February Already Seems Like Ancient History

Like many of my colleagues, over the past month or so, I’ve been involved in a number of webinars with clients and the wider industry, including F&A Next. Although I feel we are still at the point of having more questions than answers on how the pandemic will play out, here are four interesting themes around technology that have come up during these public discussions that add to the debate:

1) Technology to the Rescue – From videoconferences to real-time data and e-commerce, this is technology’s time to shine, even in food.

2) February Already Seems Like Ancient History – Have our new habits already become so hardwired that we will struggle to go back to our old food routines? Surely a few things are likely to stick?

3) Shorter Supply Chains – The pandemic has led to criticism of lean and globe- spanning supply chains with calls for shorter, more locally diverse alternatives. Will automation prove to be the great enabler to get us there?

4) The Affordability Challenge – Expenditure, confidence, and employment levels have all gone south. As the recession kicks in, there will be big implications for our food choices as consumers refocus on price.

Zoom, Zoom

Today’s technology of high-speed Wi-Fi, laptops, and videoconferencing has allowed about one- third of US workers, who have flexibility in their workplace, to almost seamlessly work at home during this pandemic (and no doubt appreciate the hours saved from not commuting). Despite not being able to travel, the “instantaneous connections” afforded to us by videoconferencing have allowed some of us to connect a lot more easily and quickly.

This growing appreciation of technology and the role it can play was a theme that ran through the F&A Next online summit, which had an online audience of over one thousand attendees from 32 countries. I was privileged to moderate a panel entitled, “Coronavirus and Impact on Consumer Behavior,” with Robbert de Vreede, Executive Vice President of Global Foods at Unilever, Rickard ?ste, the founder of Oatly, and Alon Chen, the CEO and co-founder of Tastewise. Here’s asummary of some of the more interesting discussion points grouped around the following four themes:

1) Technology to the Rescue

Not surprisingly for an event based around innovation, there was a lot of optimism that the practical application of science to food will come to the fore. Here are three examples:

a) We need innovation more than ever. Despite some fears that innovation (and R&D spend) might become a casualty of the coronavirus, Robbert de Vreede from Unilever felt the opposite was the case, arguing that “we will need innovation more than ever.” Innovation is required, he argued, to find solutions to all the disruption and shifting habits we are witnessing from consumers being forced to eat at home but still wanting affordable and inspiring options. Similar arguments were made in earlier sessions, where panelists such as Temasek’s Anuj Maheshwari felt one positive outcome of the pandemic would be a “greater appreciation of technology and the role it can play” in helping to provide greater food safety and food security. Adam Anders from Anterra Capital too expressed the belief that science will have to play a bigger part in improving our food system and hoped (with a heavy dollop of wishful thinking) that facts would no longer play second fiddle to unscientific but more glamorous food fashions.

b) Listen to the data. Alon Chen thought the pandemic had made food companies appreciate how they can use technology to listen to and understand the consumer better because they need new food solutions when stuck at home. The better collection and use of data allows them to pivot and be responsive to consumers’ changing needs – they need a lot more food solutions as many people will be stuck at home for a long time. During this pandemic, many CPGs have valued the ability to get data in real-time and act upon it “because during these volatile times, what’s happening this week may well be different from last week.” For example, insights from social media data (during the lockdown, there has been even more food sharing on social media) help encourage consumers to use the products bought in the pantry-stocking phase, for example by providing recipes they can make with children to make cooking more family-oriented, experiential, and healthier. As Alon put it, success lies in finding “new moments where you are creating new experiences for consumers.” Similarly, restaurants are observing that consumers are enjoying baking more bread and making more cocktails and are figuring out ways of participating in these trends, such as pizzerias selling pizza kits and bars selling cocktail kits.

c) Acceleration of e-commerce. More broadly, everyone has recognized how this pandemic has driven a big spike in demand for e-commerce, accelerating the shift to shopping online that has been underway for many years, “even in the most remote places”, and companies are finding ways to respond to that demand. Pre-Covid-19, my colleague Steve Rannekleiv had been talking about how both beverage companies and retailers were really underinvesting in e-commerce and felt top executives in the beverage space were underestimating the importance of this channel and just paying lip service to it. The pandemic has therefore proven to be a bit of a wake-up call and “e-commerce is now top priority for everyone,” according to Rob Leclerc from AgFunder, with more funding going into solving issues around food delivery and foodservice. Unilever, for example, sees the shift to online as an opportunity to reconnect to some of the consumers they had lost over the past few years. Arguably, the e-commerce market share gains during the pandemic might play out in the same way that private label gains share in a recession. During a recession, consumers discover, or rediscover, private label equivalents to their brands, and private label increases its overall market share. Post-recession, private label doesn’t concede but holds onto that market share.

