“Perhaps the biggest laggard in adapting to this [omni-shopper] shift has been the grocery sector.”
Forecasts are fun. The experts and analysts get to roll up their sleeves, dive into the data, do some deep thinking and come up with predictions and estimates they believe will prove correct. Everyone else enjoys, ponders—and in some cases really depends on—these big picture exercises to get a feel for what we should be watching, when it will happen, and why it’s important.
Suffice it to say there’s a lot happening in the food logistics sector and related sectors like agriculture, life sciences, transportation, technology as well as countless social and cultural changes that are truly transforming the future of food logistics in 2013 and beyond.
Fuel remains fundamental
For many businesses, especially those with a transportation component, a substantial amount of time is spent monitoring and strategizing over fuel prices. The days of cheap oil are over, and that means some tough decisions need to be made by businesses and consumers alike.
“It seems very clear that the U.S. government is not going to undertake the hard work to create a comprehensive energy bill to move away from fossil fuels,” says Donald “Dee” Biggs, director of customer logistics, Welch Foods. “As a result, we will see a continuing increase in fuel prices over the next 10 years as this becomes a bigger and bigger issue. The price of fuel will impact how supply chains are organized, and it will also impact the number of trips consumers make to the stores.”
Manufacturers are likely to respond to higher fuel costs by positioning DCs closer to the consumer, says Biggs, along with more use of intermodal transportation. In addition, “Natural gas has great potential to work as an alternative fuel, but we are still a few years away from seeing widespread use in the trucking industry,” he says. “One of the biggest issues for long-haul truckers is the lack of a refueling network right now,” although that issue will ultimately be addressed as the price gap between diesel and natural gas continues to widen, says Biggs.
Jaymie Forrest, managing director of the Georgia Tech Supply Chain & Logistics Institute and co-founder of the Integrated Food Chain Center, also sees a shift towards more intermodal, which is not only a response to higher fuel prices, but ongoing issues like driver shortages and regulations such as hours-of-service that continue to impact the trucking industry.
Nick Pacitti, a partner with Sterling Solutions and a co-founding member of Georgia Tech’s Integrated Food Chain Center, agrees that the trend is towards more efficient logistics, and moving more perishable products in a more controlled state—something that highway trucking is finding more difficult to do these days, he adds.
Pacitti mentions CSX’s Green Express service as a good example. The service operates a dedicated fleet of state-of-the-art refrigerated boxcars from Florida’s Port Manatee to an inland logistics port in Kingsbury, Indiana, moving fresh produce from Central and South America north to the Midwest U.S., then dairy products like powdered milk and cheese on the backhaul to South America and other markets.
The smartphone effect
When it comes to mobile devices, over half (50.4 percent) of those in the U.S. use smartphones now, according to research firm Nielsen, and the numbers are growing. The omni-shopper has arrived and retailers are under pressure to deliver, with some doing it better than others.
Perhaps the biggest laggard in adapting to this shift has been the grocery sector, says Nikki Baird, managing partner at Retail Systems Research. In her report, “Omni-channel and Replenishment: The Future of Grocery,” Baird notes that while many retailers in the fast-moving consumer goods sector have been reworking their businesses to accommodate the omni-shopper, grocery retailers “for the most part, sat out this transformation.” And, while “it may be more than 15 years since the first store-based retailer opened a selling channel online,” says Baird, the waiting game is over for the grocery sector.
“A retailer who has put the customer at the center of the enterprise will be poised to capitalize on that differentiator while it lasts, and protect themselves from the disadvantages of not having an omni-channel strategy later on. In a customer-centric world, sales become an outcome of meeting customer needs. That’s a very different way of approaching the business than grocers have historically considered,” Baird points out.
Software and technology providers are responding. In November, Aldata, a retail and distribution optimization firm, released its Omni-Shopper Suite. The company’s chief marketing officer, Allan Davies, says, “By providing a single view of all shopper behavior in one solution set, the Aldata Omni-Shopper Suite provides retailers and fast-moving consumer goods manufacturers with unique opportunities to better understand, promote and fulfill their shoppers’ needs, and meet changing expectations in real time.”
POS and demand planning
From his perspective, Tim Pyne, vice president of business development at Tompkins International, believes that demand planning will finally start to make substantial progress in the grocery sector.
Del Monte Foods has chalked up a lot of success with its implementation of One Network Enterprises’ demand-driven supply chain solution, which is offered in the cloud, he notes. Point of sale (POS) information from Del Monte’s grocery retailers is shared in real time across the entire supply chain “to the merchandising and replenishment teams, to the suppliers, and right up to the growers, in Del Monte’s case. This has resulted in a 20 to 30 percent reduction in inventory levels and huge improvements on the in-stock in stores,” explains Pyne.
Welch Foods’ Dee Biggs concurs. “POS is clearly the best demand signal available to manufacturers to plan their business.” Considering that consumers’ biggest gripe is when a store is out of stock on an item, this translates into a “huge opportunity” for the grocery sector, he adds.
Indeed, Pyne estimates that only about one quarter of the grocery sector is currently using demand planning to get full visibility of the supply chain, so there’s definitely a lot of growth potential.
Goals for the grocer
Peter Mehring, CEO of Intelleflex, says two major goals are influencing the food logistics sector, particularly on the grocers’ side. They are guaranteed shelf life for perishables, and certified, expert grocers for produce, proteins and seafood.
