After pandemic-related shutdowns started a year ago and grocery store shelves were consistently emptied, manufacturers ramped up production and were able to refill the shelves. To the casual observer, it appeared that the food industry was able to bounce back and get back to normal.
But, as B&G’s earnings report and the call accompanying it show, there are some pandemic-related issues under the surface that are still threatening to upset the balance of manufacturers’ business.
Green Giant, which was B&G’s leading brand in terms of sales, is a prime example. While the brand had approximately $639 million in net sales in fiscal year 2020 — an increase of 21.3% over the previous year — CFO Bruce Wacha said the company had to slow down sales as the end of the fiscal year approached to ensure there would be enough of the frozen and canned vegetable brand to last until the summer. So even though there was still healthy demand in the fourth quarter, Wacha said Green Giant sales were flat. Wenner said that competitors have taken similar action because all growers were impacted by a poor crop last year.
As consumers are continuing to reach for vegetables for their health benefits during this time, Wenner said that no manufacturers have the ability to meet their demands. And, it’s highly likely that prices will stay relatively high and selection will stay relatively limited for the next few months, he said.
“It’s crazy to sell your limited inventory at a lower price as fast as you can, because then you don’t have any inventory and there is nothing available until late this summer,” Wenner said on the call.
Other B&G brands are also nearing scarcity, he said.
“We saw serious supply chain capacity issues in the second quarter and third quarter, and we are unable to fully meet demand on brands that offered meal solutions, such as Ortega and Bear Creek,” he said in the call. Taco shells are difficult to produce at the levels consumers are buying them, he said, and other manufacturers are having problems making enough of them.
With problems like these, food prices for consumers are likely to continue to climb for a while. It will take some time for the pantry-loading behavior of the pandemic to slow down, meaning consumers will continue to buy more than they had previously. Food prices in January 2021 were 3.8% higher than the year before — which was still in pre-pandemic times, according to the U.S. Department of Agriculture. The inflation rate for the consumer price index in general was much lower: 1.4%.
While Wenner is interim CEO and has only been in this position since mid-November, this is likely not an issue that a more experienced company leader could have solved. General Mills’ leadership also has said it’s having problems meeting demand for taco shells, Wenner pointed out.
A company with a portfolio as diversified as B&G is likely to hit some of these issues of shortages and inflation sooner than others because of the diversity of suppliers and ingredients it uses. Since analysts say the post-pandemic consumer will continue some of the same behaviors, supply and inflation problems aren’t likely to let up soon. The problems B&G has highlighted could be the first of many that become widespread across the industry as the year goes on — which could require more creativity and capacity to solve.