Unequivocally, all companies have been impacted by the Covid-induced crisis, despite the general belief that the sector is doing well. They are experiencing:
- Higher health and safety costs, which are difficult to pass on to the margin.
- There is day-to-day management under stress due to sanitary measures and the uncertainties of the evolution of the pandemic, which does not allow planning critical campaigns (Christmas…).
- Increased demand for basic foodstuffs reduces the value in turnover, the business account is decompensated by selling fewer products of higher price or added value.
- Unwillingness to grow in volume if it is not accompanied by a growth in the margin.
- Sales of some products have fallen by 50% and as an immediate consequence, margins have been reduced.
- Most of the plans to launch new products, investment plans to increase production capacity, refocusing on making plants more versatile.
- Focus on being efficient, improving service response, and maintaining market share for their brands.
- The financial “health” of many companies is being greatly affected, especially those with large inventories, dependent on Horeca and unable to stop the supply chain.
- Innovation plans are being redrawn, focusing on the immediate, short term and changing priorities in most of them, stopping some product launches, opening in the case of some more, if possible, exports. Simplification of portfolios and rethinking of formats.
- There is room for innovation from the industry, but there is uncertainty as to whether Retail will bet.
- New product launches are complicated by the double difficulty of digital communication of new products and because retail needs space on distribution platforms for basic products, those that rotate the most. All this combined with the fact that retailers innovate little, want the certainty of success in launches, higher turnover, and reduce the shelf life of new products, thus transferring all the risk to the supplier.
- During the economic crisis, the market became smaller due to the generalized focus on price ranges, forgetting a large part of the market that is also looking for value.
- Now there is a clearer polarization of the market than in the previous economic crisis, but it is focusing above all on quality products (preserves, wines, sausages, chocolates and desserts, etc.).
Excerpt from the report “Diagnosis and Conclusions of the Health and Economic Crisis in the Food Sector” by AZTI. Read the full report here: https://www.azti.es/aztinnova/informe/un-mar-de-oportunidades/
Author: Carolina Najar. Food Market Director of AZTI