The Resilience of the Food Supply Chain: Opportunities and Challenges

Current State of the Food Supply Chain

The current state of the food supply chain is marked by significant efforts to enhance resilience and efficiency. Walmart emphasizes long-term supplier agreements and sustainability initiatives, while Whole Foods Market and UNFI focus on meeting evolving consumer needs. Sysco reports improved supply chain metrics, and Home Chef targets waste reduction and inventory optimization.

"And so we're really proud of our position from a supply chain standpoint. We worked diligently to provide resilience across the food supply chain over the past couple of years. I'm working on a number of initiatives, Doug, things like long term agreements with our suppliers to make sure that they can make the investments they need to secure future food supply, working diligently in things like sustainability across the key stakeholder groups to equip farmers to make sure that our food supply is steady for years to come." --- (WMT, event transcript, 2024/06/05)

""We look forward to supporting Whole Foods Market and remain firmly committed to working together to serve the evolving needs of their consumers." "UNFI plays an important role in our supply chain as we continue to grow and serve more customers," said David Garraway, Vice President Supply Chain for Whole Foods Market." --- (UNFI, press release, 2024/05/21)

"Essentially, all of our supply chain metrics are up to the right, except for shrink, which is down to the right because you want shrink going down, and that is a good thing for our P and L. Every investor asks us, are you back to 2019 levels of productivity yet?" --- (SYY, conference, 2024/06/04)

"Throughout its supply chain, Home Chef finds opportunities to reduce waste, including forecasting ingredient needs to minimize surplus, collaborating with its culinary team to consolidate ingredients across meals and maximize inventory, and working with external partners that can support waste reduction goals." --- (KR, press release, 2024/04/02)

"So, when you look at supply chain, the most efficient mile in the supply chain is from manufacturer to the DC, which we call the first mile." --- (WMT, conference, 2024/06/11)

Technological Advancements in Food Supply Chain

Technological advancements in the food supply chain are driven by automation, built-in intelligence, and end-to-end integration, as highlighted by Oracle and Amazon. These innovations enhance efficiency, predict disruptions, and manage costs, ultimately improving supply chain resilience and operations.

"This helps supply chain leaders identify supply and demand disparities, while automating supplier managed inventory and contract manufacturing collaboration processes. Improve supply chain decision making: Built-in intelligence and planning advisor help supply chain leaders better predict potential demand and supply disruptions." --- (ORCL, press release, 2024/05/07)

"And then I would say that supply chain with Amazon is really an abstraction on top of those individual building block services I just mentioned that makes it easier for customers to have the whole end-to-end supply chain integrated." --- (AMZN, earning call, 2024/Q1)

"The second quarter buying behavior played out much in the same way. Signings for the quarter were $5.7 billion, driven by solid demand for large engagements across finance and supply-chain transformation, cloud modernization, and application development." --- (IBM, earning call, 2024/Q2)

"Oracle Redwood Design System updates to Oracle Cloud SCM help customers increase efficiency, accelerate operations, and improve supply chain resilience AUSTIN, Texas, Aug. 13, 2024 /PRNewswire/ -- To help organizations increase the efficiency of global supply chains, Oracle is introducing new user experience (UX) enhancements to Oracle Fusion Cloud Supply Chain & Manufacturing (SCM)." --- (ORCL, press release, 2024/08/13)

"That means you get two effects going on. One, there is even stronger demand for software and infrastructure because people believe technology helps you in those environments and helps in an environment of increased labor costs and increased supply chain costs." --- (IBM, earning call, 2024/Q1)

Regulatory Impacts on Food Supply Chain

Regulatory impacts on the food supply chain include Tyson Foods' challenges with the 'no antibiotics ever' policy, Conagra Brands' research on sustainable fertilizers, Mondelez International's operational adjustments in Russia, and General Mills' commitment to no deforestation by 2025.

"There has been some impact, cumulative impact from no antibiotics ever across the supply chain, and there are some, I won’t say new disease but disease persist that is creating mortality in the broiler." --- (TSN, earning call, 2024/Q2)

"At every level, new research is finding ways to keep the food supply chain going, with new research from Carnegie Science showing that adopting new approaches to fertilizers can pave the way for more sustainable, resilient food sources." --- (CAG, press release, 2024/06/26)

"We have suspended new capital investments and our advertising spending in Russia, but as a food company with more than 2,500 employees in the country, we have not ceased operations given we believe we play a role in the continuity of the food supply." --- (MDLZ, sec filing, 2024/Q1)

"Committing to no deforestation: General Mills is committing to no deforestation in the supply chains of the palm, cocoa, and fiber it sources by 2025." --- (GIS, press release, 2024/04/18)

Sustainability Efforts in Food Supply Chain

PepsiCo and Procter & Gamble are actively enhancing sustainability in their supply chains. PepsiCo focuses on supporting farmers, securing key ingredients, and redirecting surplus food to non-profits. Procter & Gamble leverages environmental sustainability for product innovations and aims to optimize flexibility and resilience throughout their supply chain.

