Despite being two years removed from the heart of the COVID-19 pandemic, consumers continue to turn to purchasing food and groceries online.
Prior to the pandemic, grocery e-commerce for 2020 was projected to be 4.3% of grocery sales, however, the pandemic accelerated this growth to 10.2% as large numbers of consumers suddenly and unexpectedly searched for online options for their food needs, according to grocery retailer e-commerce solutions provider Mercatus, Toronto.
One trend continuing to reshape the dairy industry is the Direct to Consumer (D2C) model with more and more dairy manufacturers taking the initiative to offer their products directly to end consumers. Consumer behavior, shaped by digital and social media, promoted the development of D2C model which was further accelerated by the pandemic.
Fluid milk and natural cheese saw substantial increases in e-commerce sales during the pandemic. For instance, natural cheese online sales increased 160% in April 2020 and 193% in May 2020, according to Midwest Dairy, St. Paul, Minn. Among consumers that purchased dairy products online during COVID-19, a survey from research firm Circana, Chicago, found that 70% indicated they will continue purchasing online. For dairy processors, e-commerce product sales offer the opportunity to not only provide customers with another convenient option to make purchases, but also to access non-local customers and consumers.
Following the trends
Online food and beverage retail sales, which include instore pickup, curbside delivery and at-home delivery, tracked by Euromonitor International, reached $76 billion in 2022, and the market researcher predicts online grocery will be the largest source of growth for food and beverages in the United States in the future.
Approximately 26% of Americans used online grocery shopping services in 2022, according to Euromonitor, up from 13% before the COVID-19 pandemic.
However, relying on traditional retailers to facilitate these types of online purchases also means that processors are tied to the traditional supply chain, which includes a supplier, manufacturer, wholesaler, distributor and retailer to get the end products to consumers. The retail sales model often involves lengthy negotiations at each stage and can result in a long lead time for new product launches.
The D2C model ignores that traditional path, allowing companies to cut out wholesalers and the distributors and instead harness the power of social media and the rise of e-commerce to sell their products directly to end consumers. D2C eliminates the barrier between producer and consumer, giving greater control over the company’s brand, marketing and sales tactics.
Although the retail distribution channel currently accounts for around 60% of the dairy products market share, many dairy companies are now adopting D2C sales.
Several dairy companies, particularly cheese and ice cream processors, have found success in adding a D2C sales model to their distribution channels. Notable cheese processors Tillamook Country Creamery Association, Tillamook, Ore.; Cabot Creamery Cooperative, Cabot, Vt.; and Sweet Grass Dairy, Thomasville, Ga.; all offer direct buying options on their respective websites. Likewise, ice cream companies such as Ben & Jerry’s, South Burlington, Vt.; Jeni’s Splendid Ice Cream, Columbus, Ohio; and Graeter’s, Cincinnati; have all developed successful D2C operations for their products.
With the ability to ship nationwide, processors are no longer restricted by geography when selling D2C.
Shipping considerations
Shipping products will be, for many small dairy processors, a new and additional piece to the business that will likely require adjustments to existing marketing and sales processes.
Shipping dairy products imposes major challenges mainly due to the perishable nature of most of the dairy products. Managing the shipping involves managing the inventory, distribution network and supply. Each of the steps requires proper storge of the dairy products.
During the pandemic the supply chain of dairy products was hindered, causing major losses to the processors. This resulted in the need for better supply management in order to gain higher profit margins and brand loyalty.
US supply chains responded to the global volatility of the past few years by transforming supply chain networks to improve resilience against future disruption, according to the 34th annual State of Logistics Report, commissioned by the Reading, Pa.-based Council of Supply Chain Management Professionals, conducted by global consulting firm Kearney and presented by Penske Logistics.
While last year’s report highlighted the need to get back in sync, the 2023 version focuses on how logistics operations can build long-term resilience in an effort to best serve customers through a variety of distribution channels.
“As the logistics sector moves forward from years of supply chain challenges and bottlenecks, our report shows that now is the time to begin thinking seriously and proactively when it comes to building strategic capacity,” said Balika Sonthalia, senior partner at Kearney and co-author of the 2023 State of Logistics Report. “Although the market has swung back … we cannot emphasize enough the importance for all industry participants to begin planning for geopolitical tensions, cybersecurity threats, climate change and related natural disasters.”
Andy Moses, senior vice president of sales and solutions, Penske Logistics, said that the industry has seen a dramatic runup in supply chain costs, to a record $2.3 trillion. Third-party logistics providers like Penske, he said, play a critical role in helping shippers navigate an increasingly volatile logistics market.
After pandemic-led shifts in warehousing and distribution, nearly half of consumer packaged goods companies (CPGs) expect D2C shipping to increase in the next three years, according to the Association for Packaging and Processing Technologies (PMMI) Business Intelligence’s 2022 report, “The Future of Automation in Packaging and Processing.” If D2C e-commerce grows as expected, it will impact the automation needs of consumer packaged goods companies and how they think about automating their production lines.
The switch is not seamless, though; shipping D2C requires minimal mistakes as errors incur more costs than other shipping methods. This makes automation a vital tool.
“Some of our clients have fully robotic pick-and-pack warehouses and that is just for e-commerce,” a mid-sized OEM said in the report.
Food safety concerns
When consumers order food items online, there may be concerns about food safety, shelf life and distribution. Perishable foods should not be held at temperatures between 40 and 140 degrees Fahrenheit, also called the “danger zone”, for longer than 2 hours. Pathogenic bacteria can grow rapidly in the “danger zone”, but they may not affect the taste, smell or appearance of a food, meaning that consumers cannot tell if food has been mishandled or is unsafe to eat.
There are steps to help recipients determine if their perishable foods have been handled properly, including ensuring perishable items are shipped cold or frozen and packed with a cold source. Product should be packed in foam or heavy corrugated cardboard. The products should also be delivered as quickly as possible and with the outer package labeled “keep refrigerated” to alert the recipient to open the shipment immediately and check its temperature.
The US Food and Drug Administration (FDA), in coordination with the US Department of Agriculture (USDA) and the Centers for Disease Control and Prevention (CDC), collaborated with the Conference of Food Protection (CFP) to address the safety of foods ordered online and delivered directly to consumers in the New Era of Smarter Food Safety blueprint. The best practices document identifies mitigating measures to potential food safety vulnerabilities, including those that may arise in the “last mile” of delivery.
The document outlines food safety best practices that include preventive controls, mechanisms to assess risk, recommendations for proper packaging, temperature control, physical and chemical contamination control, and allergen control.
CFP, a non-profit organization created in 1971, provides a formal process for the food industry, state and local health departments, academia and consumer organizations to submit input in the development and/or modification of recommended national retail food safety policy, and also identifies and addresses emerging problems associated with food safety.