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From Site Selection magazine, July 2020

A World Turned Upside Down

The food supply bent but didn’t break. The strongest will survive.


Our relationship to food is in the midst of a radical shift. Competing with a pandemic and an attendant recession, we are shopping differently, downsizing eating budgets, eating different foods in different places and for different reasons than we have before. Together, these factors pose profound challenges to the food and beverage industry. “Everything you could change about the food consumer changed overnight,” says Richard Kottmeyer, food and beverage expert with FTI, a global consulting firm. “Your current business model,” Kottmeyer warns, “is not what is going to be salient in the future.”

In addition to his work at FTI, Kottmeyer has served as a G8 delegate, World Bank keynote speaker and White House presidential advisor on global food security. He is a celebrated strategist and futurist who helps companies understand opportunities and challenges across the globe. He spoke with me on June 25. The following are some of his insights, condensed for clarity and brevity.


“What COVID has done is to accelerate a change we were seeing already back to a more normal buying and food eating paradigm. It’s back to the future with a digital twist. We can almost look at what the millennial consumer was as an aberration. Millennials had enough money to use food as a form of conspicuous consumption, as a way to assert individuality as opposed to just fundamental nutrition. You move into a recession, and now that’s not high on anybody’s list. You’re turning from excitement to comfort.”


“As people have been forced into pandemic mode, they’ve started to shop in parts of the store they had stopped visiting. They needed convenience. They needed to stock up. And it turns out that the quality of food you buy in the center aisles is superior to what they expected. Consumers are seeing that size matters. They’re starting to find value in things they had shunned. That’s why power brands and center aisles are doing so well. They didn’t appear overnight. They’re what your parents ate and what your parents’ parents ate. There was a narrative that small brands were winning. That’s evaporated.”


“Grocery stores’ business models had to change overnight. Overnight, you have ‘click-to-curb’ and ‘click-to-deliver.’ Digital. And the people showing up in the grocery store aren’t staying there long. That fundamentally changes the idea of slow-moving items in the grocery store or on the menu. Everyone has stripped down their menus and grocery store items toward faster through-put. That immediately impacts what new product development looks like. If you’re a small startup, if you’re a private label that’s not really a brand, you’re going to struggle, because your product depends on in-store experience and comparison shopping and people just aren’t spending time in-store. If you’re a natural or organic player, it’s very hard to move to a digital model, and you’re in trouble.”


“Consolidation has had an enormous benefit. For one thing, consolidation allows for better tracking, tracing and food safety. That’s incredibly important, especially with the supply chain challenges we’ve seen. Second, when you talk about the food supply itself, it truly was the more consolidated players who could quickly have the flexibility and the analytics to mirror trucks, trailers, loads, timing — all that — and make the needed changes. You had to move fast, and what you found were that the largest supply chains were the most flexible. For anyone who says that food industry consolidation is a bad idea, that person was never desperate to buy bacon, eggs, milk or toilet paper. Yes, some of the weaknesses were exposed, particularly in the processing. The consolidated system strained, but it didn’t break. If this were largely a fragmented food industry, it would have been a broken food industry.”


“With all the possible outcomes in terms of the timing and severity of what’s going to happen, what you want to ensure is that your entire operation has flexibility. How quickly can you adapt, and not over-adapt? Because at some point food service does come back. At some point, social distancing guidelines get relaxed and at some point, the pandemic does get beaten. But how do you create the flexibility for what could be three or four different outcomes? All we know is there will be an outcome on the back end, but that’s to be determined, and the virus gets a vote. Most businesses are not going to like thinking about changing their business models several times, but that’s what COVID is going to require.”


“Grocery stores are going to have to get closer to their distribution centers. There’s movement toward sending a trailer from the DC over to the retail store and then doing curbside or parking lot pickup out of the trailer or something along that line. So, you’re basically running two businesses out of one parking lot. You’ll need parking lot accessibility and ease of moving cars in and out quickly. That’s why a Walmart is going to do very well in this environment, because they have the physical space to be able to run both operating models in the same location. A lot of others are going to really struggle. If you’re a specialty retailer, you’re in trouble.”


“Once you move to digital, and you move to quick pick-up, and you still have social distancing, you’re spreading the shopper trips across the entire week, rather than the heavy emphasis you now see on the weekend. That means your footprint, theoretically, can be quite a bit smaller. Not only that, but you’re changing the number of items that you’re going to be keeping in that store. Some of the specialty items will be available by pickup only, and that’ll occur basically out of the containers from the DC. You get your order out of a cooler right for shopping bags that are already put together for you.”


“For site selection what’s really going to be interesting and fascinating is as you move to this digital model, you need more and more and better and faster distribution centers and a lot of cold storage. That’s going to be a gangbuster market. It’s also going to be more technology driven. It’s going to be about analytics and execution. Premiumization was paying for a lot of these smaller DCs, but premiumization has given way to standardization, and the key is going to be throughput. You have to be exceptionally fast and efficient. It’s a whole new business model.”


“The most damaging thing I see in terms of real estate is that up to 60% of independent food service operators having five locations or fewer are likely to go out of business. You’re going to have quite a bit of real estate become available very quickly, and what do you do with it? Eventually you are going to get back to fine dining and independents. The question is, how many years out are you going to wait to land one? Are you willing to play 36 months out? There are a number of things you might be able to do, but it is certainly going to be outside of your traditional comfort zone.”


“COVID highlights how important the food system is, and how much it’s taken for granted. The American producer has for too long been misunderstood, misrepresented and kind of ignored. In other words, ‘steak kind of happens at the grocery store,’ and we’ve forgotten about the whole process of getting it there. The entire community of agricultural workers, food professionals and retailers all the way down to restaurateurs deserves a shout out. There is no sector in this country more fundamental than the food sector.”

Gary Daughters
Senior Editor

Gary Daughters

Gary Daughters is a Peabody Award winning journalist who began with Site Selection in 2016. Gary has worked as a writer and producer for CNN covering US politics and international affairs. His work has included lengthy stints in Washington, DC and western Europe. Gary is a 1981 graduate of the University of Georgia, where he majored in Journalism and Mass Communications. He lives in Atlanta with his teenage daughter, and in his spare time plays guitar, teaches golf and mentors young people.


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