The supply chain issues that resulted in widespread out-of-stocks during the COVID pandemic have persisted into 2022 and have been exacerbated by other inflationary pressures, according to the SFA’s State of the Specialty Food Industry report, 2022-2023 edition.
The challenges extend from beginning to end in the retail supply chain. Manufacturers are hampered by bottlenecks in their ingredient and packaging supply, especially for materials imported from overseas, and the resulting delays cascade through the supply chain to the store level.
“It just seems that around every corner, we’re playing Whac-A-Mole with something not being available,” said John Pruden, CEO of Taste, a collection of food and beverage businesses based in Virginia Beach, Virginia.
Pruden is one of several specialty food industry leaders interviewed in the report, which provides an in-depth exploration of specialty food and beverage sales trends.
Pierre Jamet, chief sales officer at Emeryville, California-based dessert-maker Petit Pot, said the company has had to adjust to ordering materials and packaging well ahead of its needs, which adds upfront costs, at the same time it is coping with rising prices and scarcity of key ingredients, such as chocolate.
“I think all those things are going to be sustained,” he said. “We don’t foresee, really, any improvements in the short term.”
Impact on Sales
The SFA report highlighted several ways that ingredient shortages are affecting sales of specialty food categories. A mustard seed shortage, for example, has had a negative impact on the supply and sales volume of some shelf-stable condiments, dressings, and marinades, the report said.
Challenges in the supply chain for imported items have also impacted sales of shelf-stable pickles and olives, and shelf-stable pasta has also seen widespread out-of-stocks at retail.
“Supply issues keep shelves spotty, even in limited assortment specialty retailers like Trader Joe’s,” the report concluded.
The supply chain bottlenecks during the last few years have in some ways helped specialty retailers implement “long-overdue SKU rationalization,” the report said, although that has manifested itself in a more challenging environment for specialty food makers to gain access to retailer shelves.
“The bottom line is that all grocery retailers are more cautious than ever about bringing in new products, meaning the impetus is on makers to innovate with far more thought, R&D and investment than ever before,” the report concluded.
By the same token, the supply chain challenges of the past few years have given both retailers and consumers deeper insights into the sourcing and distribution of products.
“People never knew what supply chain meant before [Covid], and they’re learning about how their food gets to their plate a little bit more,” said Tonia Farman, co-founder and CEO of Queen of Hearts, a maker of superfood dressings, oils, and seeds based in Hood River, Oregon.
That benefits her company, she said, because it enables Queen of Hearts to talk about its clean ingredients and plant-based sourcing.
“Buyers are asking about that more, too, which I really appreciate because we can answer to it,” said Farman.
Dwight Richmond, director of center store at Edmonds, Washington-based specialty food retailer Town & Country Markets, said that the pandemic highlighted the importance of working with local suppliers.
“I’m really big on understanding your supply chain from seed to shelf,” he said. “I think getting with local manufacturers and makers who control their own destiny and are self-manufacturing, or have very good co-packer relationships, was really critical in this [COVID] time frame.”
Supply chain challenges have led some specialty food makers to look for more sustainable and reliable sources to supply their raw materials. The Planting Hope Company, for example, has shifted away from some tree crops to more renewable and widely available inputs for its plant-based products, said Julia Stamberger, co-founder and CEO. The Chicago and Vancouver, British Columbia-based company is focusing instead on ingredients such as peas, sesame, lentils, and rice, she said.
She also said Russia’s war in Ukraine is impacting the supply chain.
“We were not originally sourcing from these countries, but obviously if a large source of the supply chain dries up, then that puts pressure on other sources,” said Stamberger, citing as examples sunflower oil and sunflower lecithin. “We’re buying ahead on those, because even if you hedge, the contracts won’t necessarily get filled, because there’s not supply.”
Pressures on Pricing
Supply chain challenges are translating directly into price increases, specialty food makers said.
Patti Doyle, CEO at Chicago-based Rumi Spice, said the cost of freight containers from overseas has tripled, or in some cases increased even more than that, compared with two years ago. The company imports spices and spice blends from Afghanistan.
“The cost of transportation is a killer right now,” she said, noting that inflation is impacting “almost every touchpoint” in the supply chain.
Freight availability and costs are also impacting New York-based Hive Brands, which operates an online storefront offering an assortment of specialty foods and beverages.
“All of the folks that we buy from, their costs are going up,” said Kate Harper, chief brand curator, Hive Brands.
The ongoing inflationary pressures are forcing the industry to think carefully about consumer demand going forward, said Cassy Kehoe, senior fresh category manager at Naperville, Illinois-based KeHE Distributors.
“The next thing we all have to grapple with and understand, with all of this inflation, is what products are consumers still going to want to buy,” she said.
Related: Food Retailers Discuss Supply Chain With President Biden; Imports to Slow in Latter Half of 2022.