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Published in Food/Agribusiness
Swanson Pickle Co. Inc. in Ravenna had to adjust its approach to sales as COVID-19 reduced demand from institutional food buyers but increased demand in retail environments.  Swanson Pickle Co. Inc. in Ravenna had to adjust its approach to sales as COVID-19 reduced demand from institutional food buyers but increased demand in retail environments. COURTESY PHOTO

Food producers adapt after pandemic alters business models

BY Sunday, May 23, 2021 06:00pm

As a producer that heavily supplies the food service industry, Swanson Pickle Co. Inc. had to make profound adjustments to its sales channels when the COVID-19 pandemic changed buying habits.

“We did, right off the bat, see a very negative impact on sales,” said Katie Hensley, chief financial officer of Swanson Pickle, which grows and processes wholesale pickles in Ravenna in southeastern Muskegon County. “Then, over time, we have adapted.”

Food producers like Swanson Pickle not only had to make a similar adaptation, but they also had to do it with little notice.

Last spring, the pandemic suddenly shut down restaurants in Michigan and throughout the country. Demand from institutional food buyers like schools, corporate offices, sports stadiums and entertainment facilities plummeted. 

While those wells ran dry for food suppliers, retail environments saw demand for food increase as people cooked at home more frequently.

Swanson Pickle’s business model was weighted in the food service category, leading to significant changes in the company’s approach to sales. Swanson Pickle expanded its retail distribution, which meant shipping pickles as far as North Carolina — territory where the business had never ventured. It also posed challenges as pickles are a freight-heavy product that loses financial viability the further they are shipped.

“If you had your sales in grocery stores, you’d generally be impacted quite positively,” Hensley said. “We’re really serving a national pickle market, and we’re seeing a national drag on restaurant sales. And, if you think about all the stadiums — concerts and ball games — all the relish consumed in those environments, it’s substantial. Those still have a ways to go (before returning in full capacity).”

“We’re really happy that the retail markets were doing well because it did allow us to shift, but I don’t think we can maintain that,” Hensley added. “If there is a silver lining, it is that we have a couple new relationships out of this.”

Swanson Pickle purchases cucumbers from 10 to 15 different Michigan-based growers in addition to growing its own. Because of the slowdown in its traditional orders, the company enters the 2021 growing season with higher-than-normal inventory and plans to produce fewer pickles than in 2019 but more than last year’s COVID-disrupted season.

Soaring prices

The sudden shift in the supply chain — even though it’s only expected to be temporary — was a key issue that the food industry had to contend with in 2020.

However, the industry made this transition fairly seamlessly despite a period of panic when grocery stores ran low on various items, according to Trey Malone, a Michigan State University professor of agriculture, food and resource economics.

This nimbleness was especially true for the larger, vertically integrated, direct-to-consumer producers that had the power to make that pivot. However, some producers had less room to shift their business models.

“For specialty crops, it can take 10 years sometimes to grow a tree for certain crops,” Malone said. “There is nothing you’re able to do if you have a chestnut farm. You have your trees — that’s just what you have.”

Despite the fairly smooth transition in adjusting to the industry’s new normal of food distribution, prices for almost all types of food have been on the rise. Restaurant owners have reported that they are facing surging prices on almost every item incorporated in their menus. 

The consumer price index for April crept up 4.2 percent, and saw food prices inflated by 2.4 percent. 

In the 13 weeks leading up to April 24, seafood prices jumped by 18.7 percent followed by other essentials like fruit (7.5 percent), processed meat (7 percent) and bread (4.3 percent).

The increase in prices stems from a variety of issues, starting with the fact that staple crops like wheat, soybeans and corn are trading at some of the highest prices the country has seen in the last decade. 

Weather conditions in South America have tempered that region’s expectations for crop yield this year, which has been a factor in driving up prices.

“Corn and soybeans we feed to animals, so there goes your livestock feed prices — they’re up now and that livestock feed price is put forward into the system. All the while we’ve seen a pretty big increase in demand year-over-year,” Malone said.

Malone said many farmers are now rushing to capitalize on the high prices and get as many crops into the ground, expecting increased acreage in wheat, corn and soybeans at the end of the season.

“Right now, we’re seeing this unbelievable increase in price and that’s doing exactly what price increases do, and that’s attracting more supply,” Malone said.

A labor problem

In addition to soaring prices on baseline crops, a labor crisis similar to numerous other industries continues to hang over the food production and processing spaces. This lack of labor, or more expensive labor, has been a challenge.

Marty Gerencer, executive director of the West Michigan Food Processing Association, said she has even spoken with a local company that has turned down sales simply because they can’t facilitate the orders.

“The ones I have talked to — they’re in the fruit and vegetable and beef industry — labor is a key issue and followed by housing to support the labor,” she said. “It’s really a system approach to providing the rural communities with resources they need to prosper and grow.”

Hazekamp’s Premier Foods has wrestled with this very issue. The Muskegon-based meat processing and distribution facility features an extensive line of consumer-ready products. The company has weathered the pandemic effectively as the surge in retail orders offset the sales loss to food service channels.

Still, President Dave Hazekamp has had to juggle a variety of disruptions with labor at the top of that list.

Price increases for some products, including chicken wings, “are just a direct result of labor shortages at the plants. They are not able to be fully staffed to produce these products,” Hazekamp said. “Some plants, like ours, have temporarily halted labor intensive production lines and products to run the more mainstream-type products that are in high demand.”

To quell its labor troubles, Premier Foods invested more money in technology, equipment, robotics and production line overhauls than ever before. Hazekamp expects the company to see a full return on that investment in less than three years. Meanwhile, Premier Foods continues to work with a staff that is short 35 employees.

“We believe this will help us stay competitive on many fronts in the long term,” Hazekamp said. “But I don’t feel we would have invested so much money if not for the labor challenges we faced in 2020 that are continuing into 2021 and the foreseeable future.”

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