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Testing times – another tough year on horizon for US food industry
The US packaged food industry faces a challenging 2022 as numerous major issues, many of which are hangovers from the last half of this year, will create uncertainty across the board, from manufacturing and operations to marketing and sales.
Topping the list of major issues facing packaged foods companies is, of course, of Covid-19. The Delta strain has driven up case numbers and hospitalisations in hot spots like the Mountain West, the North, and even in many parts of California, which until recently was steadily reducing the percentage of new cases and hospital stays.
The lingering effects of Covid-19 due to Delta – and with Omicron now having the potential to make the situation worse – along with low vaccination rates in many parts of the US, will cause significant uncertainty for packaged food companies well into 2022, making it difficult to adequately plan manufacturing and supply chains.
The two key concerns
Two other major current issues, inflation and the breakdowns seen in parts of the supply chain, which will continue to exist well into next year, will add to this uncertainty for food makers.
On the supply chain, industry experts and trade groups like the Consumer Brands Association, which represents packaged food companies, and the Food Marketing Institute, the major national trade organization representing grocery retailers, don’t expect any significant improvement to the mess until mid-2022 at best.
If the current increase in Covid-19 cases continues into next year, it’s possible we could see increased consumer stocking-up behaviour at grocery stores like was the case in 2020. This would play havoc for the US food industry, which is already struggling with a shortage of everything from ingredients to packaging supplies. Even without a rise in pantry-loading, the challenges and uncertainty for food makers from supply-chain issues is going to get worse before it gets better, particularly in the first quarter of 2022, coming off the busy fourth quarter holiday shopping season.
On inflation, the price of nearly every necessity, from groceries and rent to gasoline and heating oil, is going up in the US.
Prices for US consumers jumped a whopping 6.8% year-on-year in November, the largest 12-month increase since the period ending June 1982, the US Labor Department reported on 10 December.
The data showed food prices have climbed 6.1% in the past year, with prices for food-at-home up 6.4%, the biggest 12-month increase since the period ending December 2008. The Labor Department said all its six major indexes monitoring grocery store food prices increased over the period. The index for meats, poultry, fish, and eggs was up 12.8%, with the index for beef rising 20.9%. In fruit and veg, the index was up 4%. The index for dairy and related products posted the smallest increase, rising 1.6% over the last 12 months.
The increase in grocery prices is a direct reflection of the across-the-board hikes in the cost of ingredients, packaging, fuel, transportation, labour and more that food manufacturers have been experiencing all year.
Most major, as well as many smaller, packaged food companies held the line and didn’t increase wholesale costs to retailers and distributors earlier in 2021. However, they’ve had no choice but to raise prices in recent months due to frequent and unpredictable cost increases that have been the case throughout the year. Many food makers haven’t increased wholesale costs enough to cover margins. As such, expect to see more wholesale price increases in early 2022, which is going to add fuel to the inflationary spiral the US economy is experiencing.
Staffing squeeze
The worker shortage in the US is also affecting packaged food companies in a negative way and will continue to do so in 2022. This will particularly be the case when it comes to increasing transportation costs because there’s a severe shortage of truck drivers in the country. There will be little, if any, improvement in the situation next year.
Packaged food companies are also experiencing worker shortages in their manufacturing plants, which is a situation that’s going to get even worse during the first two quarters of 2022.
For the first time in decades, the labour shortage is also emboldening food manufacturing workers and their labor unions to demand higher pay, better benefits and stronger job guarantees from major food companies like Kellogg, where workers have been out on strike since 5 October.
The Kellogg strike includes roughly 1,400 workers at four plants that make all the company’s cereal brands. Major packaged food CEOs are watching this contentious strike closely and are worried their unionized manufacturing plants could be next in line for a dispute, adding yet another headache to the list of problems they will have to face in 2022, as well as adding more uncertainty to a business already plagued by uncertainty.
Causes for optimism
All is not gloom and doom, though, for packaged food execs as we get ready to turn the page on a challenging 2021 and usher in what is also going to be a challenging 2002.
The 2020 shutdown taught food makers to be more resilient and the supply chain breakdown, inflation and other challenges this year have added to the experience they have accumulated.
Therefore, coming out of the last two challenging years, packaged food companies are far more agile and adaptable than they were as recently as 2019.
For example, major companies have advanced their technological capabilities in the manufacturing and supply chain areas more in the last two years than they have in the preceding decade.
