Supply chains got broken
Since long ago, people living on the Earth have felt like part of the global community that makes online orders via marketplaces like Alibaba and Amazon. We get used to have components for technical equipment and many other goods assembled in different parts of the world and we can find strawberries from Turkey, apples from India and bananas from different countries (depending on the season) in a neighborhood store. Now this huge organism has been stressed out as the international supply chain got disrupted. The crisis is becoming an important reliability challenge, in particular, for new business models that had remained in the background until now.
All value chains that implied maintaining a close contact with consumers are significantly changing. Orders switch to online and those who can assemble products on a local scale without any foreign ingredients are on the winning side because not only delivery time and rate have changed but also the costs of ordering goods abroad have risen due to weakening Russian Ruble.
Who stood to gain from the pandemic?
In the food market:
Dark kitchen/dark store services: cafe, restaurants, shops that have crossed over to delivering food products or ready-made meals.
Everything that is related to home cooking. Restaurants and cafes are closed, and the demand for ready meal sets has increased. Stocks of Blue Apron, a company engaged in delivering ingredients for cooking home dishes, sharply increased in the USA in the middle of March: people cook more within self-isolation.
Local companies that manufacture goods without any foreign components/ingredients.
The following stood to gain as well:
Online education. Both foreign and Russian online courses developed by universities have become popular among self-isolated people.
Services of remote medical advice. In the current context, when ambulance house calls are limited, it is possible to know the doctor’s opinion without personal meeting.
Predictive analytics and AI-powered services able to predict dynamic patterns in different sectors. Including those that predict the virus spreading with regard to isolation or behavior of infected people.
Consumers forgot about brands
According to the research conducted by authors of the eMeals App for planning and shopping, the Western Europe buyers cannot find on the shelves about 40% of goods they were accustomed to. The survey was taken by 3,000 respondents. Supply chain disruptions have resulted in a situation where usual products are not delivered to the consumer on time.
Brands are losing: 85% of the participants surveyed by Shopkick (app that rewards for shopping) have stated that during the pandemic and quarantine the brand value took a back seat when selecting a product on the shelf and buying it. It means they choose the product available in the store, not one they are accustomed to. This survey was taken by 26,000 respondents.
72% of buyers have reduced their visits to stores, but along with that an average purchase amount has risen. 39% of consumers have told they spend more money per occasion than before the COVID-19 outbreak.
According to the research conducted by the American Consulting Company Alix Partners, 30-40% of consumers who tried new local products during the crisis have told they would still prefer them after coming back to normal life. It means that companies and their brands unknown to the general public so far will be on the winning side.
China and alternative meat
A demand for plant products including alternative meat has strongly increased among Chinese consumers who are gradually leaving the quarantine. Perhaps, this is owing to the hypothesis that the virus came from the food market with animal products. A demand for alternative drinks made of plant ingredients has increased as well. Before the pandemic, international companies manufacturing meat from plant protein had difficulties in entering the Chinese market: they were hindered by state regulation procedures and cultural experiences of the country, whose residents were used to buying food at farm markets.
McKinsey’s analysts are confident that consumers will keep, to some extent, their habits formed during the pandemic, prefer large supermarkets to traditional food markets. In China, the sales of poultry meat in large supermarket chains grew by 30-80% in per year terms during the epidemic. It will be possible to satisfy the growing demand, in particular, by means of alternative meat production.
Market of venture capital investment decreased
The PwC research testifies that the volume of venture transactions has reduced in the first quarter of 2020 compared to the same period of the last year. North America, Asia and Europe financed 50 bln dollars in the first quarter of 2020, the global investment amount has reduced by 20% compared to the last year.
In the first quarter of 2020, the number of transactions:
fell by 20% in Asia;
fell by 17% in the USA;
fell by 10% in Europe.
A high percentage of significant transactions is traditionally accounted for the Silicon Valley (the USA) — where the number of transactions fell by 12%, but their average receipt increased. Impossible Foods that develops plant-based meat substitutes has become a champion in the sector of food production. In March 2020, it raised 500 mln dollars from big Asian investors.
Investment operations are always piece goods. Therefore, we at EFKO continue to analyze and do not reduce the intensity of our interaction with a number of promising companies. There is a time now for more in-depth communication and gathering of detailed information about projects. We continue working with businessmen and launch an accelerator program following the results of the UMNIK-EFKO Contest held last year jointly with the Innovation Promotion Fund. We keep an eye on what is interesting during the crisis: in order to assess the investment potential, we check whether business models of the companies with high level of adaptability are sustainable.
Food safety in Russia
Temporary failure in logistic systems may stimulate development of startups that deal with creating new production technologies, for example, cell-cultured and vegetable meat. Usually such enterprises are close to consumers that can cut down logistics costs.
It is required to review state policy so that biotechnologies develop faster:
Accelerated certification of new products or a separate regulatory regime is required.
Financial support to finish developments, adjust pilot production and testing, for example, throughout the region. Companies, institutes and laboratories need to be supported.
In-depth and serious dialogue around biotechnologies. They will create another competitive environment that’s why all special interest resources will go against their introduction and spreading.
If the State demonstrates low interest in the issue, then the market will be developed under the pressure of imports and international players. We will maintain a catch-up position and endanger food safety of the entire country.
The global crisis may lead us to reconsider the need for traditional animal-breeding. Now we have time to pay attention to alternative protein sources and manufacture of protein-based products.