Given that perishables comprise roughly 41 percent of retail grocers’ revenue and are the majority of margin contribution, there is a lot of emphasis on perishables as a competitive differentiator, explains Mehring. Therefore, “Guaranteed shelf life will tell you that they are delivering high quality products.”
However, to support guaranteed shelf life, the food logistics sector “must move away from relying on visual inspection as the sole means to evaluate remaining freshness,” he says. Instead, “There has to be a migration to ‘measured freshness,’ which is based on a combination of condition monitoring data on a per pallet basis, and past statistics for similar product.” This requires measuring freshness from farm-to-shelf, and then matching distribution times with actual remaining freshness, a concept called “intelligent routing,” says Mehring.
While it’s possible to achieve this level of monitoring today, it’s still relatively new to most supply chain managers, he says, even though the upsides are tremendous. “The efficiency gains will benefit both the growers and food processors as well as the retailers because the data will significantly reduce the ‘surprise’ spoilage seen in current supply chains. The customer wins with more reliably fresh produce; the retailer wins with both more differentiated, high margin product and reduced internal waste; and the growers and food processors win because there is a higher yield being sold, which means greater revenue.”
On a related note, Mehring talks about the role grocers play in food safety. Although consumers can use their smartphones to scan QR codes for information on when something was picked or what ingredients it contains, the reality is that most are too busy to do it. “I believe we just want to trust our grocer,” offers Mehring, “just like we trust a doctor or auto mechanic or any other professional that provides a service and hides the complexity from us.”
As an industry, we need a way to provide all of the key information to expert grocers without overwhelming him or her, he says, and just report the notable exceptions. In other words, “Our expert grocers need to be notified when there is something that requires their attention—and not have to manually check every delivery.”
In this respect, the consumerization of technology along with social media can help lead, Mehring says. “Think how Facebook has personalized notifications about friends and things that affect you, and how each participant can control how much data they want to share. A similar application for food data and supply chain participants can drive the next wave for small and large companies…enabling your local grocer to be the informed, trusted expert we expect him to be. Enabling technology like cloud-based applications, data sharing and push notifications drives the dissemination of useful data without overwhelming the recipient, which is critical to managing food freshness, safety and authenticity.”
The Netherlands: A Small Country That’s Big on Agri-Food
For a glimpse into what direction the global food industry is heading, the Netherlands is a good starting point. The country is the second-largest exporter of agri-food products in the world after the U.S., which not only confirms the Netherlands’ superiority in this sector, but it’s excellent logistics infrastructure as well.
Agri-food is one of the primary engines of the Dutch economy. Four of the world’s top 40 food and beverage companies are Dutch and 12 out of the 40 largest food and beverage companies have a major production site or R&D facilities in the Netherlands, including Danone, Fonterra, and Heinz, among others. Innovations in ingredients, enzymes, animal breeding and biological crop protection are just some of the reasons they are attracted to the Netherlands. In addition, the country is a global leader in machinery and equipment used for poultry processing and the production of red meat, bakery goods and dairy products, including cheese.
A number of truly innovative products and research are being generated by the combined public-private partnership approach that the Dutch are promoting as a way to support the agri-food sector. Some of them include:
Koppert Cress (www.koppertcress.com) is a leading global horticultural company that specializes in micro-greens and micro-vegetables. The company supplies chefs with fresh, HACCP-certified, rare products (like custom-grown cresses) to use in the creation of signature dishes.
TerraSphere (www.terrasphere.nl) produces vegetation index maps of individual parcels based on satellite imagery throughout the growing season. The maps allow farmers to monitor the growth of their crops and can be used as a basis for variable rate application of nutrients, or as a guidance for soil sampling.
NIZO food research (www.nizo.com) is one of the most advanced, independent contract research companies in the world. Their work in foods that promote “gut health” is just one focus. NIZO’s food-grade Pilot Plant is one of the largest on the planet.
TI Food and Nutrition (www.tifn.nl) is a public-private partnership of science, industry and government conducting strategic research in food and nutrition. Some of their clients include Unilever, Nestle, Cargill, and Kellogg’s.
KeyGene’s (www.keygene.com) work is in the agricultural biotech space. They are a partner in the Tomato Genome Consortium, which is responsible for sequencing the genomes of the domesticated tomato and its wild ancestor, Solanum pimpinellifolium, to improve worldwide tomato production.
Micreos (www.micreos.com) specializes in the development of phage-based products that are used to target dangerous bacteria and harmful pathogens in the food chain. Bacteriophages (or “phages”) are widely distributed in locations populated by bacterial hosts, such as soil or the intestines of animals. Although phages were used as antibacterial agents in the U.S. and Europe during the 1920s and 1930s, they were abandoned after antibiotics were discovered.
Enza Zaden (www.enzazaden.com) is a plant breeding company, which produces vegetable seeds, including tomato, bell pepper, cucumber and lettuce, for the global professional market. The company’s goal is to develop seeds that result in produce with optimum taste, looks, yield, labor-friendliness and resistance to plant disease.
Solynta (www.solynta.com) has developed breakthroughs in potato breeding technology that enable faster breeding and targeted varieties with specific traits. The company’s breeding system is 3 to 10 times faster than traditional breeding.
Hoogesteger (www.hoogesteger.com) is the Netherlands’ leading manufacturer of premium freshly squeezed fruit juices. The company uses pulsed electric field (PEF) technology developed by Wageningen UR Food & Biobased Research to deactivate microbes in its fresh juices, which extends the shelf life from the typical 7 days, to 21 days.