Food Sector: A Complex Industry
There’s one simple fact we all know about the food sector: people have to eat. And it is the absolute necessity of food that makes the food sector such a dynamic and vast space. Just how big is the food sector? According to the Department of Homeland Security, the food sector makes up about 20% of the nation’s economy. It encompasses an estimated 2.1 million farms, 935,000 restaurants, and more than 200,000 registered food manufacturing, processing, and storage facilities. An economic sector that is as large and necessary as the food sector encompasses a broad variety of activities to get food from the farm to the end consumer’s table. In the United States alone, more than 1.5 million people are involved in the food industry, supplying, consuming and catering the food products that American consumers and businesses need every day. Food supply chains are highly complex, encompassing a wide range of activities such as:
- Farming and agriculture: growing crops and raising livestock and seafood
- Processing: turning fresh products and ingredients into canned, packaged, and frozen foods.
- Research and development: developing new products and finding new ways to make food healthier, tastier,and more profitable.
- Manufacturing: making the products that facilitate agricultural production in the food sector, such as fertilizers, farm machinery, and hybrid seeds.
- Financial services:providing loans and insurance to make food production and distribution possible.
- Marketing: packaging, advertising and distribution of food consumed by wholesale and retail operations.
- Regulation: ensuring the quality and safety of food by governing how food must be handled throughout its journey to the end consumer’s table.
The size and complexity of the food sector—and the unique nature of the industry itself—means that it has some unique challenges. In this article, we’ll cover some of the issues that face food sector businesses and how technology can help solve them.
Challenges in the Food Sector
The bulleted list in the previous section illustrates the food sector’s diversity and complexity.. Yet, with the exception of retailers and restaurants, there’s one thing that most food sector businesses have in common. Most of them are B2B companies whose customers are other businesses. Farms and growers sell products to processors and distributors, research and development firms sell new product ideas to manufacturers and restaurants, and manufacturers sell to distributors, who sell to restaurants and retailers.
Relationship-Based and Data-Driven
All partners in the food sector are deeply reliant on this network of B2B relationships— also known as the food sector supply chain —to produce and distribute food bound for end consumers. The intricate network of B2B relationships makes the food sector unique compared to other industries in that relationships tend to be long-term, knowledge-based, and personal. When large purchase decisions are on the line, customer insights are even more important. A focus on relationships and an ongoing need for knowledge means that data is critical to companies in the food sector. In the past, that knowledge tended to reside within the sales organization, through armies of field sales reps who were tasked with gathering and leveraging customer knowledge to drive sales. Today, many food sector companies are migrating from in-person relationships to an omnichannel model where personal relationships are supplemented by digital sales channels such as online and mobile ordering. Mobile and online ordering allows customers to order directly online or through reps via a mobile order writing tool.
The Commoditization of Food
The food sector has some other unique challenges as well. One is that the industry tends to rely heavily on promotions, quantity, and conditional pricing to attract and retain customers. This is due to the fact that food is often considered a commodity. One farmer’s corn isn’t much different than another farmer’s corn; a can of beans is not much different than another can. There’s a great deal of competition, which makes differentiation between products on the basis of value fairly difficult. So pricing, knowledge, and relationships are important means of differentiation in the market. The challenge inherent in a multifaceted pricing strategy makes omnichannel selling highly advantageous to buyers and sellers in the food sector. Omnichannel approaches that include online ordering and mobile sales management allow both partners to easily access pricing and promotional information, obtain data about past or standing orders, special customer pricing, or other contractual or history detail that can make the ordering process easier for the customer, as well as more profitable for the vendor. The ability to increase margins is critical in the food sector, which,with the exception of the beverage industry, is typically characterized by low margins. NYU’s Stern School of Business gathers data on the margins of various industry sectors in the United States, and found that while the average net margin for American businesses was 6.4%, in the food sector that number ranged from as low as 1.13% for food wholesalers to 6.86% for processors and 3.83% for farmers. Because food is a highly commoditized and competitive market, it can be difficult to push prices upwards unless value is added. So for most companies in the food sector, the only way to increase margins is by cutting cost. Online ordering allows companies to serve their customers at lower cost; it also adds value to the customer relationship. Customers save time on order entry and can get answers about their orders more quickly. Vendors can reduce the time spent by reps on low-value activities like order entry so that they can focus on topline activities like expanding the customer base and growing the business. Unique challenges like these—the need for data, the need to increase margins and lower costs all while maintaining customer relationships and increasing market share—are driving widespread technology adoption in the food sector. What challenges is technology helping your business solve in the food sector? We’d love to hear about it in the comments.