Summary
The food sector remains under strong pressure, including in 2020. The perfect storm is far from over. One might even say that the storm is increasing rather than decreasing in size. This also creates opportunities for companies in the sector. Some parties have the wind in their sails and are showing solid growth. What can we learn from successful food companies and why do many still seem to be experiencing significant headwinds? What are the key do’s and don’ts to make 2020 the year of breakthrough above all else?
The main trends from 2018 and 2019 remain more relevant than ever: retailers who want to continue to differentiate themselves with their own (private label) concepts and innovations, the shortage of skilled personnel especially in production, rising raw material prices, the rise of labels (and with nutri-score, this trend will continue in 2020) and with it the significant impact on consumer behavior and the supply chain, the increasing role of packaging and the exponential growth of vegetarian products in particular.
Many companies in the food sector seem to be “stuck in the middle” between the multi-nationals and the start-ups. Multi-nationals are able to focus and concentrate their R&D and innovation power in research centers. They have learned in recent years to accelerate with innovations first with a global focus, but increasingly with a local touch. They can also gear their factories to specific products to remain cost-efficient. In contrast, there are many start-ups that develop innovations out of drive, passion and ambition without having to make an immediate financial return from them. They are also often flexible with respect to production, which they often outsource. In fact, it sometimes seems with start-ups that you are especially successful if you show substantial financial losses in the first few years. Retailers and consumers are embracing these parties-often also on the theme of sustainability-although it is becoming increasingly clear that many start-ups will have issues with scaling up production.
Many established food producers face the tough challenge of keeping their plant(s) efficient in the face of a growth in assortment and labels, ensuring their quality with respect to food safety, and increasing the number and speed of (successful) innovations. This triple whammy is difficult for many companies and, in practice, results in efficiency declines, innovation lags, and financial returns lag at the bottom line. A culture of extinguishing fires develops, and executives do not take enough time to develop growth plans for the future. How to get out of this negative spiral and, above all, how to make 2020 the year of the breakthrough.
Herewith the most important do’s and don’ts:
The three don’ts
1. Don’t think that next year will get better on its own
Perhaps against their better judgment, many executives in food are hoping that the storm will blow over on its own. Unfortunately, get used to it, this is the new reality. The retail landscape will be no less challenging. The main reason is that everyone is looking to maximize consumers’ stomach share. We are barely growing in Europe anymore in terms of number of consumers and spending on food, except within convenience concepts in out of home and “new retail.” In the traditional segments, competition will increase on price. Staying relevant from innovations thus becomes increasingly important.
2. Don’t initiate more projects within the same group of employees in your company
There is a temptation to want to do even more within your organization. But we also know that projects or initiatives always end up with the same people. The result is that output starts to decline and your employees become demotivated because they can’t see the forest for the trees and there are fewer successes to celebrate. Allow yourself time to stop putting out fires and take time to evaluate the various initiatives and projects.
3. Don’t get into trendy concepts wanting to take advantage of possible growth
Developments are moving fast and everyone is looking for the “holy grail.” In the field of plant-based meat substitutes, for example, a kind of gold rush seems to be taking place. Many parties are pouring into this market, and every week there are press reports about new initiatives and factories. Responding to such trends now seems unlikely. The challenge is to find concepts in your niche that fit your competencies and customer groups. Pick up the trend and translate it from your own purpose (see at do’s #1) into new concepts.
The five do’s:
1. Define your purpose from original values
It seems paradoxical to take time in a perfect storm to recalibrate strategy and purpose from values. You have no time at all to pay attention to strategy as well. Yet now is the time to establish what the core and DNA of your business is. To demo in the perfect storm requires a good team with people who work together from the same DNA and values and focus on the goals that make you unique. If it is clear to you what your purpose is, you will become more successful in partnering with customers and suppliers and in attracting talent.
2. Differentiate your (innovation) organization
Virtually all food companies consider themselves to be insufficiently successful with innovations and the engines of growth for the future. The main reason is that we are especially busy with tenders, item renovations (such as clean-label) and operational hassles. To break this, it helps to differentiate marketing and innovation teams: make specific employees responsible for new concepts and others for the more repetitive innovation activities. This need not even lead to more employees, but more importantly to a redistribution of activities, peace of mind and greater effectiveness within your organization.
3. Objective the complexity of your product portfolio
The complexity within the operation is increasing at many food companies due to more SKUs, shorter production runs and an increase in raw materials and labels. Do we understand which specific products lead to more complexity and what are the consequences of complexity? It is not necessarily the small items that lead to complexity and loss of efficiency. Remediation of the tail of the range is therefore often not the solution, quite apart from the commercial consequences. It is better to determine together the characteristics that lead to complexity and, based on this, give each item a complexity factor. Consider allergens, packaging forms, additional cleanings or processing steps. This makes the discussion a lot more objective and allows better choices to be made regarding portfolio rationalization.
4. Learn from the automotive industry and assume platforms
In the automotive industry, many cars have the same basis in terms of motorization or suspension. By starting from these so-called platforms, cars appear different to consumers, but the basics are largely the same. This concept can also be applied in the food industry. Group items by the same method of processing, raw materials, packaging form or allergens. This allows you to simplify the range without sacrificing the look and feel. Working from platforms also makes the discussion of complexity reduction much easier: innovations or renovation of existing items can be carried out in a more focused way on the basis of platforms. In doing so, it is then better to make a good make/buy decision: which articles or platforms do you want to continue producing yourself and which are better outsourced.
5. Look at other sales channels or dining moments
Although sales in the supermarket channel are by far the highest, other channels and dining moments are developing more strongly. For example, the Fast Casual channel is growing rapidly and displacing Fastservice, with the number of new chains growing. The shift in eating occasions from dinner to lunch and drinks may also be relevant. In these segments, building true and long-term partner shops may be more feasible than in the traditional retail channel. Conditions for success are: real innovations and a clear purpose. Does your business really fit your customer and consumer? In the new food segments (such as Fast Casual), it is not only about the concept and price, but also about the click between the companies or partners to be successful together in these growing markets.
Will 2020 be the year of the breakthrough for you? Can you demo in the perfect storm? Hopefully, the above points can contribute to your success. Make it an enterprising 2020!
