The virus and government decisions to battle it started in 2020, but they’re far from over.
When it comes to the economy, Bruce Peterson, CEO of Peterson Insights, Inc. in Bentonville, AR, acknowledges, “It’s not a rosy picture, either nationally or internationally.”
“I think the damage from government spending and the hit of small business closings will hurt Treasury Department revenue,” says Anthony Totta, CEO of Grow my Profits, LLC and FreshXperts, LLC BB #:261158 in Lees Summit, MO.
And although he believes the economy will be able to bounce back, “I’m doubtful it happens fast enough.”
“Above and beyond the pure pandemic, the economic repercussions add an additional overlay to the changes in behavior,” Steve Lutz, senior vice president of insights and innovation at Category Partners, LLC in Idaho Falls, ID.
During a downturn, he explains, cautious consumers change where they shop, look for more store-brand items, and turn to value products.
Many individual grower-shippers have seen good profitability during the crisis, mostly due to increased demand at retail and associated higher prices, says Don Goodwin, founder and former president of GoldenSun Insights, who is bullish those trends will continue into 2021. What could derail this success is “a significant food-safety issue, which can turn demand quickly and take years to recover from.”
“At some point, Covid will wane and we’ll return to more normal numbers,” Lutz says. “The year-over-year comparisons will be difficult when we get there.”
Even as parts of the industry benefited from higher sales, there were also higher costs due to implementing distancing protocols and staggered shifts or falling behind due to fewer employees.
“The biggest impact of the Covid crisis is, without a doubt, the added health and safety protocols for our essential employees,” says Joe Pezzini, CEO of Ocean Mist Farms BB #:111742 in Castroville, CA. “The health and well-being of employees has always been paramount, but the added measures and urgency of implementation were critical to continued operations.”
Going forward, another consideration is regulation.
“Extensive regulatory oversight is driving costs up, especially in California, and it’s extremely difficult to keep up with it,” Goodwin says.
The question is whether companies in the state will be able to capture the costs in higher prices. If not, he says they will need to merge or go out of business.
Goodwin says private equity has been very active but is at record levels now due to two factors: first, agriculture in general and produce specifically have performed well over the past 20 years, even during recessionary periods; and second, the clout of larger retailers is growing.
Big retail chains want fewer vendors per category, while suppliers need scale and depth of assortment to penetrate the top retailers. Both factors have led to consolidation.
“You’ve got to win the big customers to grow your business,” Goodwin says.
Although most deals were put on hold due to the pandemic, Steve Grinstead, CEO of FreshEdge, LLC in Indianapolis, IN, sees this changing.
“Unfortunately, many companies in our industry are severely damaged right now—and being part of something larger for the journey back will be attractive to many business owners.”
This is a feature from the cover story of the January/February 2021 issue of Produce Blueprints Magazine. Click here to read the full article.