The food sector’s hiring for industrial automation is on the rise – GlobalData analysis
The same is true when it comes to digitalisation. Prior to 2020, most major food makers were doing very little selling online. In the last two years, this has changed dramatically. Nearly every packaged food company, from the giants to start-ups, is not only selling products online but have transformed into omnichannel players, making clicks (online marketplaces and direct-to-consumer) a part of their selling mix along with the bricks (physical retail stores).
The worker shortage is also already serving as a catalyst for food manufacturers making major investments in plant technology. Robotics is booming and I expect to see major investments and initiatives by companies in manufacturing and transportation technology in 2022.
The truck driver shortage is accelerating the adoption of autonomous or self-driving truck usage by probably a decade and the lack of plant workers, which is going to be a long-term trend, is pushing food manufacturers to automate their plants at a highly accelerated pace.
2022 will be a challenging year fraught with uncertainty for packaged foods companies. The key to meeting those challenges, as this year and 2020 have taught us, is resiliency.
Equally important in such times is to create a company culture and environment that attracts the best and the brightest. Team still matters in the age of technological innovation.
Challenging times – and 2022 is going to be a challenging year – can bring out the best in people, companies and industries, as well as lead to innovation that would never be attempted in less-challenging times. So, despite the major issues facing packaged food companies in 2022, I expect it to also be a year filled with innovation and positive surprises, along with the difficult challenges and uncertainty. Stay tuned.
Data analytics hiring levels in food industry – the latest stats
What's the trend in the hiring for data analytics at food manufacturers? GlobalData presents the latest figures.The proportion of food manufacturers hiring for data analytics-related positions dropped marginally in October, according to GlobalData research.
Some 59.5% of the companies included in the analysis were recruiting for at least one such position, down from 61.3% a year ago and a decrease compared to the figure of 63.2% in September 2021.
When it came to the proportion of all job openings that were linked to data analytics, related job postings rose in October 2021, with 4.8% of newly-posted job ads being linked to the topic.
This latest figure was the highest monthly figure recorded in the past year and is an increase compared to the 3.7% of newly-advertised jobs that were linked to data analytics in the equivalent month a year ago.
Data analytics is one of the topics that GlobalData has identified as being a key disruptive force facing companies in the coming years. Companies that excel and invest in these areas now are thought to be better prepared for the future business landscape and better equipped to survive unforseen challenges.
Our analysis of the data shows food manufacturers are currently hiring for data analytics jobs at a rate lower than the average for all companies within GlobalData's job analytics database. The average among all companies stood at 5.9% in October 2021.
GlobalData's job analytics database tracks the daily hiring patterns of thousands of companies across the world, drawing in jobs as they're posted and tagging them with additional layers of data on everything from the seniority of each position to whether a job is linked to wider industry trends.
Revealed: The exact point at which shoppers will consider a product to be too expensive
Consumers will stop buying a product when its original price has risen by an average of 40%, according to a new survey commissioned by specialist PR agency Ingredient Communications and conducted by SurveyGoo.
Just over 1,000 US and UK consumers answered a series of questions designed to reveal just how price-sensitive they really are.[1] As many as 94% of participants said they had noticed their food shopping bills going up in the previous three months, with 79% stating they believed supply chain problems such as driver shortages were to blame.
Respondents were then asked to select the point at which they would stop buying a selection of food,
beverage and nutrition products due to price rises, using a scale of +5% to ‘I would buy this product whatever the price’.
Overall, the results indicated that shoppers were more immune to price increases for low-cost staple goods. For example, the category in which consumers were least price sensitive was milk (dairy), which could increase in price by an average of 65% before respondents would stop buying it. This was followed by bread (62%) and fresh vegetables (60%).
Conversely, there was greater resistance to cost increases in nutrition categories, where the base price of products tends to be higher. For instance, respondents said they would stop buying protein powder once the price had risen by an average of 17%. The corresponding pinch point was 23% for probiotics, 26% for dietary supplements, and 28% for Omega 3 fish oil supplements.
High quality ingredients are key
The survey findings also indicate that consumers are happy to shop around in order to offset the impact of upward price pressures. Nearly half of respondents (48%) said they had switched to a cheaper brand in the previous three months as a result of price rises, while 26% said they had changed to a retailer’s own-label version of the same product.
