A new protein that is created from air and water. Autonomous food delivery robots that can support the campus of a large state university. The rise of electric vehicles. A grocer that offers a vibrant, fresh, locally grown produce shopping experience, as well as a dark store that ships non-perishable items direct to the consumer.
Over the past year, seismic shifts in consumer food preferences and eating behaviors have created waves of upheaval across the value chain. These changes have resulted in the largest investment in innovation that the industry has ever seen. The food system is fundamentally changing from a commodity-driven supply chain focused on scale to a personalized and value-added food and agriculture ecosystem. Disruption is coming in multiple forms, shaped by world events, consumer dynamics, technology and investments from traditional and nontraditional sources. This reality is playing out in crop inputs to grocery stores, in restaurants, in homes and everywhere in between. Industry players are simultaneously reacting to a relentless stream of new consumer demands while plotting their future in a post-pandemic world.
The transformation of the global food industry is happening now. It is a reality that is both exhilarating and daunting for the diverse range of companies which work to feed the world’s nearly 8 billion people. Some of these changes were simply accelerated by the pandemic. Others will take a little more time to move beyond the concept stage. But make no mistake, the industry as we know it is undergoing systematic transformation, revolutionizing not only the way food is produced, but also the way consumers engage with it. The food system is being reimagined, shaped by a focus on the consumer, the planet, and connections.
As with any large-scale industry transformation, there is both risk and opportunity for each segment in the $11.7T global food industry. Traditional approaches of ‘where to play and how to win’ won’t be enough to compete in this frenetic market. Leaders will need to conceptualize their role in the future. They will need to rethink their place in the reimagined food system. It will require addressing tough questions. How much clarity do you have about the trends defining today’s market? How can you evolve your business model to drive engagement and new value? What will power your next wave of growth? What sector convergence scenarios will create opportunities or threats? And how will data mastery create organizational agility? Defining your future is the first step to readying your company for long-term success in a reimagined food system. The complexity of the transformation ahead is real. How will you reimagine your role when the value chain is being reimagined at the same time?
Analyzing five key components of a food system reimagined
To create long-term value in a reimagined food system, you must look beyond vertical siloes and understand the forces reshaping the industry — from ingredients and data to processing and products to behaviors and digital experiences. We have identified five areas to help companies strategize their growth in a reimagined food system. Each of these areas could equally be a place to start. They aren’t mutually exclusive, but rather provide a framework to help focus your efforts. How you decide what levers best line up is based on your position in the value chain and what role you want to play.
Reimagined growth: Revisit strategy to develop smart, forward-looking plans that optimize portfolios to capture new opportunities and drive business results through transformed operations
- Leaders must reconfigure assets and increase portfolio reviews to capture shifting profit pools and topline growth. What happens when 70% of consumer food spending comes from dark stores or click and collect formats? Or, what if consumers prioritize availability and cost over brand? Strategies to address these issues must be nimble and informed by constant insights with future facing modeling. The right business investments to manage through change and deliver transformative growth should encompass profitability, sector convergence, customer retention and market share.
- Areas that can drive growth may ultimately lead to M&A opportunities. Across the value chain each company needs to objectively evaluate its core competencies and determine how that will play in the system in the future. It may be a case where your IP and assets don’t apply to your own future business, but do have value to someone else in this future food system. A more diverse set of potential buyers and investors are emerging – ranging from private equity and sovereign investment funds to new vehicles such as Special Purpose Acquisition Companies (SPACs). How do you monetize those assets for optimal value in the evolving deal marketplace?
Efficient enterprise: Capitalize on opportunities by balancing the duality of operational performance and capital agility through lean operations and financial flexibility
- It can be easy to look at building efficiency as a cost-cutting exercise, but in a world where profit pools, supply chains and consumer preferences are changing quickly, the meaning of efficiency and resiliency has changed. Implementing change requires a clear vision for the type of organization you want to be. Ongoing asset reviews can help align against your goals, identifying where to invest or divest. Do your capital investments align with consumer trends and is that underpinned by agile operations to achieve desired outcomes?
- Analysts would tell you that when you look at the relative maturity of industry sectors, food and agriculture isn’t always at the front of the line. The business process improvements that can lead to both efficiency and a future of more connectivity, up and down the value chain, are the win-win opportunities that exist in the near term. Do you have the right mix of financial flexibility and technology to quickly respond to shifts in consumer preferences – or market disruptions? Where will you optimize your business for your role in a reimagined food system?