2) February Already Feels Like Ancient History

One of the million-dollar questions, a known unknown if you like, is just how sticky our new lockdown habits will become. For the past few years, Big Food has talked endlessly about how they have listened to the consumer to make their products more relevant, such as cleaning up the label, taking out the artificial, etc. In short, they are saying, ‘everything you’ve asked us to do we have done to the best of our ability.’ And now we are experiencing the forced trial of many of these items and eagerly await how the sales data plays out over the coming months to see how much sticks. I’ve heard from more than a few industry folk who see the current bump in demand as a ‘false dawn,’ as well as counterarguments around how these products have indeed improved and how consumers will be ‘pleasantly surprised.’

Google’s algorithms keep pointing me towards a study that found it takes 66 days on average to form a new habit. Here in New York, we went into lockdown on Sunday March 22, so the 66th day mark is round about now. The study reported considerable variation in the time it took to form a new habit, ranging from just 18 days for some and up to 254 days for others (that would put us at Thanksgiving – by then we will all be baking bread in our sleep). But what did the panelists think?

Robbert de Vreede, too felt that a large part of our new habits will stick because it will be a function of how long we are going to be in lockdown – “the force and longevity of something defines the amount of change.” One example was how Unilever’s online research found consumers were rediscovering products they haven’t had in years or were trialing things they hadn’t tried before, such as plant-based foods (in part because meat has been less available). While recognizing not all this forced trial will survive as bars and restaurants reopen, some might remain if the online shopping experience is a positive one, the marketing is right, and all the changes large CPGs have made to their brands pass the taste test.

Alon Chen described a world where everything seemed to be changing at once because of the dramatic changes in how we source food. For example, all this home cooking has led to a doubling in online recipe searches. He has also observed some of the seemingly contradictory changes in what people are eating, such as losing interest in weight loss (despite obesity being a risk factor for Covid-19), while at the same time observing a strong uptick in interest in healthier food, with an increase in the role of nutrition and protective foods. Rickard ?ste’s company, Oatly, has been “nerding out” on Oats” for over 30 years, and Rickard also felt the current crisis was making everyone think more about their health.

3) Revisiting Supply Chains (Again)

Last month, we commented on how everyone seems to have their own preferred R-word about the supply chains right now, such as the need for building in greater resilience, robustness, and/or redundancy to withstand any future shocks. The pandemic has led to criticism of lean and lengthy just-in-time supply chains with calls for shorter, more locally diverse alternatives, as well as meeting the political objective of greater food security of producing food at home. During F&A Next, supply chains were also a hot topic, with the pandemic putting a spotlight on the pre- existing weaknesses in the food system. During the seminar, we heard how technology could be a future enabler of alternative supply chains through greater automation, such as indoor farming (to control climate), vertical farming, and cell-based agriculture. Automation could also be used to improve business continuity (machines don’t get sick), and in a blast from the past, greater industrialized food processing to promote food safety. (‘Untouched by human hands’ could once again become a great marketing refrain for the post-Covid-19 consumer.) But not everyone was drinking the technological Kool-Aid. Robbert de Vreede from Unilever reminded us of the implications of the ‘knee-jerk’ response to localizing food systems in the name of greater food security. “When food is grown close by it feels more accessible and therefore safer but this is likely to increase costs” and that might prove to be unacceptable to politicians and consumers. After all, there are good economic and agronomic reasons why supply chains are the way they are and why crops are grown where they are.

4) The Affordability Challenge

Finally, everyone spoke to their concerns on the impact of the global recession we are entering into on the consumer and their food choices. There is a lot we could discuss here, but for now, let’s focus on prices and affordability. As Adam Anders put it, “things are going to get very difficult, and some luxuries are going to fall off the shopping list.” For some time, we have been making the case that, for the consumer, the overall value proposition of a brand is much more than just price and that companies can charge more for premium products because consumers will value some of the attributes of the products and brand (mission, environmental credentials, animal welfare, etc.).

All that changes in a recession where consumers have less money to burn and the relative importance of price in the value proposition rises. The panel agreed that consumers’ financial pressures create both an ethical duty but also an opportunity for food companies to be more creative and develop new lines of business. My colleague Jim Watson has an interesting example from the world of coffee on how this might play out (and how the premiumization trend might evolve into a ‘premium at home’ experience during the recession) in his upcoming report, “Covid- 19 Effects on Coffee.” According to Jim, as an example, buying coffee in coffee shops and other on-premise locations is significantly more expensive (in fact, this is the case across all beverage categories), so the shift from on-premise to home purchasing during this crisis has a built-in massive decrease in consumer spending. Despite that, a consumer could very well upgrade the quality of their coffee at home (by buying coffee beans and coffee-making equipment) and over time still spend significantly less than when frequenting coffee shops. For the coffee roaster, this might appear as premiumization, as the consumer is buying a more expensive brand, even as overall coffee expenditures go down. Although the dampening impact of the recession might offset this, it does go some way to answering the challenge for food companies during a recession of “how to keep food accessible, affordable and inspirational?”