"Today's announcement directly supports the pep+ Positive Agriculture agenda, which seeks to create a more resilient and inclusive food system by directly supporting farmers, securing a steady supply of key ingredients and improving social outcomes for all people throughout the supply chain." --- (PEP, press release, 2024/07/24)

"Optimized sustainable and flexible up and down the supply chain, inclusive of our retail partners." --- (PG, earning call, 2024/Q4)

"PepsiCo has a business stake and responsibility to help grow a resilient and impactful supply chain from the seeds in the field to the products on the shelf to the many people at home enjoying our products," said Margaret Henry, Vice President, Sustainable & Regenerative Agriculture at PepsiCo." --- (PEP, press release, 2024/07/24)

"These are 1) leveraging environmental sustainability as an additional driver of superior performing products and packaging innovations, 2) increasing digital acumen to drive consumer and customer preference, reduce cost and enable rapid and efficient decision making, 3) developing next-level supply chain capabilities to enable flexibility, agility, resilience and a new level of productivity and 4) delivering a superior employee value equation for all employees inclusive of all genders, races, ethnicities, sexual orientations, ages and abilities - for all roles - to ensure we continue to attract, retain and develop the best talent to better serve our diverse consumer base." --- (PG, sec filing, 2024/Q4)

"We work with thousands of food businesses from across the supply chain to redirect unsold surplus food to non-profit organizations that feed communities in every province and territory." --- (PEP, press release, 2024/05/22)

Role of Major Players in Food Supply Chain

Major players like Sysco, Kroger, ADM, Walmart, and UNFI play crucial roles in the food supply chain by leveraging extensive workforces, owning production plants, optimizing supply chain operations, enhancing efficiency, and prioritizing employee safety.

"We have the largest supply chain colleague population and the largest professional sales organization in the food away from home space. We are roughly 70% U. S. With the remainder being international, but that" --- (SYY, conference, 2024/06/04)

"We own 33 food production plants, primarily bakeries and dairies, which supply approximately 30% of Our Brands units and 43% of the grocery category Our Brands units sold in our supermarkets; the remaining Our Brands items are produced to our strict specifications by outside manufacturers." --- (KR, sec filing, 2023/Q4)

"Our focus on operations and supply chain has helped us debottleneck some of our demand fulfillment challenges, particularly in EMEA Flavors, where the team has rallied to adjust our fulfillment processes following the go-live of 1ADM and improved volumes delivered sequentially." --- (ADM, earning call, 2024/Q1)

"And so it's mixing out well. You'll remember last year, I think it was last year in April in Florida, we talked about the supply chain strategy and having the 3 and then 4 supply chains be more dynamic and shortening the last mile.That's really helpful for the business, help for the customer because of inventory forward deployed in 4,600 communities." --- (WMT, event transcript, 2024/06/07)

"From Forklift to Truck, Increasing Employee Safety Throughout the Supply Chain Safety is a core value for UNFI and one of its goals is to ensure all 30,000 associates arrive home safely at the end of the day." --- (UNFI, press release, 2024/04/18)

Challenges in the Food Supply Chain

Companies like Tyson Foods, General Mills, Conagra Brands, and Mondelez International are addressing food supply chain challenges by leveraging multi-protein portfolios, adapting to consumer behavior shifts due to inflation, utilizing AI for demand and visibility, and maintaining robust supply partnerships and risk minimization strategies.

"I'll remind you, Adam and others that the benefits of our multi-protein portfolio, which is driving our momentum with the strength in chicken and prepared foods and pork, and we see that offsetting challenges in beef. We see that continuing for the balance of the year." --- (TSN, earning call, 2024/Q3)

"Jeffrey Harmening: Yeah. So let me start with At-Home occasions. At-Home occasions are actually quite high, I mean, about 86% to 87% of food is now eaten at home, and given the challenges consumers are facing with inflation, we would expect that to continue." --- (GIS, earning call, 2024/Q4)

"This work complements Conagra's existing AI initiatives, which include analyzing complex data systems that track consumer preferences and emerging trends to help inform product innovation, addressing demand challenges by understanding consumption trends and consumer behaviors, and tracking processes across the supply chain to provide greater visibility into shipments and identify loss prevention opportunities." --- (CAG, press release, 2024/06/25)

"Third, we remain confident in our supply chain. Continuity remains our top priority and we are confident in both our own team and our partners with robust work streams to minimize the risk." --- (MDLZ, earning call, 2024/Q1)

"We like our team. We like the supply partnerships we have, both on the cattle supply and the partnerships we have with our customers as well and really have laid out a variety of range of outcomes and understanding where the cycle really go and win most importantly, and we'll continue to evaluate that as we move forward." --- (TSN, earning call, 2024/Q3)

Opportunities in the Food Supply Chain

Amazon and CP Foods are leveraging cost reduction, sustainability initiatives, and new subscription benefits to enhance profitability and customer experience, presenting significant opportunities in the food supply chain.

