(Courtesy of the Jacksonville Daily Record) – Covid-19 has caused large-scale disruption in many industries. Because consumers are eating at home more these days and are buying food online more, businesses in food, beverage and logistics have changed their operations.
Bankers with Truist who focus on these industries say the road ahead still has many unknown twists and turns because of the pandemic, but the trends that have emerged are expected to continue for years to come. Truist, which provides a wide range of capabilities to serve the business community, is the result of the 2019 merger of BB&T Corp. and SunTrust Banks, Inc., which created the sixth-largest commercial bank in the U.S.
Five Truist bankers who specialize in these three industries shared their views with The Business Journals Content Studio about changes that have taken place throughout 2020 and their expectations for the future.
Q: How has consumer behavior changed during the pandemic?
Todd Southerland, senior vice president and food and agribusiness industry manager: A pandemic like this creates a black swan, a truly once-in-a-lifetime event. Most of the food industry is fairly well established – we all have to eat and drink. While it might be easy to focus on all the negative impacts, you can also equally focus on opportunities.
Tremendous behavioral change doesn’t happen often. But now you have 330 million people whose day-to-day habits have changed. One of the biggest changes is a shift from eating out to eating at home. Before the pandemic, almost half of meals were consumed away from home. The impact has been a big slowdown for a sector of the economy (restaurants) and an increase in purchasing goods through the grocery channel. While this was most intense early on in the pandemic, some of those pressures still exist today.
Michael Stollmack, managing director, food and beverage investment banking, Truist Securities: Because people are cooking at home more now, they are experimenting more, which leads to a bigger focus on specialty and ethnic flavors. That’s created a shift in the type of products that are in demand.
Southerland: Beverage is similar. Everyone drinks a certain amount of liquid every day. The shutdown of bars led to more at-home consumption. That’s slowed the demand for beer kegs, for example. For manufacturers, the margins in restaurants and bars are higher.
Another change is a shift to more mainstream brands that people are comfortable with, which has had a negative impact on the craft industry.
Taylor Howerton, senior vice president, logistics and supply chain industry consulting: Nesting behavior has led to more spending for everything that’s done at home these days – home offices, equipment for home schooling and buying more food online. Some folks who had never used digital channels before have used them for the first time. The brick-and-mortar retail spend has been converted into e-commerce spend at an accelerated pace. E-commerce as a share of retail sales last year at this point was around 11%. Now it is closer to 15% of all retail sales and is growing almost twice as fast as last year. The spending shift from services to goods, combined with increased digital purchases, has put pressure on transportation and logistics providers to meet demand.
Michael Garcia, managing director, head of transportation and logistics, Truist Securities: Cold storage has seen a shift away from food service demand from restaurants, airlines and cafeterias and toward retail grocery consumption. Final-mile delivery also is dealing with increased demand for heavy, hard to handle goods such as fitness equipment and furniture, which consumers are increasingly ordering online.
Q: What have been the biggest hurdles for manufacturers and distributors to overcome so far?
Southerland: Labor is the obvious one. The harvesting of commodities and crops, the processing of proteins and the dairy industry – those are tough jobs. Manufacturers are having to pay more, and there’s less efficiency per employee. The turnover for food manufacturing is 60% to 100% every year. With employees working arm-to-arm, a lot of plants had to be shut down. A lot has been learned since March, and best practices have been instituted. But during the stimulus there were plenty of workers who were paid more to stay home, and several chose to.
Stollmack: Some plants were running at levels they hadn’t experienced before, which increased operational risk. There were also issues up and down the supply chain that made it challenging to get product while also driving raw materials pricing spikes in certain categories.
Joseph Goode, senior vice president, beverage industry manager: There have been a number of different challenges, particularly in the beer space with an aluminum-can shortage being a big issue and affecting nearly every producer in one way or another. Also, in Mexico, beer production was deemed unessential, so producers like Grupo Modelo were forced to temporarily shutter operations. Distributors that had a significant portion of their business associated with those brands have constantly been trying to catch back up. The end result has been significant out-of-stock issues for both domestic and international manufacturers alike. Distributors have also had the incremental challenge to transition and repurpose workforces to handle the shift between on-premise to off-premise consumption.
Garcia: Driver shortages in trucking were already a problem, but have been exacerbated by the pandemic. Many trucking companies had to furlough employees and it’s been difficult to get drivers back.
In warehousing and logistics, the whole notion of social distancing while trying to get to the same production and fulfillment throughput has been a challenge. There’s been a reconfiguration of the workday – more hours with fewer employees per shift. Automation was a real thing before the pandemic, but it’s been accelerated because of it. Not just for cost savings, but because of the ability to run a facility more efficiently and with fewer employees.
Q: What sectors are likely to benefit the most over the long term? What are the problem areas?
Southerland: Restaurants and the food service industry will continue to experience challenges and closures. Dairy is impacted by the trade relationship with China and schools operating remotely. Cheese on the other hand, because of pizza delivery, is performing extremely well. Produce is also impacted by fewer people eating at restaurants. Most of the broccoli that gets sold is through restaurants.
Goode: Consumers have gone back to traditional brands they are comfortable with. That’s good for large legacy brands but has the opposite effect on smaller, less-well-known companies. Craft brewers will face challenges where much of their profitability is tied to on-site tap room sales.
Howerton: There’s a shortage of cold storage space to serve the food industry, and more space is needed to serve the growth in e-commerce. The last mile will continue to be the most expensive part of logistics, and operators will need to find new, creative ways to deliver goods in an efficient and tech-enabled way.
Q: What types of innovation are you seeing or expecting?
Southerland: With automation, the cost benefit hasn’t necessarily been there, but as more food manufacturers face labor shortages, the payback on some of that automation may change materially. You’ll likely see more adoption in the years ahead.
Garcia: One of the biggest challenges for the transportation and logistics industry is the consumer push toward same-day or one-day delivery. The innovation will be – how do you get the consumer to rethink that? You may see incentives in the shopping cart – “Hey, take $5 off if we can deliver those paper towels on day three.” Transportation and logistics companies will be looking to drive efficiency and optimization within the supply chain by prioritizing the flow of goods.
Howerton: The transportation and logistics industry will continue to see more investment in supply-chain visibility, and ways to provide customers with the data they desire. You’ll see more innovation to provide real-time data related to suppliers, as well where individual SKUs are during different modes of transportation.