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Food companies weather the ‘perfect storm’ of supply chain disruptions

From inflation and rising costs to shipping delays and raw material shortages, food manufacturers and suppliers are battling a perfect storm of supply chain disruptions.

The mood among attendees and exhibitors at Vitafoods Europe in Geneva this year regarding ongoing supply chain disruptions was one of caution and concern – but also of resilience and determination to overcome the challenges.

Nuhealth is a Bulgarian healthy snack manufacturer that makes rice-based snacks, crackers and bars under the B2C brand Rice Up. Kiril Ivanov, marketing manager at Nuhealth, told Ingredients Network that, luckily, it sources most of its main ingredient, rice, domestically from Bulgarian producers. Sourcing other ingredients such as specialty flavourings from abroad, however, has not been so easy and exporting its finished products is also problematic.

“We export in 60 plus markets so all the problems with transportation, especially shipping containers, are huge,” Ivanov told us. “We can’t find the containers to ship to Asian countries, like Indonesia – or it changes at the last minute. Shipping to the Far East used to take two months, now it takes four or more. The container shortage began during Covid but it’s still there, so it’s tough.”

Nuhealth is also suffering from rising energy costs. In April, Russia’s state-controlled energy provider Gazprom cut off gas supplies to both Poland and Bulgaria. Bulgaria is reliant on Russia for around 77% of its gas supply, according to data from the European Union Agency for the Cooperation of Energy Regulators. Nuhealth has set itself the objective of becoming carbon neutral within the next three years and plans to use more solar energy. It had set this ambition prior to the war in Ukraine as this was in line with its sustainable ethos, Ivanov said, but the sense of urgency has accelerated since Russia’s invasion of Ukraine.

Absorb the cost or raise prices?

The health food company is doing its best to absorb the rise in its operating costs but has been forced, like most manufacturers, to pass some of the increases onto consumers by raising the price of its finished products.

“Unfortunately, this year we will probably increase the price two times or even three, by a one-digit number,” Ivanov said. Although Nuhealth’s products are snacks, which tend to be impulse purchases, the company hopes that their better-for-you nutrient profiles will continue to appeal to consumers’ despite the higher price tag. It is still registering organic growth, albeit at lower levels than before, and is hopeful this will continue.

Eva Alvarez is communication and digital marketing manager at NeoVitalHealth, a Spanish consumer-facing supplement manufacturer whose brands include Neo, Neo Peques, and Mico Neo. NeoVitalHealth buy most of its ingredients from Europe and North America via partners and has, so far, not experienced shortages or delays, Alvarez said. However, it also increased consumer prices by around 5% at the beginning of the year and will look to restrict spending throughout 2022, attending larger international trade fairs to scout out new clients but not smaller domestic ones, she said.   

From algae to automation: The companies seeing longer-term opportunities

Although inflation and rising costs are impacting all companies negatively, some brands nonetheless see opportunities in the longer-term changes in consumer purchasing behaviour.

Danish company Aliga produces microalgae via a closed fermentation process, including a patented high-protein and beige-coloured chlorella algae. The company’s CEO, Michael Nielsen, said it has seen demand for its pale algae grow rapidly, particularly in Europe.

“What we have also experienced is that our clients have changed from global supply to local supply. The reason for that is, of course, the Covid pandemic and the consequences of the pandemic, but also now the war in Ukraine. They have to have suppliers that are very local to be able to secure the supply chain.”

Pick8Ship is an early-stage Swiss startup that has developed a robotic system for automated fulfilment and ‘hyperlocal storage’. The company began developing its software and hardware one year before the Covid-19 pandemic. Since then, it has witnessed the rise in demand for e-commerce and same-day (and even same-hour) delivery that has upended traditional delivery systems and made centralised fulfilment models highly inefficient.

“The impact of supply chain disruptions and especially Covid will be [the need for] more local storage to cope with such disruptions,” Joseph Haid, CEO and founder, told us.

Despite these longer-term opportunities, Haid remained concerned about the current “perfect storm” of problems.

“We don’t know how this crisis is going to unfold. Now we have the war, people are reducing spending, interest rates are going up. There’s a lot of bad news right now and likely many more disruptions [are] to come. Look at the lockdowns in China. I think this is going to last quite a while.”