Millennials are changing their eating habits, and the market is rapidly evolving to keep up with all 75 million of them. Whether it be what foods they prefer or how they shop for those foods, the marketplace is drastically changing to meet new demands.
According to a report by the U.S. Department of Agriculture, millennial households are buying more unprocessed foods like fruits and vegetables rather than buying processed foods like pasta and potato chips. Basically, millennials want their food quick, easy, fresh, organic, and non-processed.
Due to millennials desire for fresh, organic food, the preservative rich and canned food demand is decreasing – and grocery stores are suffering and radically changing because of it. Grocery stores are beginning to sell more products on the outer ring of the store while processed, center store products are not keeping pace.
Millennials also want convenience. In fact, 55% of millennials say that convenience is one of the most important factors when they are deciding what foods to buy. To accommodate this demand, grocery delivery is growing in popularity, which in return reduces the amount of impulse buying that happens in grocery stores.
This preference for convenience and quality has also opened up the market to meal kit delivery companies like Blue Apron, and to grocery delivery services like Amazon Fresh and Instacart. Overall, millennials spend more money than any other generation on ready-to-eat foods.
The cold (supply) chain, which makes all of the above possible, has also had to change to keep up with this millennial driven demand. Food Logistics has morphed to prepare delivery trucks for the “last mile”, third party logistics have changed their warehouses and equipment to accommodate an increase in fresh and frozen goods, and manufacturers must comply with new government agencies and regulation to ensure product traceability.
Everything from the food millennials eat to the way that food moves from location to location is rapidly changing.
Grocery Store Changes
Grocery stores are no strangers to change. From the 1900’s to the 1950’s, big brands dominated the shelves with affordable foods that were full of preservatives and artificial coloring.
In the 1950’s freezers began to rise in popularity. This lead to high demand for frozen foods.
Now the new trend is healthy food. Millennials don’t want to eat too much fat, cholesterol, sugar, or carbs. Instead, millennials target the organic, fresh, and frozen foods that are found on the outer ring of the grocery store.
Millennials like to stay in the outer ring of the store and typically avoid the center of the store where processed and more profitable foods are located. This is bad news for an industry that is already plagued by low margins.
While the preference for these outer ring products has begun to define millennial tastes, grocery stores long ago designed their stores to maximize impulse buying.
Did you ever notice how the products in a grocery store that you buy the most frequently are in the back of the store? This is done for a specific reason.
Dairy products like milk don’t last long, so the typical shopper buys fresh products like those every time they shop. By putting these products in the back of the store, customers must walk past all other items – a perfect opportunity to entice an impulse buy.
A lot of thought and science goes into the design of the grocery store. For example, the end of the aisles sells considerably better than the middle of aisles. To take advantage of that fact, many grocery stores use features like wing shelves for a better chance to catch a customer’s attention.
This high unplanned purchasing behavior could be for a variety of reasons. While walking around the store, customers will see so many different products and will have a want for products that they don’t necessarily need. This desire for the product wouldn’t have happened if they didn’t walk past it because they did not intend to buy it when they entered the store.
Not only that, but the Journal of Marketing Research also found that the average shopper backtracks three times in a store they are familiar with and six times in a store that they are unfamiliar with. This provides several opportunities for merchandisers to catch the shoppers attention to buy a product they didn’t plan on.
Grocery stores rely on the impulsive behaviors of their shoppers and their store layouts prove it.
But here’s the problem, not only are millennials actively avoiding the center store, but they are avoiding the grocery store altogether.
As if getting an entire generation to embrace going to the grocery store more often wasn’t a big enough problem, grocery stores have a second hurdle to clear to win millennials business: the cold chain.
To keep up with the rising demands of America’s largest demographic, grocery stores have poured billions of dollars into ensuring the fresh and frozen goods that millennials desire, make it to their shelves unspoiled. Exactly what investments have been made in this space is detailed later on in the article.
Meal Delivery and Online Shopping
Millennials want their food healthy, fast, and easy to make. Trends are changing so quickly that dozens of companies and services are starting up every day to meet the new market demand.
