Food Supply Chain Overview ISQA 458/558

Food Supply Chain  Structure  Definition  Trends

Consumer Food & Beverage Manufacturing Wholesaler, Distributor, Agent or Broker Retailer Food Service, Schools or Gov. Farm, Ranch, Fishery or other provider Agricultural Producers The Supply Chain Players

Food Producers (raw materials)

 Number of Farms increasing for vegetables, crops and hay, animals & eggs, but declining for most other things.

Trend toward more small and very large farms, loss of the middle Segment (family farms versus corporate farms)

Farmers & Producers  > 2.1 million farmers & ranchers 125,000 of them control 75% of production  Sales $375 Billion  Focus 650,000 cattle ranchers 500,000 hay farmers 330,000 grain and oilseed farmers 100,000 fruit and nut farmers

Food Manufacturers and Processors  26,000 companies in US & $540 Billion in Sales Meat products 18.5% (4 firms control 80% of market) Bakery 16.6 % Fruits & Vegetables 14% Dairy 10.7 % Sugar, candy, grains, oilseeds, seafood. Etc.  Make up 70% of grocery sales, 10% are unprocessed, and remainder = non-food  100 large firms control 75% of all processed food

Wholesalers, distributors, agents and brokers roles  Whole group = 33,000 players ($600 B)  Wholesalers/Distributors: Purchase groceries and related products from processors or growers and resell to retailers, institutions, and other companies  Manufacturer’s sale branches: Wholesale operations maintained by processors to market their own products  Agents & Brokers (w/ above ~4700): Wholesale entities that buy or sell as representatives of others for a commission and who do not usually handle the product.

Food Service Vendors  580,000 vendors ($580 B) 40% full service restaurant 37% limited service 6.1% education 4.4 % hotels  $580 Billion in sales  3 companies control most food service management contracts ½ spent on food away- from-home typically at full-service or fast-food restaurants

Retailers  More than 210,000 stores (sales $584 Billion) 32,000 Supermarkets (stores with sales > $2 Million) ¾ of all grocery stores are operated by corporate chains Retailer power - 4 retailers – 40% market share  Typical store has 25,000 items and inventory turns 14 times/yr Produce turns 58 times/yr Non-food turns 4-6 times

Logistics Providers  Cover movement, storage, management of inventory Transportation Storage facilities Third parties for managing products and information  800,000 warehousing and transportation firms.  Increasing outsourcing to third parties

Driving Forces and Trends affecting the industry Consolidation of the Supply Chain TechnologyRegulation Environmental Factors Management Orientation/philosophy

Consolidation Corporate Farms Mega-Manufacturers Largest Chain Restaurants? Largest Grocery Retailer?

Largest Chains by Number of Units?  Subway, 24,722  McDonald’s, 14,098  Starbucks, 10,821  Pizza Hut, 7,600  Burger King, 7,231  Dunkin’ Donuts, 7,015  Wendy’s, 6,594  Dairy Queen, 6,187  Taco Bell, 5,670  Domino’s Pizza, 4,907  Who would be number one in sales?  McDonalds (34 Billion in 2011)

Example Brands  Consolidation of Organic & Natural Food Horizon Kashi Ben & Jerry’s Nantucket Nectars Celestial Seasonings

Consolidation Animation Consolidation Animation

What does this consolidation mean for the supply chain members?  You are a food product innovator and want to bring your product to market?  How might consolidation create interesting business opportunities?

Who is “The Food Industry”??? The Food and Agriculture Industry Farming & Growers Raw Ingredient Processors Function Food Ingredient Manufacturers Consumer Packaged Food Manufacturers Distributors Retailers (traditional/non-traditional) Foodservice Establishments Non-Food Industries Chemical Suppliers Utility Suppliers Packaging Suppliers Equipment Manufacturers Transportation Industry Analytical/Testing Environmental Industry Information Management Key Constituents Government Agencies/Political Media Employees/Unions Stockholders/Boards/Wall Street Advocacy Groups Academics/Foundations Medical Community Consumers

 Integrated systems of: RFID (Radio Frequency Devices) Bar Coding Facility Software Management Systems Internet (on-line purchasing usage)  20% of Food Wholesalers  40% of Restaurants  15% Food Processors  Results Improved food inventories More efficient distribution Better customer service levels  Note: Food stock-outs still cost industry 7-12 billion/yr. Technology

 Government oversight is increasing Two main bodies  U.S. Department of Agriculture  Food and Drug Administration  Product Liability & Traceability  Food Tampering/Security  Import/Export restrictions and trade barriers Regulations

Environmental Factors: The big squeeze

Environmental Factors  Pesticide and Herbicide use  Excess Fertilizer and animal waste runoffs from large farms  GMOs  Others?  Leads to supply chain shifts: practices, certification, market opportunities, regulation increases, and purchasing policy changes.

Management Orientation/Philosophy  Food Industry slow adopters of philisophy from mainstream manufacturing Just-in-time: JIT Sustainability Quick Response or Efficient Customer Response (ECR) Collaborative planning, forecasting and replenishment

New Performance Assessment/Metrics Better, faster, cheaper Environmental, animal treatment, wild lands, community commitment

Other trends  Shift in power from food manufacturers to food retailers  Increases in the number and scope of “vendor participation programs”  Increases in slotting fees (fees charged to manufacturers to “rent” shelf space in the retail store).