1. The impact of COVID-19 on the food supply cannot be overstated. The virus is widely believed to have originated in the food supply in China in 2019. It’s therefore not surprising that the resulting global pandemic has changed the food production industry forever.
2. With on-going quarantines, lockdowns, restaurant closures and work-from-home, consumers had more time to research how their food is being produced and where it is coming from. From the place of origin of food products, to ingredients, to packaging and food safety, American consumers have drastically altered their perception of what a desirable, safe, and delicious food product is.
3. There are six key trends that U.S. food producers are reacting to.
4. BCI Global has defined four strategic directions for innovative food tech companies with clear international ambitions to establish the right manufacturing and supply chain footprint for the future. They are as follows:
• Differentiating between short-term capacity development and longer-term strategy
• Creating the right ecosystem
• Selecting the optimal location for new operations
• Footprint risk management.
KEY TRENDS
1. The movement toward functional foods - The COVID-19 pandemic has re-focused consumers on a healthy lifestyle and that includes what’s on their plates. Products that have immunity-supporting ingredients, such as elderberries, probiotics, turmeric and moringa have been flying off shelves. For example, Chobani recently announced a line of yogurt that highlights the health benefits of probiotics.
2. Technology to increase food supply transparency - Consumers today are more knowledgeable and critical of where their food is coming from. They want to promote local and sustainable food sources and understand where, when and how their food was produced. New packaging technologies such as invisible bar codes allow companies to increase supply-chain transparency.
3. Blockchain technology is being used to track products from farm to table, including coffee and turkeys. If there is a recall, blockchain technology can help provide better traceability. Major meat processors such as Tyson have begun to expedite their plans to incorporate more automation and robotics to elevate food safety as the pandemic ravaged their workforce. New technologies to track coronavirus spikes in the wastewater stream have been modified to trace foodborne pathogens such as salmonella or E. coli.
4. Sustainability - Many consumers want more from their food companies than just tasty, healthy products. They are also looking for companies that mirror their core values with an increased emphasis on supporting humanitarian causes and addressing climate change. Many food processing companies have made significant sustainability commitments over the last year and have focused on reducing their carbon footprint through manufacturing improvements, using eco-friendly packaging, and making supply chains as short as possible to reduce transportation impacts. PepsiCo recently pledged to cut carbon emissions by more than 40 percent by 2030 and to achieve net-zero emissions by 2040. The company’s Frito-Lay site in Modesto, California has an all-electric fleet of trucks powered entirely by solar panels.
5. Plant-based foods - Swedish oat milk company Oatly is planning to add more manufacturing capacity to meet the rising global demand for oat milk. The company is seeing triple-digit growth across three continents. Plant-based meats in this segment have enjoyed a 38 percent growth rate while plant-based milk now represents 14 percent of the dairy category. According to marketing company Nielsen, sales of fresh plant-based meat alternatives nearly doubled every month during the pandemic. In the last year alone, IRI data showed that plant-based meat sales increased by over 450 percent. Major food companies like Nestle are planning to move into the plant-based segment.
6. Healthy desserts - Healthy lifestyle snack companies such as Kind are expanding into the plant-based frozen desserts segment with frozen desserts that contain as much as six grams of protein per serving. These products are made using pear juice and almonds. Large food companies like Ben and Jerry’s, Danone, and Haagen-Dazs all have a presence in the frozen nondairy novelty space.
7. Genetically engineered foods - Good Meat, a division of Eat Just, has produced the world’s first cell-based meat for consumers and received $170 million in new funding. In 2020, cell-based meat companies received more than $350 million in funding, according to the Good Food Institute. Good Meat has been serving cultured chicken to diners at Singapore’s 1880 restaurant since last year, and it has become a very popular menu item. The company is preparing for U.S. expansion and is working with U.S. regulators for the approval of cell-based meat for consumers.
FOOD TECH COMPANIES' STRATEGIES
1. Differentiating Between Short-Term Capacity Development and Longer-term Strategy - Markets are more impatient than they were once upon a time. Once a promising new product is developed, the market (consumers as well as investors) requires the product to be commercially available as soon as possible.
2. For a new company with no infrastructure in place yet, the step to develop large-scale manufacturing capacity is an enormous one. Not only does it require significant amounts of investment, but also building up the organization to manage the design, development and scaling up of the plant. This process takes time, particularly once factoring in the extensive regulatory and validation processes that exist in the food industries.
