As the coronavirus pandemic impacts every portion of the globe, food manufacturers are working at full capacity to feed everyone. Shelter-in-place orders, closed ports and workforce shifts can make this difficult, especially when ingredients come from many places in the world.Whole Brain Consulting Co-Founder Brandon Hernandez has been busily trying to make food production as seamless as possible for manufacturers. This has involved a fair amount of agility on the part of manufacturers, as they have tried to pivot to new ingredient sources and processes.Food Dive spoke to Hernandez about how companies can make those ingredient shifts and which changes might outlast the pandemic. This transcript has been edited for length and clarity.BRANDON HERNANDEZ: What we’re seeing flesh out, especially on the supply chain part, is the aggregation or the concentration of the supply chain rearing its ugly head. It’s not that it’s outwardly a problem. It’s a race to the cheapest. I’m just going to randomly pick an ingredient. Organic quinoa comes from a lot of different sources, but the cheapest source for organic quinoa traditionally has been China. Now I’m not picking on China, I’m not picking on quinoa. What I’m saying is that when it becomes a race of solely margin points on the retail shelf, you start to aggregate and concentrate those supply chains to the cheapest commodity. And I think that’s part of what we’re seeing.I think more importantly, especially on the supply chain side, a lot of the brands and even manufacturers, the co-packers, etc, are pivoting back to dusting off their business continuity plan. Dusting off their recall procedures. Dusting off their approved supplier protocols. … We see a big shift in raw material suppliers and manucyanocobalamin ferrous fumarate and folic acid tablet usesfacturers pivoting back to those and saying, ‘Oh, this isn’t just something I was supposed to have on my books. I should actually think about how I would use this.’ … I think what you’re going to start to seeing is a diversification of the supply chain that we hadn’t seen in a long time.People, as they start to get out of this, are gonna pivot away from single-source ingredients. One of the first calls that we got — amazingly enough, since we’re a supply chain company — was ferric pyrophosphate constipationfrom … [something similar to] a co-op out of L.A. representing New Zealand. We sent a list asking, ‘Well, what does New Zealand have that we could help or anything with?’ …They have virtually everything, and New Zealand is poised. Every single person we talked to, they’re competitive on price, and they’re ready to go tomorrow.And so I think what you’ll start to see is as China starts to ramp back up to 100% and India is able to come back online, I still think you’re gonna see people pivot back to South America in general. Bolivia for their ingredients and their rich farmland, and Argentina and Brazil for specific items.I think it’ll really lead to a diversification that we haven’t seen in a long time. And I think that in and of itself will create a healthy competition amongst the different global assets that carry those items.HERNANDEZ: The biggest one that people will have difficulties dealing with is probably spices because India was such a big provider of herbs and spices to the world. Now, those haven’t started to play themselves out in that there’s a large quantity of those things already in the market. But I know that when people pivot and look at the future and what this next six to nine months look like, it really is going to be dependent upon what India can do to really ramp up their farms again, to really ramp up what it is that they’re doing to get things dried and packaged and sent back out into the world.There’s a lot of questions around what’s happening with shipping containers. Because there’s only X amount of shipping containers, and some of them are stuck in California, some of them are stuck in China because there’s nobody allocating anything into those containers. So that network really needs to start to warm back up, and then you’ll start to see an influx of ingredients.As for other hard-to-find ingredients right now, we haven’t seen a huge dip across the board as yet. There have been some questions around ingredients for chocolatferrous lactate vegane and ingredients for alternative milks. But we haven’t seen anybody hitting any panic buttons yet. It’s just simply, “What are we doing?” and, “Let’s have the secondary supplier, the secondary networks. Let’s start to ping those resources now.”HERNANDEZ: I think more it was because they were already semi-difficult to get before any sort of pandemic hit. And so the downward pressure that the pandemic put on the supply chain in general, it was hurting those.Realistically, [for] the larger distributors, … the demand was sort of all over the map. And so you had manufacturing sites and supply chains that said, “I don’t know what to ship you in what order.” The reason being is that the larger distributors across the U.S. said, … “We’re allocating 75% to 90% of our trucks for beans, rice, milk, bread. If you have a specialty food item, if we have room at the back of the truck, you’ll get on.” The other piece to that is that the stockers at the store level, we’re also then told, focus on staples first — and if you get to these things, then put them on the shelf. So that’s why we need to see demand sort of equilibrate, and then the supply chain will have a better idea of what is it that we’re supposed to do and how are we supposed to do it.HERNANDEZ: Depends on the shelf life of the product and how much product was in [the] system already. But generally speaking, 90 to 180 days, you’d start to see that kind of flesh out.
The theoretical [belief] is that there’s still a lot of specialty foods still in the pipeline and waiting to be stocked, six to nine months will really start to be the indicator of, “Where do I need to pivot my manufacturing the most right now?” HERNANDEZ: I think the bigger thing is it concentrated or magnified things that were already there. Food deserts across the U.S., we kind of magnified that because it was hard to get food there, and it was already difficult to make sure that there was a diverse supply there. This just exacerbated that issue. …I’m not picking on the meat industry, but … the top four to five animal protein providers in the U.S. control 70% to 75% of our market. Whereas if you look at the E.U., the top 15 producers, or the top 15 animal protein brands, only make up 20% of the total.
