Top Disruptions to the Food Manufacturing Sector

Where are our food products? The food manufacturing industry has seen many delays and shortages due to the COVID-19 pandemic. The prices consumers are paying now have increased, in some cases sharply, compared to the prices they paid for the same product pre-pandemic. Those increases are easy to see and can frustrate paying customers. Recently, consumers have been frequently informed that restaurants and grocery stores no longer have certain products in stock – business repeatedly no longer have dipping sauces or two-ounce kiddie cups.

Meanwhile, behind the scenes, manufacturers are encountering different problems caused by the surge of product demand and are pivoting in order to get their products to consumers. Two major disruptions food manufacturers are currently dealing with include logistics/supply chain changes and product shortages. Below are some examples of how manufacturers are combating this challenge.

Managing Logistics Issues and Spotting Supply Chains
Bill Minich, the CFO of Mini Melts, a specialty ice cream manufacturer, has seen their sales increase 122% through Q1 and Q2 of 2021 compared to their 2020 fiscal year while dealing with logistics and supply chain issues. Their production and shipping process requires three key components that differentiate them from other frozen desert products: specialty freezers, liquid nitrogen, and dry ice. An integral part of their manufacturing is that once the product is produced it needs to instantly go into specially made freezers that keep the product at -40 Celsius. The problem they encountered during the pandemic was that as demand increased, they could not easily procure additional freezers and dry ice. They overcame this by pivoting to standard freezers that were modified to accommodate the temperature needed. Dry ice was supplemented by using CO2 as a coolant.

On the other hand, Lou Shragher, CFO of Elan Chemical, Inc., a manufacturer of flavors and fragrances, leveraged the pandemic as an opportunity to implement various supply chain improvements. Among the changes are increased inventory levels, increased communications with suppliers, signing contracts with purchase amounts, and bringing in secondary suppliers in the event the primary supplier is unable to deliver timely and at the agreed upon price. Elan Chemical is also researching having product shipped by rail for part of the journey, as opposed to all ocean and air freight. The cost and lack of containers has had them rethink and modify how they ship and receive products.

Conquering Product Shortages
In addition to supply chain changes, Mini Melts also pivoted to combat a product shortage that would negatively impact their production. They encountered a milk shortage of 14% butterfat due to the farmers inability to keep up with demand across the U.S. Where the company previously relied on lower pricing and in some cases only one supplier, the company now has expanded its suppliers to two or three for each ingredient. This has caused an overall price increase in manufacturing, shipping, and storage, but has allowed them to meet the increased demand and sales growth.

Looking Ahead
Consumers are not always informed of the pressure the food manufacturers face in producing their products to get them to the shelves for purchase. To exacerbate the current situation, we are in the midst of inflation and consumers behaving differently than they did pre-pandemic. Many analysts believe these disruptions will end in the coming months, but does that mean history will repeat itself and things will go back to “normal?” Food manufacturing businesses should seize the opportunity to evaluate how their companies survived the pandemic demand and how they can handle future logistics/supply chain changes and product shortages.

You are encouraged to reach out to your trusted business advisor to evaluate how to prepare your food manufacturing business for potential disruptions and to evaluate the best path forward. The Manufacturing & Distribution Practice professionals at Citrin Cooperman are happy to help.