The trend started with millennials in urban areas who don’t have access to cars and don’t want to waste time commuting to the grocery store. To these individuals, it was a lot easier to have groceries or meals delivered to them. Today, this trend has spread far outside urban cities.
These demands have led to the explosion of two new markets: grocery and meal kit delivery. However, the growth of these new markets comes many logistical challenges.
Online Grocery Shopping & Delivery
According to Statistica, U.S. online grocery sales are expected to grow to nearly $30 billion by 2021. Two of the leaders in this space are Instacart and Amazon Fresh.
A leader in the emerging market for grocery delivery, Instacart, is currently valued at above $4 billion. In fact, Forbes rated Instacart the#1 Most Promising Company in America and the company is continuing to expand their grocery delivery service. Instacart’s value to millennials is simple. They take on the burden of going to the grocery store, walking up and down the aisles, waiting at checkout, and bringing the goods to your house. In short, they give millennials something they value more than money, their free time.
While this might sound like a win for grocery stores, it comes at a great cost. No more impulse buys.
Ordering online significantly decreases the amount of impulse buying and there are now fewer ways to catch a shoppers attention for products they may be interested in. Grocery stores must find a new way to adapt because the desire for convenience isn’t going away.
Back in June 2017, Amazon purchased an organic grocery chain, Whole Foods, for $13.7 billion. This purchase kickstarted Amazon’s involvement in the food industry as they aimed to delivery foods to customers. In February 2018, Amazon and Whole Foods began to deliver groceries directly from Whole Foods in certain cities, and they are looking to expand throughout the year.
Customers will be able to shop online for their groceries, including fresh produce, and have it arrive to them in two hours or less.
Amazon also began implementing their loyalty program, Amazon Prime, in their new grocery delivery strategy. Prime members who shop at Whole Foods will get 5% cash back with the Amazon Prime Rewards Visa Card.
Services like Blue Apron provide the perfect solution for millennials looking for convenient and organic foods.
Blue Apron will ship you all the ingredients you need to cook a great meal. The options are healthy and fast to make. The meals usually take thirty minutes or less to prepare.
Some home-delivery meal kit options focus on special diets. Purple Carrot focuses on making their meals 100% plant-based. Green Blender focuses on healthy smoothies, and Sun Basket is all organic. These are only some of the many options available.
Meal kit companies don’t look like they will be going away any time soon. They are currently a $2.2 billion business and are expected to grow 25-30% annually in the next five years.
The Cold Chain
One challenge that grocery stores, meal delivery kits, and grocery delivery services ALL have to embrace is the cold chain. Without the expertise, execution, and growth of cold food logistics, none of the above would be possible.
The cold chain is simply a term for the management and transportation of temperature-sensitive products in the supply chain. This can include food like dairy and meat or pharmaceutical products that need to be kept cold. Basically, anything that can be ruined as a result of temperature changes can be part of the cold chain. Since dry and processed products like granola bars, crackers, and most canned foods don’t need to be kept cold to stay edible, they aren’t considered part of the cold chain.
It’s a lot simpler to transport dry and processed goods, but with the rise in demand for fresh products, changes must be made.
Transportation companies must adapt so they can safely and quickly delivery food without it going bad. These changes to the structure for temperature control can be expensive, and it doesn’t help that transportation costs have increased by 8-15% in the US.
Refrigerated delivery units are also on the rise. In fact, the global market for commercial vehicles is projected to reach 29.1 million units by 2020.
It might seem like the delivery of fresh produce is as simple as putting a freezer unit inside of a truck, but that isn’t the case.
There are several different temperatures that food can be stored at, and products can go bad if not stored at the correct temperature.
Air circulation also must be accounted for. The units must have grating on the floor with a clearance of 15 cm between the cargo and the ceiling. This is essential because internal temperatures must be reduced.
Trucks are also being painted light colors to increase the amount of light being reflected, therefore decreasing the heat.
The Last Mile and Third-Party Logistics
The last mile is a difficult hurdle to clear because deliverers need to have the right equipment to keep food from going bad due to fluctuating temperatures during transit. Industrial trucks are evolving to be refrigerated with multi-temperature settings, but a lot of the time the last mile is done by delivery drivers who don’t have access to that type of storage.
