Supply Chain Pressure Disrupts Recipes, Drives Inflation, According to Survey

Faced with unprecedented and extended supply chain disruptions, CPG brands are fighting back any way they can. In a June survey by ingredient-sourcing and management platform TraceGains, over 300 food, beverage, and dietary supplement companies reported having expanded their respective co-manufacturer networks and made recipe changes in order to remain agile and resilient during market disruptions.

“As consumers, we feel the pain of supply chain issues each time we walk out of a grocery store,” TraceGains CEO Gary Nowacki said in the company’s press release. “Forward-thinking CPG brands have used this unfortunate time as a wake up call to modernize antiquated operations and those who already have are much better positioned to mitigate disruptions with as little impact as possible.”

From its relative peak in December 2021, global supply chain pressure has been a recurring theme across CPG over the past two years. Squeezed by backups at the ports, labor shortages in production facilities and freight trucking and a prolonged war in Ukraine, food and beverage makers have been forced to drastically change how they source, price and forecast their products.

As a platform, TraceGains provides customers access to a digital ingredients marketplace and actionable data around ingredient sourcing. CPG brands use the platform to identify and analyze core ingredients to make better sourcing decisions throughout the product life cycle, said TraceGains Senior Director of Product Marketing Paul Bradley.

“The growing realization is that we can’t assume a return to a pre-pandemic normal,” Bradley said. “We’re going to continue to have to deal with unforeseen changes, unforeseen disruptions, [and] maybe also really exciting unforeseen innovations that are going to change the market.”

According to TraceGains “2022 State of Supply Chain Disruption Report,” the most important strategic shift being planned over the next 24 months is increasing supplier diversity, with 69% of respondents planning to expand their networks and 25% reshoring their supply base. Meanwhile, 23% of CPG brands report they plan to use more contract manufacturers with as much as 70% of that group using 10 contractors or more.

“The industry used to talk about supplier redundancy, meaning I’ve got a good supplier, but I better get one more just in case something happens. But that’s the model that I think is broken in today’s world,” Bradley said. “Supplier agility is being able to be part of a network of suppliers and service providers that can move quickly within a core dynamic.”

CPG businesses are pivoting from stable long term agreements with a small group of suppliers to a more flexible model in which new co-packers can be quickly added when disruptions – like the war in Ukraine or the pandemic – upend supply chains, Bradley said.

How companies are making their products is changing as well: 49% of respondents said that production has halted on certain items and 37% of companies responded that they have changed over 20 recipes in the last 24 months as a result of ingredient-sourcing obstacles. Part of this can be attributed to changing consumer demand.

An uptick in direct-to-consumer has also changed the supply chain equation, accelerating the ways that brands reach consumers and adding potential surges and sags in demand. Ecommerce and the role of social media has dramatically changed the food and beverage industry and “brands are going to need to continue to be responsive” to these trends to be successful, Bradley noted.

CPG brands were split in their approach to product innovation, with some focusing on optimizing existing portfolios and others seeing opportunity in the disruption. Over one-third (36%) of respondents said that they increased innovation in response to supply chain obstacles, while 35% reported cutting back on new product development.

No matter the size of the business, costs have piled up and prices for raw ingredients have increased. According to the survey, 47% of companies admitted to not being able to produce enough to meet consumer demand and roughly two-thirds (65%) said they have been forced to raise prices in the last two years.

Those higher input costs – be it ingredients/materials (90% of respondents) or labor/services (62% of respondents) – are often passed down to consumers .

“Those elements have gotten a lot harder to come by and a lot less predictable than they used to be,” Bradley said. “Good luck getting a long term contract on sunflower oil in 2022.”