Consumers have always been chasing the next hot trend in food, but now, due to the power of social media and alternative and traditional news sources, they are moving faster than ever before. Armed with the latest information about the effects of gluten, organic standards, sugar substitutes and genetically modified organisms (GMOs), consumers expect their changing needs to be reflected quickly — not only on their own kitchen tables, but also in stores, restaurants and office cafeterias.
This is a new world — one in which food companies with transparent supply chains appeal to these super-connected consumers. How companies make their products has long been their secret sauce. But as consumers expect and even demand to know more about their food origins, ingredients, processing, storage, handling and safety, they are asking for a transparent supply chain which will become the new normal for the food industry. This trend will be a challenge for larger traditional food companies, unlike smaller and more nimble competitors that can change course more quickly.
Successful companies in this evolving world will need to become better at showing consumers exactly what they are getting for their money. This isn’t as simple as showing a clear path that food takes from grower to manufacturing, packing and shipping. Leaders will implement an agile supply chain that leaves consumers in no doubt as to what they are getting. This will comfort them when the next food-scare article hits their smartphones.
Before a food manufacturer can master this, it is important to understand how consumers have become self-styled connoisseurs of product selection at the grocery shelf.
The Rise of the Connected Connoisseur
In a recent A.T. Kearney study, more than half of 10,000 “connected” consumers around the world said that they are online nearly every waking hour, with 95 percent of them using their online time to learn about new topics and 62 percent of them expressing opinions, with the desire to be heard. Many of these consumers, especially in the United States and other developed countries, desire to eat healthily and with minimal impact on the environment. As a result, they are buying more organic, natural, free-range, low-salt and gluten-free foods. At the same time, they worry about issues such as the safety of genetically modified foods and animal cruelty.
These consumers, empowered and informed by the internet and other media, are in effect becoming “connected connoisseurs,” ready to make more informed food choices and purchasing decisions. This access to information has also given them an unprecedented view into the food supply chain.
Egging on Change
Despite the abundance of data, much of it is incomplete, conflicting or apocryphal. Consumers nevertheless use it to make and communicate decisions about food choices. These choices are affecting the global food supply chain.
During the last several years, there has been a surge in consumer interest in animal rights, leading notably to many demanding cage-free eggs. Many learned through social media and online videos that chickens commonly live in less space than a sheet of letter-size paper, with no room to spread their wings. In response, up and down the supply chain, egg producers, food manufacturers, hospitality chains, restaurants, grocers and more have committed to providing cage-free eggs.
There are not enough of these cage-free eggs available presently in the U.S., so companies have had to postpone their conversion to them by as much as 20 years after Whole Foods set the precedent in 2005. According to United Egg Producers, that demand will require U.S. farmers to produce more than 37 billion cage-free eggs annually. Looked at another way, the country’s cage-free flock will need to increase by more than 900 percent by 2030.
Traditionally, comprehensive scientific information has been developed collaboratively by producers, researchers and government agencies and used as the basis for regulatory decisions and consumer information about food. Despite those efforts, a reliable, standardized or universally appreciated gold standard or watchdog for the food industry does not exist. Some food categories, such as the fish industry, have one or several, but their guidelines conflict and cause confusion. Some categories lack oversight groups altogether.
As a result, consumers look for food and nutrition information online because they feel they can learn more on their own. Consumers think they are informed based on the data they find and, as a result, demand certain foods or quality standards. Likewise, food companies can think they are sourcing ethically but discover that either the ingredients they want are in short supply or that new food designations — whether they are officially sanctioned or informal — are inconsistent or complex.
Looking again at the cage-free eggs example, the activist community might identify that there are now at least eight classifications of eggs, albeit federally unregulated: organic, cage-free, free-range, all natural, pasture-raised, vegetarian-fed, omega-3 and white/brown. What’s more, certain eggs can fall into more than one classification, while others do not. Free-range hens are cage-free, but not all cage-free hens are free-range. To say the least, it can be confusing.