Even if delivery drivers have the right storage options, what if they go to deliver groceries and the customer isn’t home? Leaving fresh food on a hot porch isn’t an option, but delivery drives can’t just wait for someone to come home.
To combat this, food companies do a few different things.
- In September 2017, Walmart announced that they would be testing a new option for grocery delivery – the deliverer would enter your home and put your groceries away if you weren’t there to receive the order. This new feature was not received well by the public and people felt uncomfortable with the idea of a stranger entering their home. Walmart no longer offers this feature.
- Shipt will call your cell phone and ask how to complete the delivery, but they acknowledge that someone should be home so that your order isn’t damaged.
- Blue Apron packs their boxes with insulated thermal liners and refrigerants, but they still prefer someone is home for delivery so that the food doesn’t sit for too long.
It’s hard to come up with solutions for trends that are rapidly changing. But where there is a new demand, there will be an opportunity for innovation.
Even though online grocery shopping doesn’t look like it will be going away, cold chain strategies are changing frequently said Paul Jarossy, Director of Business Development at the Morgan Corporation.
To stay ahead of trends, Jarossy recommends reading about current events, going to industry trade organization to listen to experts and to listen to what customers want.
There have been many new models of trucks and technology being tested to accommodate for the new trends and the growth in the cold chain.
Mickey Truck Bodies, America’s biggest supplier of beverage trailers and beverage bodies, recently introduced a refrigerated van with thermal-efficient panels on the roof, walls, and floor of the van.
Morgan Corporation recently announced a new truck of theirs that appealed to retailers looking for low weighing vehicles. The truck is used for delivery from the store to customers home. The truck has multiple temperature zones and accessibility for curbside loading and unloading. There are numerous retractable shelves, telematic systems, and it is 20% lighter than ordinary body designs.
Kroger, America’s largest supermarket chain, started to improve their equipment in 2016. They are changing the design of their trucks for better fuel efficiency and expanding the use of multi-temperature trucks so they can transport refrigerated and dry goods at the same time.
Not only are transportation options changing, but recent trends have called for more creativity in packaging so that foods can stay cold for as long as possible in their designated packaging.
The last mile is no problem for dry food products like non-perishables canned foods, and that’s good news considering that the Food Marketing Institute and Nielsen did research that estimates that 40% of center-store shopping (dry foods) will be ordered online by 2025. However, it is bad news for brick and mortar grocery stores.
Jarossy said that until now there wasn’t a national supplier who could supply this type of body (multi-temp)in any amount of volume, which is why many of the national grocers moved to different strategies.
Grocery stores can use third-party logistics or partner with existing delivery services. Stores can also begin to build their own fleet of safe and secure trucks for delivering needs.
If products are left unattended while being unloaded for another trip, the products could be ruined.
If temperatures rise too high in a warehouse where the products are stored in, the products could be ruined.
If there is a malfunction in a truck’s temperature control equipment, the products could be ruined.
If a delivery driver is overworked and can’t get to a house in time, the products could be ruined.
There are factors such as the length of the delivery, the size of the shipment, the outside weather conditions, the packaging used, and more that can harm the products if overlooked.
To ensure the public’s health, The Food Safety Modernization Act, or FSMA, was signed into law by former President Barack Obama in January 2011.
The FSMA allowed the Food and Drug Administration (FDA) to regulate the way food is processed. These regulations include the power to recall products that may be causing sickness.
There are so many different situations where the cold chain can be compromised, and that makes it harder to keep up with demand – and with FSMA.
While transportation and grocery store companies are making all these new changes, third-party logistics are also changing their storage techniques.
Third-party logistics, or 3PL, is a company that takes care of supply chain processes like warehouse inventory and management, transportation and delivery, and more.
In simpler terms, they can hold the stock for grocery stores.
3PLs also have to adapt and change technology so food can be delivered to them.
In 2017, Wabash National, North America’s largest producer of semi-trailers, bought Supreme, a truck body maker. This was done to accommodate the rise in e-commerce food deliveries and resulted in the launch of dry and refrigerated body trucks.
D&D Wholesale Distributors is working with Volta Air to test all-electric refrigeration units for vehicles so they can deliver a wider variety of products.