Richard Clarke, Managing Director of Ingredient Communications, said: “For basic goods, even a large percentage price increase might still only be a matter of cents or pennies. By contrast, a small percentage increase in the cost of a premium nutrition product might be measured in dollars or pounds.”
He added: “In such challenging market conditions, brands will need to work hard to retain consumer loyalty. An effective way to achieve this is to demonstrate added value by using high quality ingredients that provide clear differentiation and command high levels of trust, whether that’s through proven efficacy, sustainability, strong co-branding, or a combination of these. These values, communicated effectively, will tie a consumer to a brand more closely, mitigating the impact of price increases on purchasing behaviour.”
Japan is leading the way into the elderly-population future. Its solution? AI-powered “Society 5.0”
The world is ageing: According to the WHO, the proportion of elderly persons aged 60 and over in the global population will increase from 12% in 2015 to 22% in 2050. This could mean smaller workforce and overburdened healthcare systems around the world. The solution? For Japan, it may be an AI-powered future called Society 5.0.
The Pacific island nation already has more than one in four people aged 65 or over. That’s 28.7% of the population, 36.2m elderly Japanese. No wonder a recent report from GlobalData calls Japan “a super-aging society with a shrinking and thrifty population that grew rich before it grew old.”
Of all the cutting edge countries in the East and Southeast Asia region, it is Japan which shares the most similarities with the leading nations of the West when it comes to slower tech uptake and changing demographics. Unlike Western nations though, Japan’s Society 5.0 plan means it isn’t relying on immigration to solve all its problems, according to Will Jasprizza, MD for the Tokyo branch of business development consultancy Intralink.
“Digitalisation to address a shrinking workforce is a vital focus for Japan,” Jasprizza tells Verdict. “The country’s population is both declining and ageing, causing the problem of a rapidly diminishing labour force. Japan doesn’t see much immigration, so it’s embracing robotics and drones as weapons against this trend.
“We’ve seen this reflected in logistics and last-mile delivery tech developments and innovations such as the remote-controlled convenience store robots developed by Japanese firm Telexistence.”
What is Society 5.0?
It wasn’t going to be long before robots were mentioned in a discussion on Japanese tech. Indeed, the nation has the world’s third-highest industrial robot density after Singapore and South Korea, according to the International Federation of Robotics (IFR).
But Japan’s so-called Society 5.0 plan involves more than just robotics. On the Japanese government website, the vision is one for Japan to become the first country in the world to achieve economic growth with a shrinking population by becoming “a super-aging, supersmart society.”“Japan cannot rely on a marked growth in consumer spending to spur a new era of 2%-plus GDP growth,” writes GlobalData. “As the government acknowledges, the job will have to be done by sustained productivity growth via further wholesale automation and innovation, digitalization, and creating a less risk-averse, more diverse corporate culture.”
Society 5.0 in the 2020s will be built on a technology stack comprising 5G connectivity, sensors, robotics, artificial intelligence (AI), high-performance computing and extended reality (XR). Japan has already shown off much of its vision in prototype form at this year’s Tokyo Olympics. Meanwhile, as we’ll see later, a new smart city formed upon Society 5.0’s principles is already being constructed by auto giant Toyota.
Japan is also one of the top three nations in 5G deployment and is the clear worldwide leader in robotics and supercomputers. With the latter technology Japan has, in GlobalData’s view, the potential to develop and deploy downstream AI applications in robotics, automation, healthcare, and XR, bringing the Society 5.0 vision one step closer to reality.
Intralink is already seeing this in action with the AI layer of the stack leading investment, as Jasprizza explains.
“For a German AI client, we recently targeted opportunities to provide drones to monitor construction work and pursued a partnership with a Japanese systems integrator. And we’re running a Japanese sale programme for DreamVu, a US startup offering 3D visual systems for autonomous robots.
“Drones are also being adopted for a range of unmanned security and surveillance applications.”
The AI acceleration of Japan
Outside of international partnerships, local companies are also pushing the pace in Japan, especially when it comes to AI use. For Hiroaki Kawamura, Country Manager Japan at data analytics brand Sumo Logic, Japanese companies are “looking at their approaches around data and how they can use this internally because they have so much information coming in continuously.
“These snapshots can be analysed over time to see what decisions are successful and which areas need improvement across software development and security,” Kawamura continues. “For Japanese companies, making use of all this data for AI, security and analytics is the next step for how they build out their operations and create new products for their customers. They are ahead of other companies in the APAC region, but they have to work hard to maintain that advantage, and that means working in real-time.”
