For the last several years, food shippers and distributors have moved toward a faster and more flexible distribution model. It includes a significant shift to e-commerce enabled direct-to-consumer (DTC) food offerings such as meal kits, customized produce boxes, and direct grocery delivery. At the same time, traditional distribution channels also have to be maintained. Distribution all along the cold chain from the supplier to the retailer is adapting to these omnichannel requirements.
Issues contributing to this sea change in distribution include:
Demand for fresh food offers as well as fresh produce availability all twelve months of the year.
Convenience for dual-income households and millennials who shop online for fresh food, frozen food, and meal kits.
Mass customization resulting in increasing SKU requirements. At the same time, Covid responses have often resulted in a reduction of the total assortment offerings, thus requiring suppliers to be very strategic in SKU offerings.
Customer expectation of a quick response and faster delivery due to the Amazon Effect driving consumer behavior.
Significant increase in the demand for frozen food. According to The American Frozen Food Institute (AFFI) and FMI, frozen food sales gained 21% in 2020 versus 20191. This increase experienced through year-end is indicative of the staying power of the frozen food trend.
Many consumers are tiring of cooking at home, and with the convenience of meal kits, convenient offerings have increased dramatically.
The pandemic has only accelerated the changes occurring over the past few years. eCommerce had grown more in the first two months of the pandemic than in the entire decade before, jumping from 16 percent to 27 percent of all retail in the U.S., according to Boston Consulting Group. As a further illustration of the acceleration, before the pandemic, projections for online grocery purchases were USD150 billion annually by 2025. In 2020, consumers spent USD66 billion on online CPG food and beverages, and the expected outlook is for a spend of approximately USD100 billion in 2021, excluding retail food service and meal kits. The spend levels are shattering the previous projections such that many experts are no longer even making five-year projections. Both direct grocery delivery and meal kits are riding this surge in eCommerce demand. The effects of the pandemic will be here for the long term.
These increases may have an outsized impact on the cold chain as consumers choose frozen food over fresh food. According to recent IRI data, the increase in frozen food sales realized in 2020 continues with a strong start in 2021. Frozen-food sales were up 19.4% in dollars in January year over year, compared with a growth of 11.4% for fresh perimeter foods. As a result, not only are the online and grocery spend affected, but cold chain impacts are also in play.
Cold chain participants must have speed and flexibility for fast, customizable delivery. They must be ready to adapt to these new expectations. Companies will need to expand capacity in an already tight market to meet these demands. To make this possible, they must develop a new understanding of demand signals. To manage this effort, they will need more visibility across the organization and all supply chain partners.