Logistics in the Food industry
A vision on 2020
The growing impact of rapidly changing consumer expectations affects companies anno 2016 tremendously. Changing preferences overwhelm the economy with disruptive innovation and new business models to which companies need to adapt to maintain a viable competitive position in the marketplace.
The food industry is highly influenced by this change in consumer demand patterns. Think about upcoming trends such as home delivered fresh meals (HelloFresh), the possibility to shop for groceries online, the growing demand for fresh, local and organic products, etc. The (r)evolution in purchasing behavior of the consumer is the driver of food industry that is challenged to continually reinvent itself and create value in a different way. And logistics is becoming an important play, being no longer perceived merely as a cost center or utility, but rather as a differentiator that sets your company apart from competition.
3 Accelerating drivers of change
Changing consumer demand patterns as key driver to change
Today’s supply chains are largely designed to meet yesterday’s consumer preferences and purchasing habits – low cost, standardization and convenience. Shifting the focus of the business model towards the consumers’ desire for personalized products, customized meals and the preference for local niche products threatens the underlying assumptions the food industry business model and corresponding supply chains are built on. The change in demand patterns can be categorized according to three key drivers of change that require logistics to adapt immediately to maintain market share and service levels at the right cost point:
1. Dining habits : change in preferences and the increased need for transparency
Change in dining and dietary preferences drive producers to steer away from mass-production. Consumer’s consciousness is growing towards:
- ‘Health’: low-fat and low-calorie, including natural and organic, GMO-free and non-arti cial ingredients and additives.
- ‘Dietary restrictions’: consumers are diverting their expenditure to products that meet their true needs (e.g. celiac disease or gluten-free, lactose intolerance and vegan).
- ‘Product variety’: consumers are aware of an increasing product variety of local, fresh and organic food and the increasing availability of exotic products.
- ‘Sourcing’: the increasing need to know where products are sourced from impacts the consumers’ preference and induces willingness to spend more on products that are locally raised or grown.
2. Convenience: demand to access the food they want, where and when they want it
Today’s consumers no longer desire to be limited in consumption and purchasing options based on what retailers dictate. The growing preference for customization combined with convenience makes consumers extremely demanding as to the access the products they want, when and where they want it. This preference can depend on the type of product the client segment, and the situation at hand. All of these trends impact the logistic network of today and tomorrow:
- 'Distribution points': the growing need for integrated distribution points, with a range of options from stores are designed to increase the experience of the client (e.g. Cru) to stores merely designed for order fulfillment (so-called dark stores).
- 'Distribution channels': the growth in non-traditional retail and foodservice channels is impacting the delivery type depending on place, point in time, speed and add-on services offered. The choice of the consumer depends on preference (e.g. speed versus
costless) and its situation (emergency purchase vs replenishment purchase).
- 'Packaging and format': Food on the go is expanding rapidly across channels, allowing some channels that previously could not compete in prepared foods to take on market share. Satisfied consumers will buy the same product again driven by the experience, the design and the convenience of the packaging format.
Consumers are no longer a “one size fits all” marketplace. Increasingly stratified demand patterns occur on the borders between urban and suburban areas, different generations, and changes in the demographic and economic landscape. The middle class with dual-income households is growing, hence the budget to spend on food increases. The growing urbanization causes a larger density of customers which implicates that companies need to adapt their supply chain strategy by focusing their transport and delivery model to smaller and more frequent deliveries.