Kawamura also notes that the fintech sector is developing rapidly in Japan, and as such DevOps and security strategies need to be examined in order to maintain company operations and protection of their systems.
“There is a big investment taking place in cloud security right now, and those services rely on AI and data to work. Consequently, demand for skills around security analytics and AI is going up and up.”
Jasprizza points to Japanese healthcare as a growing source of data, noting increased adoption of medical devices that can continuously measure and store patient data to give clinicians a fuller picture of patient health and responses to therapies.
“This goes hand-in-hand with artificial intelligence systems to analyse medical data. There’s also a growing demand for wellness solutions that allow individuals to track their own physical conditions, as there’s relatively high health awareness among Japanese people.
“Japan has recently approved two digital health applications for insomnia and to help people stop smoking. And there’s increasing focus on point of care technologies that reduce the need for hospital visits, as well as Big Data and AI systems in cancer treatment.”
A preference for the physical
With the current AI summer being very much a worldwide theme currently, it’s likely other countries will take Japan’s approach as one way to deal with the fallout of an ageing population, if they aren’t doing so already.
Such nations may not need to worry if, like Japan, they don’t have a tech sector propagating disruptors by the dozen. Japan is now showing that it can accelerate, or at least envision digital acceleration, towards its Society 5.0 dream despite a very paper-based and physical status quo.
As GlobalData researchers note, Japan’s relatively low degree of digitisation means that it is “unlikely to make a mark in AI for ecommerce and the consumer angled mobile internet.”
As they note, Japan remains “a rigidly conservative, risk-averse, hierarchical society”. Unlike hi-tech neighbours such as South Korea, the country is still dependant on fax machines, paper documents and in-person meetings. Less than 6% of citizens use digital online apps at government offices and over 80% of retail transactions in Japan are still in cash.
While modern disruptors like Uber Eats can be easily found in Japan’s major cities, payment infrastructure is still behind other Asian countries according to Hoa Q. Nguyen, a director for FPT Software which has made general delivery apps for Japan.
“Japan is still reliant on receipt printouts and barcode labels for parcels,” reveals Nguyen. “The use of a separate barcode scanner is preferred to scanning with a mobile phone which explains why there is a need for specialised Android devices equipped with mobile printers, scanners and payment card readers.”
Nguyen notes this is a different infrastructure to APAC locations such as Vietnam and Singapore, where FPT has business reach. Infrastructure is also lagging behind elsewhere in the country, according to Masataka Kondo, the Japan CTO of cloud and data firm NetApp.
“Small and medium-sized companies, which make up 99.5% of Japanese corporates, still rely on human processes,” Kondo tells Verdict. “This analogue work is found even in large companies and while many of them have started using public cloud services, there is a long way to go for everyone to understand the power of AI.”
As such, Japan is currently “focused instead on smartening up its automotive and automation sectors, which will be the drivers and shapers of the economy and help it pay for the energy, raw materials, and food that it needs to import,” writes GlobalData.
“The Japanese corporate giants, in close collaboration with the government and suppliers, are where the high-octane AI work is being done.”
Smart City 5.0
Any progressive Society 5.0 needs a smart city advanced enough for it to call home, whether in Japan or elsewhere. Toyota, one of the goliaths GlobalData recommends keeping an AI-eye on, is currently delivering one of Japan’s most exciting construction projects in years.
The company is to spend over $1bn to create Woven City, a smart city built from the ground up on a site at the foot of the iconic Mount Fuji. According to its official site, the 175-acre city will be home to a population of 3,000, including Toyota and allied scientists and engineers, and will be powered by hydrogen fuel cells.
A company delivering new cities for Japanese citizens is nothing new. App giant Line, for example, has partnered with the city of Fukuoka to integrate smart city technology. Two hours from Osaka, Smart City Fukouka is an aspiring “Japanese Silicon Valley” that will cover around 124 acres. On a smaller scale are the earthquake-proof and solar powered-towns Tsunashima Sustainable Smart Town and Fujisawa Sustainable Smart Town (pictured below), both developed by Panasonic.