"Looking ahead, we see several opportunities to further lower cost to serve and improved profitability in our worldwide stores business while still investing to improve the customer experience." --- (AMZN, earning call, 2024/Q1)

"Looking to drive further growth and competitive advantage in its sector, and to ensure the sustainability of its products for the future, Charoen Pokphand Foods (CP Foods) recently selected SAP SE (NYSE:SAP) to provide multiple solutions." --- (CP Foods, press release, 2024/05/16)

"Our teams are working on the ground with humanitarian aid organisations to deliver critical supplies – food, water filters, hygiene kits, and blankets – directly to families in need." --- (AMZN, Twitter, 2024/05/13)

"Prime members who subscribe to the new grocery delivery subscription benefit will also continue to enjoy exclusive savings in Amazon Fresh and Whole Foods Market stores—on top of all the other savings, convenience, and entertainment that come with Prime—in one single membership." --- (AMZN, press release, 2024/04/23)

"And then we have to decide the best way to roll those out over time. As you mentioned, Justin, we just launched a Prime benefit for grocery, which is you can eat delivery for $9.99 a month, which if you order once from Whole Foods a month, it pays for itself or once from Amazon Fresh for orders under $40, it pays for itself." --- (AMZN, earning call, 2024/Q1)

Consumer Behavior and Demand Trends

Consumer behavior in the food supply chain is influenced by strong demand for insights, macroeconomic trends, and shifts in discretionary spending. Companies like Walmart, UNFI, Sysco, ADM, and Costco observe varying impacts, including trade-down behaviors and value perception, affecting demand across different demographics and product categories.

"strong demand from clients for their insights on consumer behavior and trends and our Omni channel operations." --- (WMT, earning call, 2025/Q1)

"Trends and Other Factors Affecting Our Business Our results are impacted by macroeconomic and demographic trends, changes in the food distribution market structure and changes in consumer behavior." --- (UNFI, sec filing, 2024/Q3)

"So to start, I wanted to dig into some of your on-demand commentary a bit. Are you guys seeing trade down and trade out impacting a broader customer demographic, or is it still largely confined to the lower to middle end here?" --- (SYY, earning call, 2024/Q4)

"In Nutrition, demand was softer in a few food and beverage product categories driven by shifts in consumer discretionary spend." --- (ADM, sec filing, 2024/Q2)

"So we're seeing that benefit from both sides of the consumer that great value in both areas are doing very well." --- (COST, earning call, 2024/Q3)

Impact of Global Events on Food Supply Chain

Companies like Kraft Heinz, General Mills, Conagra Brands, Tyson Foods, and Mondelez International have demonstrated resilience in the face of global events by maintaining strong delivery, refocusing on core brands, managing inflation impacts, ensuring food safety, and achieving progress despite economic uncertainties.

"But as a consequence of the very strong efficiency that we have, I think we were able to fix the supply chain now a few years ago, and we have now for 4 consecutive years in very strong delivery coming from the team." --- (KHC, earning call, 2024/Q2)

"We divested our dough business in Europe, same. And that allowed us that's allowed us to put our focus back on our core global brands, both within the markets they compete in, but as well as distributor markets." --- (GIS, conference, 2024/05/29)

"Operator: The next question comes from Chris Carey with Wells Fargo. Chris Carey: One thing that did stand out was that the inflation impact to margins did get a little bit worse quarter-over-quarter -- can you just expand on that if that's driven by commodities, non-commodities, I think you mentioned tomatoes with respect to some incremental pricing." --- (CAG, earning call, 2024/Q3)

"We're really focused on some very key metrics, and that's just to keep our team members safe, make sure we've got the best food safety, the best product quality innovation for all of our customers around the world and also focused highly on operational excellence as we bring these new facilities up to speed." --- (TSN, earning call, 2024/Q3)

"We made this progress despite ongoing global inflation and economic uncertainty, a testament not only to the power of our iconic brands, but also to the passion of our 91,000 colleagues around the world." --- (MDLZ, Twitter, 2024/04/15)