Food for Thought

Flour, oats, yeast—just a few months ago no one imag­ined there might be short­ages of food sta­ples such as these. But with the advent of Covid-19, a sense of uncer­tain­ty arose. As the virus broke out in dif­fer­ent coun­tries and gov­ern­ments respond­ed with restric­tions on pub­lic life, gaps began appear­ing on super­mar­ket shelves.

Faced with an unknown virus, many peo­ple want­ed to be cer­tain at least of a well-stocked refrig­er­a­tor and pantry. So far, so human. But the sud­den rush to squir­rel away sta­ples pre­sent­ed food pro­duc­ers with unprece­dent­ed chal­lenges. From one day to the next, some had to shift their pro­duc­tion and oth­ers had to mobi­lize con­sid­er­able addi­tion­al capac­i­ties.

A look at the food indus­try reveals that its busi­ness­es employed a wide array of meth­ods to address the cri­sis, or even used the weeks of lock­down to put new ideas into prac­tice and advance changes. One fac­tor turned out to be con­stant throughout the indus­try: in an emer­gency, com­pa­nies were able to count above all on the loy­al­ty of their employ­ees and cus­tomers.

But let’s start at the begin­ning. In the West, the lead­ing role in the corona­virus tragedy fell to Italy because the coun­try and its mar­kets were the first to encounter an out­break as sud­den as it was severe. Ital­ian busi­ness­es were there­fore com­pelled to han­dle sub­se­quent devel­op­ments with­out the ben­e­fit of any advance warn­ing or suc­cess­ful prior expe­ri­ence.

One of those com­pa­nies is Gra­naro­lo (2019 sales: 1.3 bil­lion euros), a food pro­duc­er that found itself in the eye of the storm right from the start because its head­quar­ters and most of its plants are locat­ed in north­ern Italy, which was espe­cial­ly hard hit. “The lock­down imposed fol­low­ing the out­break had an imme­di­ate and very strong effect on con­sumer behav­ior,” says Granarolo’s gen­er­al man­ag­er Fil­ip­po Marchi on a video call from his office. Illus­trat­ing the focus of the company’s activ­i­ties, a cow on a poster behind him appears to gaze over his right shoul­der: Gra­naro­lo pro­duces pri­mar­i­ly dairy prod­ucts and sells them through­out the world.

“Out-of-home sales to restau­rants and cafe­te­rias, for exam­ple, dropped by 90 per­cent,” he says. “Depend­ing on the mar­ket, that accounts for 30 to 50 per­cent of our turnover. At the same time, demand for sta­ples such as but­ter, mas­car­pone, and moz­zarel­la rose steeply.” Gra­naro­lo adapt­ed its pro­duc­tion overnight to meet these new demands. It closed some of its pro­duc­tion lines, and assigned addi­tion­al shifts to oth­ers. These efforts have been suc­cess­ful, because the company’s sec­ond-quar­ter loss­es are expect­ed to be lim­it­ed to 10–14 per­cent (as of June 2020).

Philipp Heng­sten­berg, the pres­i­dent of Food Fed­er­a­tion Ger­many (DLV) and head of a fam­i­ly-owned com­pa­ny based in Esslin­gen, watched the changes to the Ger­man mar­ket. In north­ern Europe, cus­tomers were espe­cial­ly eager to buy foods with long shelf lives. Yet many of these items were sold out for a while even though the indus­try had had about two weeks to pre­pare before the virus arrived. “But the shelves were quick­ly filled again,” says Heng­sten­berg, and fol­lows up this obser­va­tion with praise. “Given the huge chal­lenges posed by the cri­sis, the indus­try per­formed well.” Hengstenberg’s own com­pa­ny offered pre­cise­ly what cus­tomers want­ed: canned sauer­kraut and toma­toes and jars of pick­les fea­ture promi­nent­ly in its prod­uct range. The increase in sales prob­a­bly does not reflect a long-term rise in demand for these items, but rather that cus­tomers have stored them away. But while con­sumers were fill­ing their larders, the company’s ware­hous­es were emp­ty­ing out. “We’ll make it to the next har­vest,” says  Heng­sten­berg, “but our stocks have never been so low at this point in time.”

Some com­pa­nies man­aged to stand out from the field. One exam­ple would be Fros­ta, a frozen foods pro­duc­er (2019 sales: 523 mil­lion euros) based in the north­ern Ger­man city of Bre­mer­haven, whose stock rose by 20 per­cent from March 20 to May 20. But the notion that Fros­ta could be a ben­e­fi­cia­ry of the cri­sis is reject­ed out of hand by board mem­ber Maik Busse. Instead, he says, the company’s per­for­mance dur­ing the emer­gency is a prod­uct of its hard work over the pre­ced­ing years. “You can­not build trust in your customers and part­ners overnight,” he says. “We could only draw on it because we had been devel­op­ing it for years before­hand.”

And cus­tomers did in fact buy more prod­ucts from Fros­ta dur­ing the cri­sis, espe­cial­ly fish sticks. “That’s our high­light for the lit­tle ones,” says Busse with a smile, also on a video call. Demand for fish sticks rose by 70 per­cent. But sales of ready-made meals and frozen veg­eta­bles also showed a marked increase. So much so that bot­tle­necks arose. “We had a few major prob­lems meet­ing the demand, because we source our raw goods from all over the world,” he explains. First there weren’t any mung bean sprouts from China; then there were short­ages of veg­eta­bles from south­ern Europe; and final­ly, logis­tics in gen­er­al turned out to be com­pli­cat­ed.