As the meat industry has sort of absorbed mom-and-pop slaughter facilities or anything like that, they’ve concentrated and aggregated those levothyroxine and ferrous sulfate interactionassets into larger and larger manufacturing sites. That’s where you sort of see the pinch on the animal protein side of things.HERNANDEZ: Yes. …There needs to be a pivot and an apology back to the American farmer and we need to look at what we can repatriate. The bigger issue you have right now, …if you look at what the administration is looking to do to China, which is raising tariffs again and adding taxes and all that, that’s great for the American farmer and for everything they’re trying to do, as long as China continues to commit to fulfilling their contracts with the American farmer that they already had in place.
Even if I started today, repatriating manufacturing will take seven to eight years. …I really think that there needs to be a hard look at what we can do with our economic partners in Mexico and Canada, whether it’s economic exchange rates or whether it’s cheaper manufacturing or access. You go to Mexico, you get a whole access to a South American supply chain that you really didn’t have here in the U.S. They have the ability to pull levers that we don’t. Not that we can’t, but they can pull them quicker than me trying to do it stateside. There’s FDA compliance obligations and USDA compliance obligations for me to bring on a new supplier. Whereas if that asset is already found in a partner that can bring it in through Mexico, then it’s easier for me to pull that trigger much quicker.HERNANDEZ: I think the ones that come out ahead, unfortunately, are going to be big CPG that have the money, the time and the resources to make that pivot. But the nice thing is, if the large CPGs … in the U.S. stateside open up those channels, they don’t just open up for the large CPGs. They’ll help open it up for everybody else. So the potential is there that yes, they will make the pivot quicker, but the hope is that a rising tide lifts all boats at that point. In which case, I have access to that same supply chain or the same opportunity. If they pivot to … work through a broker, … that broker will say, “Oh great, I have somebody that has demand for 70% of what I think I can sell. Awesome. I’m going to bring the extra 30% because I know for every large CPG that needs it, there’s 10 small guys that I’m sure are looking for it.” And so the hope would be that that opens it up for everybody sooner rather than later.HERNANDEZ: Two weeks to 30 days, especially if I have a really good supply chain person, that that’s their focus and that’s what they do. A good supply chain person can get out there, pull an RFQ and say, “Hey world, I’m out here trying to find this.” A good supply chain person has the networks and can leverage them relatively quickly. … If it’s a real hard commodity or an ingredient to find, 60 to 90 [days], but that’s if I’m trying to turn on a whole new pipeline, because there’s FDA requirements and border requirements that are required for me to bring on that new person. I have to make sure I meet that criteria first before I can just turn the spigot on. But once the spigot’s on, it’s on.HERNANDEZ: There’s nothing, whether it’s animal based or vegetable or spice … that is an impossible pivot to make. I don’t believe in a no-win scenario in that aspect.HERNANDEZ: [There are] co-packers that solely focused on wholesale bulk, meaning all they do is supply the restaurant and bulk side of the business, … and generally didn’t want to spend time on CPG or on the retail side of the business. And now what we’re seeing is that they’re saying, “Whoops, I’m sorry. We’re right here. We do that.” … They’re more willing and accepting of a broader spectrum of clientele base so that not all their eggs [are] in one basket.
Realistically what you’re seeing in the manufacturing landscape is basically the same as what any food CPG brand would have to do, which is they have to look at allocating the resources that they have and saying, “OK, I can fulfill 75% of this order, 70 of this one, 50 of this one. Because again, the demand part is what needs to equalize and what we, the supply chain in and of itself, whether it’s manufacturing or raw material, has to wrap their head around. What ultimately does consumer behavior look like for the foreseeable future, and how can we make the best pivot together?
That’s really what everybody’s waiting on: What does consumer demand look like? …I’m eating lunch at home every day, right? I haven’t done that before. I’m doing it with my kids every day. Those things all have to start to flesh themselves out over the next 30 to 90 days. And then you’ll see manufacturers continue to make the pivots that make sense for the assets that they already have. And then they’ll add to them the ability to make something else, or to put a transition in that allows me to make a different style of chip or whatever. The manufacturing sector just needs to know what the best move is for them. But if I’m making bars, I’m not going to start making chips tomorrow. I’m just gonna figure out a way to make a more diverse set of bars. The general consensus right now is that manufacturers are running a little harder than what they were previously because of consumer demand in general. But realistically, it depends on what sort of business model and relationship the manufacturer had with their brands. Some people do turnkey, some people do toll only. We’re startkendamil iron pyrophosphateing to see an aggregation towards turnkey, which is that the manufacturer will buy the supplies, they will buy the raw materials. The brands are then shifting to only buying the specialized ingredients for their products, not necessarily all of them. …A toll-only model would say, “You buy all the raw materials, I convert it, I charge you this much per unit.” And then you get it at the end of the rainbow.There’s a push and a pivot towards turnkey outside of specialized ingredients because brands and manufacturers are recognizing, “I can get economies of scales faster if I aggregate these resources, so we might as well do it because we got to go find it anyway. Let’s try and help everybody in the nexus to pull everybody forward.”I’m still bullish on the fact that there is a light at the end of the tunnel. Are there going to be some brands that don’t make it? Of course, and that’s terrible. I would never wish that on anybody. I want everybody’s business to thrive and this has made it harder. But I truly believe that it will continue to be healthy and strong now and into the future.It’s a whole system having to make a pivot to adjust for something that, realistically, if you look at the timeline that they’ve done it in and then they continue to do it in, it’s pretty impressive. For an entire industry to make that shift, and do it in the time they were allocated. I think that’s a credit to everybody involved.