3. In order to still meet the requirements of investors and early customers, a good strategy for a company can be to partner with other manufacturers who utilize the same kind of production technology and who have already established production capacity. Running a pilot with such a partner, arranging regulatory approvals and ramping up production is a much shorter process and can therefore significantly speed up the time to first commercial sales. This accelerated process will make the CFO happy, as the revenue generated with these first sales can be used to finance the development of larger owned manufacturing capabilities.
4. So, for the short term, partnering with contract manufacturers is a strategy which is utilized by many fast-growing food tech companies while simultaneously building the company’s first own manufacturing plant or plants.
5. Even for the longer term, a mix of large-scale own manufacturing and contract manufacturing can be a good strategy. BCI has seen many companies experiencing success with this implementation. A key driver for such a strategy can be to use the outsourced capacity as a flexible base to accommodate peaks and drops in demand. Another driver can be an investment and/or commercial one: investing significantly in own assets in the largest initial market (e.g., North America or Europe) while still serving smaller but promising markets for the future (e.g., Asia and Latin America) through outsourced partners in those geographies.
6. Creating the Right Ecosystem - The traditional food production ecosystems may not be right for alternative food producers. In many cases, food tech companies require different raw materials/inputs for their production processes. Some of them require significant chemicals such as ethanol or methanol, others require a lot of very specific agricultural feeds like sugar or soya in combination with biological and/or chemical materials.
7. Besides these materials, many food tech companies are also very energy-intensive due to the nature of their production process. Some, for example, might require a lot more heat than traditional food producers. For companies with these requirements, it is key to be located in the right ecosystem with suppliers of the required materials as close by as possible, even to the level of supplying feedstocks through pipelines by neighboring companies at the same business park. For companies that value sustainability, there is a desire to use as much green energy as possible, so in the location selection processes there is a lot of emphasis on the availability of green energy, now and projected for the future.
8. Selecting the Optimal Location for New Operations - The importance of balancing between short term and longer term, own and outsourced operations as well as the local ecosystem around the manufacturing plants is driving companies to do more detailed, fact-based location analyses before making decisions on where to locate the first manufacturing facility.
9. As mentioned before, the availability of the right ecosystem is an important location factor. This includes having the right suppliers close by but also having an established knowledge base and labor pool in the region from which the key personnel for the critical start-up and ramp-up phases for the new manufacturing plant can be sourced. We have recently seen significant manufacturing investments of food tech companies into locations such as Denmark and The Netherlands in Europe. Some of these locations have not been hot spots for manufacturing for a long time, but for this kind of new activity, these areas are providing the right ecosystems. In the U.S., several investments into California are illustrating this shift, as well.
10. Start-up companies are known for taking more risks than large, developed companies. However, in their location selection for their very first plant, this is not the case. Many of these startups are choosing a safer solution, locating where they see the lowest risk of failure. Failure is not an option for the very first plant. This means that being confident about finding the right initial management staff and engineers is key, as is the availability of materials from nearby suppliers through excellent logistics connections. Additionally, these companies benefit from support from local authorities for things like direct financial incentives as well as soft-landing support: recruitment programs, positive communication, employer branding and facilitation of entry into local networks and ecosystems.
11. Finally, it’s critical to consider local market potential and product acceptance. Companies benefit from landing in a region where their new products and/or new production technologies (e.g., biological, GMO, chemical, 3D printing) are highly welcome and supported as opposed to regions that provide a good basic manufacturing environment but where the context from a market and regulatory perspective is highly complex and uncertain.
12. Footprint Risk Management - Global uncertainty, both geopolitical and economic, as well as material and energy availability are not only impacting large and established companies. For food tech start-ups, they play an important role in strategic development.
13. Similar to other industries, fast-growing food tech companies are requiring their manufacturing and supply chain leaders to take risk into account in their operations development, optimization and strategy development initiatives not as a sensitivity analysis after the analysis has been concluded, but as one of the key strategic drivers. In order to deploy effective risk management and to take risk into account in an integral way when modelling manufacturing footprint scenarios, companies first must attain a good view of what risks are relevant and then determine how to balance those risks against the typical drivers such as costs, lead times, etc.
14. Taking risks into account in a detailed way when deciding on where to expand capacity and where to locate potential new production facilities is particularly important for food tech companies because of the high investments and long lead times for these projects. And, as mentioned before, failure is not an option for a company investing in and implement its very first large-scale manufacturing operation. Good decisions provide a competitive advantage over a long period, and a wrong location decision will translate to a long-term competitive disadvantage or for this type of company.
Source:
https://www.tradeandindustrydev.com/industry/food-agriculture-related/key-trends-food-processing-18123
https://www.tradeandindustrydev.com/industry/food-agriculture-related/strategies-food-tech-companies-their-manufacturing-30500
