As we enter 2023, each week we will explore one of our 10 trends for the new year. We approach this a bit differently as our trends are developed for suppliers in the food and beverage industry. They are based on what we learn talking to different retailers, suppliers and stakeholders in the industry.

Our fifth trend is Sustainability matters. Sustainable packaging, reduced food waste and your environmental footprint all matter. They can be a path to the shelf or your route off the shelf, if someone else in your category figures it out.

We know there has been a lot of volatility in the food and beverage industry in recent years. One constant has been the expectation from the marketplace that the industry reduces its impact on the environment and focus on products that pass the test of being more sustainable.

This just needs to happen

Food and beverage is a massive industry. According to FCC’s annual food report from March 2022, the industry in Canada is over $180 billion and you can multiply that by 10 for the U.S. market.

We do have a responsibility to do the right thing. Collectively the impact on the environment from the entire value chain is significant.

We like to say you need to meet the needs of two stakeholders if you want to be successful: consumers and customers. In the case of sustainability, we need to add a third which are regulators.

Consumers are demanding change. As the people shopping in stores have different perspectives than previous generations. They will not accept that producers and processors are ‘working on it’. They demand change and many will shift their buying habits to support products they see as good for the environment.

Your customers, retailers and distributors who issue purchase orders, are making commitments about the environment. Many retailers now publish sustainability reports you can access on their website. Consumers and environmentalists will judge if they are doing enough or doing the right things but you can plan for your customers to have expectations for how you can help.

In Canada regulators are moving ahead to legislate change. We know the plan to eliminate single use plastic is there and they continue to introduce bans in specific areas like quick service restaurant packaging and plastic bags.

Where you need to focus

There are three key areas to make sure you understand what is happening and the impact it will have on your business.

1. Your target market

You should know, better than anyone, who buys your products. How important is this issue to the consumers who you need to pick up your product and put in their shopping cart? If you are targeting younger shoppers (20-35) chances are this is more important than if you are trying to sell to an older demographic. There are other considerations such as the lifestyle your target market chose for themselves. If you are trying to appeal to people focused on plant-based diets the environment is often more important to them. A plant-based protein in a compostable package will get more traction than hot dogs in a similar package.

2. What is happening in your category

Every category only gets a certain amount of space on the shelf. There can be some space for higher end options, a group of items in the middle that deliver most of the sales, some lower end options and private label. Now we see sustainability being a point of differentiation too. A product with compostable packaging can make it to the shelf in the place of other similar items. Apeel packaging for english cucumbers was a major factor in Walmart’s decision as to where to buy these products.

3. Customers are demanding change

Retailers and distributors are making commitments related to sustainability. Changes such as Sobeys eliminating plastic shopping bags before they were banned with legislation. We should see third party audits to measure supplier’s performance as it relates to the environment. This is one method retailers use to leverage their position to drive change. Walmart are very good at this. If you want to sell to them you need to meet or exceed certain requirements.

3 areas for suppliers to focus

As we look at how food producers and processors should respond we see 3 areas of opportunity:

1. Environmental footprint

2. Packaging

3. Food waste

Environmental footprint

There are many areas where food producers and processors can reduce their environmental footprint. Some of these initiatives can also reduce costs. Logistics is one expensive input that really does not get you much credit from consumers and customers. Yes, you need to get your product from your facility to theirs but whether you put 120 or 136 on a pallet does not really impact their perception of the product. If you can get more on a pallet, you reduce your logistics cost per unit and reduce your environmental footprint per unit. Two wins.

Reducing utility costs is another opportunity. If you can find improvements in your process that reduce the amount of electricity or water you require there are benefits to the environment.

Walmart are very good at this type of initiative. They look for areas where they can improve their environmental impact and reduce costs.

Packaging

One expensive and complicated component of food and beverage is packaging. Your packaging needs to do many things. Protect your product through the supply chain, meet regulatory requirements, look appealing and sell your products. Now it can also deliver a message of sustainability. A complicated component of our business is more complicated than ever.

Should you consider recyclable or compostable options?

What are the recycling capabilities in the area where your products are sold? Often this is a municipal responsibility and it is not consistent.

If you plan to enter new markets are there different regulations? In the U.S. one state can be very different from another.

What claims can you make on your packaging with regards to recycling?

There is no right answer to all of these questions as there are many variables. You will have to do the research and remember; it is changing quickly. One solution this year might have to evolve next year.

Food waste

We would say most people in our industry would agree if we can reduce food waste it would be a good thing. We see numbers like over 30% of food produced in Canada is never consumed. This is one area consumers see the waste and many want to see change.

In 2019 all of the major retailers (with the exception of Costco) committed to reduce food waste by 50% by 2025. That is a big number! Certainly the pandemic impacted this but we will start to hear more about it again. Suppliers have to play a role in this.

Retailers made the commitment with some large CPG companies. The reality is there is not a huge amount of food waste in retailer’s stores. Most stores operate at 2-3% of total store sales. It is an expense they can control and they work hard to reduce it. It is more evident in fresh departments like produce or meat.

Suppliers that can reduce food waste in their own facilities can also improve their marketable yield and improve profits. If you can reduce food waste and sell more of your products it should be a win.

Sustainability is not going anywhere. Improvements in this area can lead to sales and profits. They can also cost money so it is important to consider the options and find the best solution.

Remember to let your customers and consumers know what you are doing. They have a lot on their mind so if you are making improvements let explain the initiative and how you are improving your impact on the planet.

If you have any questions about our SKUFood trends, you can always send me an email peter@skufood.com or call me at (902) 489-2900.

Peter

Loblaw and food inflation

It is interesting to see Loblaw debating this issue directly with consumers on social media. When I was at Loblaw there was very little interaction with media. The philosophy has changed and we see the company responding directly to consumers.

Any time a company has over 30% market share they will be in the spotlight. Consumers see retail prices in the store and retailers should have to justify changes. One thing people seem to miss is consumers do have choice. If they do not like the price at a Loblaw store they can go across the street.

I would not agree with the quote at the end of the article. Suppliers do not get price increases in February. Most retailers will not accept any communication on cost of goods from November until January. They will have a schedule of category reviews where they will discuss costing with suppliers. These are done throughout the remainder of the year.

Your chips will cost more

To continue with the food inflation theme Hostess Frito Lay are in the news again. It is being reported they are implementing a 10-11% price increase. It will be interesting to see if this results in more friction between them and retailers.

We know last year their products disappeared from the shelves of Loblaw stores as they could not agree on a price increase. Perhaps this is the increase they put in front of Loblaw? Who knows but when you see a bag of potato chips in a grocery store selling for over $5.00 it is a sign of changing times. It does make a person wonder what Hostess paid for the potatoes relative to what they paid for the Super Bowl ads??

Where is Peter Speaking?

Food and Beverage Atlantic Masterclass

Sales and Marketing Feb 8th

Alberta Agriculture

Getting Alberta products in the shopping cart Feb 9th

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Learnsphere

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Centre for Women in Business

SPICE program vision idea generation Feb 21st

Food and Beverage Atlantic Masterclass

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Centre for Women in Business

SPICE program market research Feb 28th

Food and Beverage Atlantic Masterclass

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Supply chain 123 Mar 28th