in categories historically led by low product innovation. Distributors that contract private label production have improved their purchasing processes and are more careful to control quality.
Consumers feel inflation, but they also feel they are making the best decision when they want a product and choose one from our company. Customers are delighted with what they get, and they know that their investment will be worthwhile.
Rob Hargrove, EVP and Chief Research and Development Officer, Mondelēz International
Adaptation to the price of delivery services
One significant change in food distribution during the pandemic is that people are getting used to delivery. Customers opted out of restaurants during the quarantine and prepared special meals at home. Food delivery traffic increased, and Whole Foods was one of those companies that had to adapt to the high demand from customers who wanted to get their groceries using the delivery option.
Jason Buechel, COO, and CEO designate of Whole Foods, discussed delivery fees during his interview at the WSJ Global Food Forum 2022. He explained that food delivery, out-of-store or direct-to-home, is a service that requires adding a fee to the total price paid by the customer to help balance some costs.
This action brought some criticism, but Whole Foods wanted to educate its customers about the fees. Buechel assures that this cost is transparent and does not add surcharges. They have set an example for several of their competitors because their prices are lower, including the delivery fee.
The food industry is not prepared for the next pandemic
According to Abhi Ramesh, Founder, and CEO of Misfits Market, the industry needs to be strengthened at all levels so that it does not falter in the face of a future crisis. If the 2020 pandemic were to happen again, it would be a huge challenge to have the capacity and resilience in the food supply chain because it is not resilient.
At Misfits market, an online food store, they are looking at unique ways to recycle or sell food that would have gone to waste and using packaging created from waste material to leverage already available resources. This may seem like a small effort for many. Still, the supply chain has already considered being prepared to withstand and protect the industry from a significant pandemic shock.
We have to find a way to create redundancy and start addressing the inefficiency of some processes in a structural way. The whole supply chain needs to work on that.
Abhi Ramesh, Founder, and CEO of Misfits Market
The importance of collaboration between large companies and startups
Another preventive measure that prominent food chain leaders consider important is an inward investment. For Florian Schattenmann, CTO and Vice President, R&D and Innovation Cargill, the successful inward investment will be a collective and collaborative effort.
Companies will have to have some voices with the government, but a big part of building solid foundations in large companies is working with startups. At Cargill, they have focused their entrepreneurship efforts on specific areas like the future of food or supply chain efficiency, supply chain transparency, etc.
In this case, they all work together. Schattenmann says, “The pandemic woke them up” because big companies distributed equally between food service and retail. So, when food service went down, retail went up. Large companies learned to look at this and feel that with factors like the war, they must work together and find ways to connect.
The Future of Food
Food security is a shared responsibility. For managers of large food chains, the biggest lesson learned in the aftermath of the economic crisis is the right choice of suppliers and partners. Governments, United Nations organizations, development agencies, consumer and producer groups, and private sector entities must work together on the issues that affect us.
With the enormous task of feeding the United States, the food industry must work hard to adapt to the demands of today’s customer base. This complex network has to be prepared for any other critical scenarios that may arise.