For a while the avail­abil­i­ty of pack­ag­ing was also an issue, because ethanol was need­ed to print it—and of course,  it’s also used to make dis­in­fec­tants. “That caught us by sur­prise,” admits Busse. The key to solv­ing this prob­lem was found in the cri­sis man­age­ment skills of the employ­ees. “They real­ly did a superb job, because every­one pulled togeth­er to find solu­tions and any sign of a silo men­tal­i­ty was gone. At some point, we board mem­bers were almost super­flu­ous.” Frosta’s employ­ees worked togeth­er to find alter­na­tive ingre­di­ents or new sup­pli­ers to ease the bot­tle­necks.

Busse describes how the fac­to­ry work­ers rose to the chal­lenge in espe­cial­ly impres­sive ways and showed them­selves to be the back­bone of the com­pa­ny. Work­ing with Porsche Con­sult­ing was also help­ful. “At the end of 2019 we had launched some pilot projects in our fac­to­ries to enhance our cor­po­rate cul­ture. When the virus hit, we imme­di­ate­ly expand­ed them, which enabled us to meet the increased demand.”

Zen­tis, a fruit-pro­cess­ing com­pa­ny based in the Ger­man city of Aachen (fruit prepa­ra­tions, jams, and con­fec­tionery; 2018 sales: 664 mil­lion euros), also reports fac­ing chal­lenges at the start of the pan­dem­ic. “Suc­cess­ful sup­ply-chain man­age­ment depends on unre­strict­ed glob­al trans­port of goods,” explains its exec­u­tive man­ag­er Nor­bert Weichele. “In March, logis­tics capac­i­ties came under pres­sure and bor­ders were clos­ing down. Our raw mate­ri­als come from all over the world. As a part­ner for both indus­try and trade, the chal­lenge was to ensure a secure sup­ply of raw goods.” Weichele notes the advan­tage of Zen­tis hav­ing its own logis­tics. Despite the lock­down and high degree of uncer­tainty, its dri­vers con­tin­ued to work through­out Europe to ensure trans­port and sup­ply.

“The employ­ees showed remark­able sol­i­dar­i­ty and com­mit­ment dur­ing the cri­sis,” says Weichele in sum­ming up the sit­u­a­tion. He has been with the com­pa­ny for about a decade, but was par­tic­u­lar­ly sat­is­fied and impressed in recent weeks. Every­one showed team spir­it in rapid­ly adapt­ing to the new cir­cum­stances, whether in com­ply­ing with the dis­tanc­ing rules, putting new shift mod­els prompt­ly into place, or mov­ing their offices to their homes. The dig­i­tal infra­struc­ture that Zen­tis had intro­duced about two years ear­li­er was par­tic­u­lar­ly help­ful and proved its worth in the cri­sis. One could say that the corona­virus played a key role in advanc­ing the dig­i­tal trans­for­ma­tion at Zen­tis.

Fil­ip­po Marchi also remarked on this ben­e­fit for his com­pa­ny in Bologna. “Thanks to the virus we’ve seen that it’s pos­si­ble to work in a dif­fer­ent way, which brings a whole series of advan­tages,” he says. With all the office staff sud­den­ly work­ing from home, it was clear that dig­i­tal oper­a­tions can help bal­ance pro­fes­sion­al and pri­vate lives, and that many time-con­sum­ing meet­ings are not in fact nec­es­sary. In order to retain these positive effects after the emer­gency sit­u­a­tion is over, Marchi has asked his man­agers to work with the per­son­nel depart­ment to deter­mine what per­cent­age of work can be done from home in the future.

Marchi sees yet more ben­e­fi­cial results of the corona­virus cri­sis. With the sup­port of Porsche Con­sult­ing, the com­pa­ny used the decline in the restau­rant and cafe­te­ria busi­ness to con­tin­ue restruc­tur­ing its sales. Gra­naro­lo had already car­ried out a pilot project with the man­age­ment con­sul­tan­cy last year on dig­i­tal­iz­ing its sup­ply chain (see boxed text). “The cri­sis gave us a chance to accel­er­ate the roll­out in the out-of-home sec­tor as well, where mod­ern­iza­tion was over­due,” remarks Marchi. Thanks to the virus, restruc­tur­ing was com­plet­ed with­in just a few months instead of the antic­i­pat­ed year and a half.

As Marchi con­cludes, “The virus com­pelled us to focus on the essen­tials of our busi­ness.” Over recent years the prod­uct range had become increas­ing­ly sub­di­vid­ed and com­plex. But the cri­sis revealed which prod­ucts con­sumers real­ly need—and which ones they don’t. “We turned our atten­tion back to our vital organs, so to speak, and will be stream­lin­ing our prod­uct range.”

The cri­sis also served as a reminder that com­pa­nies con­sist not only of sales fig­ures but also and espe­cial­ly of the peo­ple who stand behind them—the employ­ees and cus­tomers who should be taken care of under such extra­or­di­nary cir­cum­stances. Gra­naro­lo did just that. Only three peo­ple in a work­force of 3,000 test­ed pos­i­tive for the virus, and no one was infect­ed at the work­place. Last but not least: “Gra­naro­lo helped ensure that its cus­tomers felt secure dur­ing this spe­cial sit­u­a­tion, because its prod­ucts were always avail­able.”