The “Next Normal” For the Food Industry- Open Letter From KeHE CEO & President
It’s been over a year and a half since the COVID -19 pandemic changed our lives and our industry for the foreseeable future. At KeHE, our priority continues to be on the health and safety of our associates and urgently serving our valued customers in conjunction with our supplier partners. I want to take this opportunity to provide our perspective on the “Next Normal” for the food industry as we see it. We are not big fans of saying this is a New Normal, but we do believe significant change will continue and require us all to adapt to meet the needs of the customer. At KeHE, we’re looking at the Next Normal as a time that we hold on to what is most important – Innovative Products & Insights and Sales & Supply Chain Solutions, mixed with a view that we must challenge everything we do and change where needed. Here are a few thoughts about the Next Normal:
Consumer demand: Natural & Organic, Specialty, and Fresh products continue to outpace Conventional products in growth rates, and we see no end in sight.
Food consumption: “At home” food consumption has moderated slightly from pandemic highs – but continues to be higher than pre-pandemic levels. “Away from home” food consumption has rebounded, but dollar sales are boosted due to higher prices at restaurants.
Product availability: Supply continues to challenge our industry as brands adapt to Next Normal demand. Our team is working closer than ever with the supplier community to ensure KeHE receives equitable supply based on forward looking growth rates. Additionally, our Innovation Guru’s remain keenly focused on onboarding new brands, 18,000 new items this past year, which serve as both differentiation and alternatives to constrained supply items.
The reality is our industry has not seen the inbound supply recovery we expected after 18 months, and in many instances, performance is worsening. This will require all of us to make assortment decisions based on long term supply viability, and we have replacement options in our vast 70,000 SKU portfolio.
Labor: The demand for warehouse associates and professional truck drivers has outpaced available supply. This has required significant advancements in recruiting and retention for our organization, including considerable investments in wages, retention programs, and sign on bonuses. Like most businesses, KeHE’s labor costs today are considerably higher and outpacing productivity gains. Fortunately, our competitive associate programs, unique culture, and employee ownership structure (ESOP) enable KeHE to be a sought-after workplace, so we can get the work done.
Freight & Transportation: Demand increases across many industries have created an unprecedented freight market with skyrocketing costs. Additionally, container ship and port delays have strained overseas shipments for many of our international suppliers. We’re winning in this ultra-competitive freight market – but the challenges have never been greater. Adapting to elevated freight rates and pivoting shipment modes to improve order cycle speed are examples of the investments we’ve made to address the current market constraints.
Physical Infrastructure: We continue to adapt our existing infrastructure and new distribution centers to ensure we have the capacity to serve as a reliable distributor. We are adding automation to our facilities where prudent, but our front-line heroes continue to be our greatest source of difference. We are expanding our infrastructure to meet the needs of the marketplace– examples include an enlarged facility in Denver and new buildings in Phoenix and Dallas in the near future.
Inflation: All these dynamics have led to the highest level of price changes from suppliers we’ve ever experienced. We expect inflation to continue as more of our 4,000 plus suppliers initiate increases to offset rising costs of labor, transportation, raw materials, and packaging. At the same time, our cost to serve has far outpaced our best-in-class operating requirements and we are doing everything possible to keep this in check.
We strive to be the preferred distributor in the marketplace, and we are committed to adapt to the dynamics presented to us during COVID and the Next Normal. We are committed to your success, and we will adapt to the market we all are confronted with right now. The Next Normal presents us all with challenges and you can count on KeHE to make the changes needed to help you thrive.
We will continue to provide consistent and transparent communication as the industry progresses through this highly unusual journey.
With deep appreciation for you and your partnership, we are humbled to be your trusted Natural & Organic, Specialty, and Fresh distributor.
Sincerely,
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| Brandon Barnholt CEO & President at KeHE |