Trusted food: Re-evaluate end-to-end integration to deliver the expected level of transparency and trust consumers demand
- Value propositions that guide new working relationships with investors, governments and organizations will satisfy growing sustainability expectations while, at the same time, managing risk. Balancing regulatory compliance, risk management and certifications to address quality and safety expectations is only half the story. Leaders must also be prepared to answer where food came from and how it was treated – consumer trust is built upon safety, sustainability and traceability.
- Consumer demand for more information about what goes into the food they eat, how it has been produced and what impact it will have on the environment is growing. Data, and developing trust in that data, will be critical to succeeding.
Connected system: Reimagine supply chain and the role of players across the value chain to create resiliency that allows for real time pivots in response to local, national and global needs
- Resiliency in a just-in-case inventory environment requires new partnerships and differentiated investments which will vary from commodities to specialty products and ingredients to consumers. Leaders will need visibility to the right data and analytics capabilities to make decisions about supply chain, business models, technology and alliances to enable the type of experience and value different customers expect.
- “Leading class” supply chain practices have shifted from less product and cost-effective sources to building strategic reserves and enabling diversity in food-safe sourcing. Shorter, more networked supply chains driven by consumer preferences, safety and technology create greater opportunities when facing both risks and opportunities.
- Technology is pervasive in our lives as consumers and employees. Connectivity across the food and agriculture ecosystem is just as important as being connected within your own organizations. And, technology is what will enable a connected system—whether considering what technology should serve as your backbone or what technology will drive connectedness both at the field level and with the consumer.
Innovation-led experience: Create an experiential, interconnected food ecosystem accountable to all stakeholders enabled by technology and innovation
- There is a lot happening in food and agriculture and at times, it can seem almost frenetic –whether it is increased technology to create connections between producers and consumers, establishing increased levels of personalization or driving more R&D to meet the consumer where they want to be. Industry players need to figure out which opportunities to land on and ride a little longer, and which ones to jump off to explore the next opportunity. Demand signals will continue to shift, and leading companies will think about the stakeholder, not just shareholder, and what a particular change would mean for them. Does the idea have a market and a pathway to get there and will it add value to the end consumer?
- Food and agribusiness companies are attracting considerable interest from equity investors, venture capital and sovereign wealth funds and private investors. In short, this means innovation is on the table. Investments in agriculture food technology have risen to record levels in the past few years topping $26.1 billion in 2020. Some early innovations that could take hold over the next decade include controlled environment agriculture, alternative proteins, light stores and dark stores, regenerative agriculture and electric vehicles. It can’t be argued that there are deals to be made in the food and agriculture industry.
It’s important as you’re conceptualizing your future business model that you keep in mind the diverse needs of your target audience. You’ll want to consider the consumers who want, and can afford, to take advantage of personalized and sustainable food; consumers who don’t care about the latest food trends; consumers who cannot afford it; and everyone in between. Consumer centricity will continue being a critical factor in redefining your role in a future food system. The question is not where does the consumer fit in a reimagined system, but rather, what are they driving.
As companies embark on their own journey to a reimagined food system, it’s important to not get lost in all the noise. Disruptions will continue, leading to questions about whether your business is on the right path. Take a methodical approach to transformation, starting with the five areas, and leave yourself room to adapt to changes in your industry and/or the market. Think about testing and piloting different opportunities in an agile way, for instance, a technology or business model to test, learn and see which opportunities can really be proven out and which ones you want to differentially invest in.
At the beginning of 2020, few could have foreseen what was about to happen to the world’s economy and the simple act of buying and eating food. The challenge now is to take the lessons learned and create a robust food and agriculture industry that can meet the challenges of today, while getting ready for the opportunities that could emerge. Companies that can be proactive, with a flexible strategy that accounts for the unexpected, will be in a much stronger position to lead. What’s your role in a food system reimagined and how connected are you?
Article contributors: Rob Dongoski EY Food and Agriculture Leader, Kathy Gramling EY Americas Consumer Industry Markets Leader and Asha Lundal EY Americas Food & Agriculture Consulting Leader and EY Americas Food & Agriculture Innovation Studio Leader