A food company can think it is sourcing ethically and find that there are complicated variations on ingredients, or short supply. With consumers responding more quickly, unpredictably and powerfully to food information than ever before, it behooves food companies to understand this phenomenon and plan effectively.
The Value of Transparent and Color-Coded Supply Chains
Creating a more agile and transparent supply chain can help food manufacturers satisfy the connected connoisseur while protecting their business. It starts by plugging into the same data that consumers are seeing to avoid a major impact to their business.
California Pizza Kitchen knew that consumer interest in gluten-free foods would lead to their customers wanting gluten-free pizza. The restaurant chain’s first attempt at offering this item did not succeed when it found that customers were complaining that its pizza crust was not actually gluten-free. The company reacted quickly, noting that the Food and Drug Administration had established standards in 2014 (in part from their own customers’ complaints) that set gluten-free flour below 20 parts per million of wheat flour. It succeeded in meeting this regulation and putting such products on the menu in 2015 by converting prep stations from wheat to rice flour and keeping all gluten-free ingredients in blue containers with black lids.
Companies can achieve a flexible and transparent supply chain in several ways. Essential components include new strategies for sourcing ingredients, complexity management, risk management and customer engagement.
Ethical and Timely Sourcing
Retailers and manufacturers are in a good position to influence global growers and ingredient suppliers to anticipate and increase availability of products that are trending upward in consumer awareness — items such as such as cage-free eggs, organic cane sugar, quinoa, kale and certain flavorings. Firms are wise to determine and map out a sourcing strategy far enough ahead that there is time to make course corrections as necessary. Some firms think 10 years out, and know that they must adjust ingredient lists every one to two years to stay steps ahead.
By making complexity management a core supply chain capability, food companies can manage potential proliferation of materials. A restaurant chain serving gluten-free pizza may double the number of material and product codes it must handle, for example. By anticipating these changes, it can optimize labor, production and procurement. When consumers want locally grown produce or a handcrafted product, for example, the company can manage the increasingly complex supply chain that results. Every new ingredient will add codes and create changeover, packaging and seasonality issues.
Rethinking supply risk management can get all of a company’s functions understanding the new rules of producing food products and how to play the game. It addresses the year-round global supply of seasonal and locally processed materials, for example. Consumers are now accustomed to getting any produce they want year-round. But they also want locally grown things, so there can be a disconnect between what they want and what is feasible. So companies have to balance year-round supply availability with the need to use more local, potentially disruptive supply market sources, leading to a price-to-availability challenge, and the need to satisfy ever-changing customer demand.
Balancing the tradeoffs of this new dynamic requires a new way of thinking about risk. Companies can ask themselves if they are willing to accept lower margin for a short period of time in order to have consumer access. One alternative approach would be to only sell products when there is a certain level of efficiency. How will these kinds of tradeoffs affect the supply chain, pricing, profitability and brand?
Review the company’s risk management strategy — if there isn’t one, establish it now.
This is essential to increase transparency. If a company does not give consumers a view into its supply chain — if it is not inherently part of its story or strategy — then what is it doing to make its customers aware of what is in their food? Conducting a transparency readiness assessment can help a company determine how ready it is to communicate their transparency now. The business can then identify what needs to be done to improve transparency to the connected connoisseur, and make a plan to get there.
Make Transparency a Brand Asset
When a food company is successful at making its supply chain transparent to consumers, it becomes a point of strength for the brand and changes the way it communicates with its customers, as well as how they view that brand. Having the courage and insight to proactively communicate with consumers to show them exactly how their food is grown, raised or produced is a strong leadership practice. It builds strong bonds with connected connoisseurs, which leads to loyalty, increased sales, greater competitiveness, and something that is priceless — good will.
About the Authors
John Moyer is a vice president in the Procurement and Analytics Solutions Practice of A.T. Kearney, a global strategy and management consulting firm. John Piatek is a principal in the firm’s Consumer and Retail Practice. Chloe Ruiz-Fuentes is a Chicago-based consultant at the firm. They can be reached, respectively, at John.Piatek@atkearney.com, John.Moyer@atkearney.com and Chloe.Ruiz-Funes@atkearney.com