Solar panels sit at Fujisawa Sustainable Smart Town, Japan (Akio Kon/Bloomberg via Getty Images)
“There’s a good deal of talk in Japan about Smart Cities and the Internet of Things,” reveals Intralink’s Jasprizza. “But I’d also sound a note of caution here, as Japan’s interpretation of the Smart City concept is vague. It’s a popular buzzword in the country, but the concrete business opportunities are still limited – and tough to break into. To date, we’ve seen plenty of demo applications, but few that are coming through with real commercial value.”
Toyota’s Woven City though may be a breed apart with its soon-to-be-living crystallisation of Society 5.0 aspirations in Japan. GlobalData notes that while there’s nothing new about automakers using plots of land with fake city backdrops to test out new vehicles, Toyota is “doing it in a real city with real people living within its amped-up vision of the future.”
“In reference to the Society 5.0 vision, Toyota stresses that Woven will be a ‘city built for happiness,’” the GlobalData analysts write. “Hence, Toyota is going well beyond using Woven as a test lab for mobility. The blueprint sees its citizens living in connected smart homes with sensor-based AI to check occupants’ health and help understand and meet their needs, and with in-home robots to assist and facilitate daily life.”
Autonomous robots in the home will be accompanied on Woven City’s winding lanes by Toyota’s e-Palette autonomous vehicles (AVs) which were recently showcased at the Tokyo Olympics. The AVs will be used for shared transport, being able to carry 20 passengers at a time, along with deliveries. They will also be repurposed to serve as mobile shops, clinics, temporary offices and more in the city.
The name Woven City itself is a reference to weaving together three different types of streets or pathways: One for automated driving, one for pedestrians, and one for people with personal mobility devices.
The sensor-laden city will gather data from traffic lights, buildings and streets on everything from pedestrian traffic to precipitation and process it via optical networks and cloud data centres. This will create a real-time digital twin of Woven City and feed the synthesised information to e-Palettes and other vehicles in transit.
“The grand scheme is to create and evolve a programmable city and develop an exportable (at least to other parts of Japan) smart city platform in the process”, write GlobalData analysts, who also note that the Toyota Research Institute’s AI program has hired eminent academics to advance AI and data science beyond the current data fitting paradigm.
With multiple Woven Cities around the country, Japanese citizens could have robots in the home to tend to them, whether elderly or not, and autonomous tech picking up the slack when there aren’t enough humans to plug labour gaps. Writ large, the Toyota model could see our planet become a Woven World.
Japan, Society 5.0, AI and 5G
Japan is one of the top three countries globally in 5G deployment, although, as Verdict recently reported, that doesn’t mean the country is free of the patchy coverage that has dogged 5G rollout worldwide.
Still, it is probable that pairing the vision and prestige behind Woven City with the capabilities of 5G will bring the Society 5.0 masterplan to rapid life in Japan. Some like NetApp Japan’s Kondo are already thinking one step further when it comes to Japan’s interconnected future.
“In Japan, 6G will become the standard communication system in 2030, which will significantly raise the effectiveness of the data produced across the internet of things,” says the CTO. “This, along with AI, will dramatically increase productivity in factories, while R&D, logistics, and operations will also see benefit by automating processes, which streamlines the use of data.”
By 2025, Woven City will have welcomed its first 2000 citizens. By the time the metropolis is fully established, Society 5.0 might well be in full swing in Japan. Whether other ageing nations will have caught up is another matter.
“According to the Annual Report on the Ageing Society, published by the Japanese Cabinet Office earlier this year, Japan has led the global aging trend since 2005,” Kondo explains. “However the government and various industries have been leveraging data and AI in order to simulate the future and plan for the society of tomorrow. This will continue and by 2030, accessibility and the quality of AI should be improved, while the size of data available should be much larger, meaning what’s available to study is much greater.
“Not every solution used in Japan will work for all societies and countries. Each country has a different way of living and working with varying industry structures, finance and tax systems, cost of living and differing age groups etc. However, other countries can use Japan’s simulations as a basis and change their parameters in order to have an impact on their societies based on their respective needs.”
Find out more in the GlobalData Japan Tech: Thematic research report.
This article is part of a special series by GlobalData Media on artificial intelligence. Other articles in this series include:
- AI warfare is coming and businesses need to be prepared on our sister site – Investment Monitor
- AI is turning consumer goods brands into tech ones – and customers into R&D – Verdict Retail
- By leveraging AI for forecasting, RBC delivers next gen digital advice for Canadians – Retail Banker International
- Financial sectors look to AI in site selection – Investment Monitor
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