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Food Service Industry Updates Supply Chain Industry Updates

Something to Chew On: A Look at a Much-Changed Food Supply Chain


From farm to fork, COVID-19 has created challenges for organizations up and down the food supply chain. A new report looks at how each link in that chain has been impacted, and offers thoughts on how they can move forward.

In “U.S. food supply chain: Disruptions and implications from COVID-19,” McKinsey and Co. noted that consumer spending on food had been “remarkably stable” in recent years, and revenues were about evenly split between retailers such as grocery stores and restaurants and other foodservice operators.

The pandemic put an end to those trends. “Consumers, forgoing public venues and eating at home, stocked up on groceries and supplies, boosting sales for the month by 29 percent over the prior year,” McKinsey said. “Meanwhile, sales declined at restaurants, fast-food locations, coffee venues and casual-dining locations by 27 percent.”

The study looked at five different links in the food supply chain. “Managers with a clear understanding of the challenges across the [food] sector will be better prepared to decide whether to wait out the crisis or to invest for a longer-term shift in consumer spending,” it said. “Much also depends on whether — and how quickly — they expect a return to pre-pandemic norms.”

  • Agriculture — This sector has had to contend with labor unavailability in an industry that is often dependent on migrant workers, while managing through fluctuating commodity prices. “With such uncertain futures, the dilemma farmers face is whether they should change crops; plow ahead with planned crops, hoping for a return to normal; or exit production entirely,” McKinsey said.
  • Foodservice — This industry has been confronted with logistical bottlenecks. “Having rebalanced supplies with outgoing orders, foodservice distributors are now left with overcapacity in their storage facilities and distribution networks, including the costlier cold chain,” McKinsey wrote. “The dilemma distributors face is how to stabilize their network cost structures in the interim. They could scale down support within each facility while maintaining a footprint. Or they could consolidate their networks of state-aligned distribution centers into regional ones.”
  • Food producers — “Although in-store sales have increased to date, that increase has not covered the scale of decrease in foodservice, so plant utilizations remain significantly reduced,” the report said.
  • Consumer and packaged goods — These companies must contend with multiple challenges: the risks created by having multiple employees working in close quarters, an increased demand for certain products or packages for which they might have limited capacity to meet, and heightened competition for fleet services.
  • Grocery retailers — Both brick-and-mortar and e-tail businesses have benefitted from growing demand. “However, they face additional challenges and extraordinary activities to protect and serve their consumers,” McKinsey noted. “Those include constant and visible cleaning of stores, frequent loading of shelves to keep up with demand, hazard-pay bonuses and incentives to maintain employee numbers, and hiring of additional labor, with limited time for training.”

As for the future, foodservice organizations face some of the biggest challenges in their supply chain. “Depending on how well the virus is contained and the level of any recurrences, it could take between one and four years for foodservice to recover,” McKinsey predicted. “However, it is possible that demand will never return to pre-pandemic levels, creating further challenges across the value chain.”