By Bob Grote, chief executive officer, Grote Company
The food processing industry continues to be struck by setbacks. As we began to come out of the two-year-long pandemic, a war started in Eastern Europe, one of the world’s foremost wheat providers. Now, with inflation continuing to rise at record rates, a recession looms. On top of that, COVID rates are rising once again. Though most of us in the industry are enjoying unprecedented demand for more automation, it seems we can’t break out of the cycle of unfortunate developments long enough to truly recover.
If you’ve spent some time in this industry, you probably understand that it’s wise to anticipate impediments to success. Companies should always be preparing for the next setback to occur. While that advice may help to a degree, it certainly doesn’t help much if you’re in the position of being repeatedly knocked off your center.
In times that are anything but certain, how can you navigate the rough waters to stay afloat – and maybe even thrive?
6 points to consider as you work to recession-proof your food processing business
Based on the experience of a company that’s been in business for 50 years, here’s some advice to help food processors and their suppliers make their way through challenging times.
1. Keep in mind – the economy is cyclical
The economy will always have its ups and downs. Unfortunately, recessions are bound to happen from time to time. At the same time, we haven’t seen inflation like this in the U.S. since perhaps the late 1970s.
The key to longevity is to be flexible with your solutions. If you’re able to pivot your offerings to meet the moment, that’s where you’ll find success. The ability to scale to meet the demand, be it growing or shrinking, and shift to producing what consumers are looking for has never mattered more.
2. Change up your offerings
Building on the point above, it’s wise to change the mix of what you produce based on consumer demand. For example, during the pandemic, the demand for frozen French fries may have decreased due to people staying home and not dining out. Yet, at the same time, the demand for potato chips increased – again because people were staying home.
Now, with inflation on the rise, processors may need to focus on producing more inexpensive food. As a result, some products will price themselves out of the market. Consumers will move down market as prices go up.
As a producer in the industry, being aware of these shifts and staying on top of what customers can afford and will be buying is vital to success.
3. Equipment solutions need to be flexible
Just as food processors need to change the mix of products at times, equipment manufacturers need to provide solutions that can pivot. Being quick to adapt to make food products that meet consumer demand takes equipment that can be reconfigured to produce more or less of a particular product – or maybe switch to make a different form of the same product.
An example would be the meat industry during COVID. It had to shift to packaging different cuts of meat, based on demand from consumers who were cooking at home more often versus serving restaurants. Without having the right flexible equipment in place, these food processing companies would not have been able to make those needed changes in a timely enough fashion to capitalize on the changes in their customer base.
4. Leverage automation as it makes sense
As food prices climb dramatically, consumers will gravitate toward saving money on what they buy. Processors will need to move toward producing more frozen and prepared food items, as they generally cost less. If food processing plants have the right machines in place, they can automate some of this production.
Finding enough people to hire to fill vacant positions was already proving to be a challenge, which means that processors should consider leveraging automation factors to an even greater degree as they move swiftly to meet the growing demand for less expensive products to buy.
A piece of good news for the industry is that food is recession-resistant. People will always need to eat – demand isn’t going away – so it’s more about providing what’s in demand. It’s an opportunity to respond to the current needs of consumers with the right product mix.
5. Plan ahead NOW for what you’ll need to weather the storm
With lead times long and supply chains continuing to lag, now is the time to plan and prepare to have what you’ll need on hand. This could include ingredients, operation consumables, packaging materials, and so forth.
For example, lead times for some equipment can be up to 12 months – and in some cases, even longer. Don’t wait until it’s too late to order needed equipment solutions. Delaying could be disastrous for some businesses.
6. Cash is king
Partners aren’t all created equal – and inflation isn’t going away anytime soon – so you’ll want to take a close look at who you’re working with. By looking at each of your vendors and suppliers to determine the most viable and negotiating the best terms now – remember, cash is king – you’ll be better prepared for what’s coming up in the next 12-24 months.
While you should plan ahead to purchase needed equipment, per the point above, if there are places where you can tighten your belt and save your cash, that is also advisable. The trick is to balance spending on what you’ll need to get through this challenging period while preserving enough of what you’ve saved.
Aim toward recession-proofing your business
As we navigate through what lies ahead, let’s remember that just as our suppliers and partners need us, we need them. When the dust settles, opportunity favors those who have had the foresight to think and plan ahead to meet the many challenges we face in the food processing industry. Choose to work with those you can rely on to remain standing, regardless of the headwinds we may face.
There is no doubt that it may be a difficult time for some, while others will not only survive but thrive because they recession-proofed their operations based on the points above.
Bob Grote, chief executive officer of Grote Company which celebrates 50 years in business this year, is an engineer by schooling, a salesman by nature, and a businessman by practice. He joined Grote Company in 2000, became CEO in 2008, and now spends his time developing industry partners and seeking the latest food technologies. He currently serves as Director at Large of the FPSA (Food Processing Suppliers Association) and sits on industry and local profit and non-profit Boards.