3PLs are growing with the demand for fresh products. In fact, global 3PL revenues reach $802 billion in 2016 and are currently on track to exceed $962 billion in 2020.
Due to the rise in fresh produce, 3PL’s were also forced to evolve to consumer’s demands and are adapting to hold cold chain supply.
More demand for fresh food means that 3PL’s need to make more space for fresh food inventory and industrial freezers aren’t cheap.
This can begin to open up problems that warehouse managers usually don’t have to worry about, like learning how to keep a warehouse cool in the summer, so the product is ensured to be fresh.
The product must remain fresh in storage and on the go, but the more distance between the supplier and the customer, the more of a chance there is for the food to go bad.
Demand for fresh produce calls for better inventory storage, product stability, and visibility throughout the distribution process. It’s crucial that companies are transporting products at maximum efficiency because every delay can have negative consequences – whether it be unhappy customers or a product recall due to illness or death.
If a recall, sickness, or death is linked to a product, then that brand name is potentially ruined forever.
In 1993, an E. coli outbreak occurred when 732 people were infected from eating contaminated beef patties from 73 different Jack in the Box locations. The outbreak resulted in 173 hospitalizations and four deaths. Lives were changed forever, and the company is still recovering from the outbreak and bad publicity.
Each product has a specific perish-ability time, so each product must be carefully attended to for maximum shelf life.
The Rise of the FSMA
Another change that millennials have brought to the market is a stronger need for cold chain supply visibility.
To improve visibility, FSMA was brought into action.
But why is the FSMA a recent development?
Millennials are demanding healthy and fresh food, making it harder to transport that food.
According to the Center for Disease Control and Prevention, 48 million people in the US get sick from foodborne diseases every year. 128,000 people are hospitalized, and 3,000 die every year due to food-related sicknesses. These statistics called for action to be taken.
The FSMA not only responds to foodborne illnesses, but they work on preventing it. FSMA has very clear rules and guideline for products to ensure they are fresh and being taken care of at each checkpoint through their journey from producers to customers.
Every item that is shipped must be tracked and accounted for at every location. This allows the FSMA to track down exactly where in the shipping process an item went bad. Additionally, it helps the FSMA determine what other products may cause sickness to customers.
Imagine this – a local baker makes ten dozen batches of their famous muffins. While selling these muffins, a customer reported that a muffin they bought made them sick. The baker now must determine what muffins caused the sickness.
The FSMA provides rules and guidelines for similar scenarios. If correctly following FSMA rules, the baker should know precisely what muffins came from what batch. From there, the baker can look at the ingredients to determine what ingredient is making people sick. If the baker used bad butter, the baker would be able to look back and assess what else he baked with that specific butter. The baker will then be able to recall any items that he baked with bad butter, therefore preventing further customer sickness.
The FSMA forces businesses to have better visibility of their products so if something goes wrong, they can easily backtrack to determine what went wrong.
To keep up with new food safety and regulations, Jarossy said the Morgan Corporation has begun to use telematics. This is a wired or wireless system that can monitor various activities throughout a truck or truck body. It can tell you when doors are open and for how long, and monitor all aspects of a truck, like the temperature ranges. Not only that, but the device will also send the collected data to the driver and back to the depot for analysis.
Freezer labels and temperature labels are tools that are used to help the FSMA with visibility.
Freezer labels are labels with an adhesive that allows it to withstand cold temperatures as to prevent damage and peeling. Making sure a label sticks is vital because if there is no label, there is no way to track the product and therefore it isn’t FSMA compliant.
Temperature labels will keep track of how cold it is and that way people will be able to see the temperature of the product and if the temperature dropped too low.
Overall, the millennial generation’s craving for healthier and more convenient foods is having a huge impact on cold chain and the operation of grocery stores. As a result, new markets have opened up with brand new opportunities like online grocery shopping and meal delivery. Although grocery stores are suffering, they recognize these new trends and are taking the steps necessary to stay afloat. Transportation companies and third-party logistics are also taking the steps necessary to succeed in the future by implementing freezers into their trucks and storage facilities. The government has noticed these changes too and are changing the cold chain for the better, making it safer for the public to buy fresh food through FSMA and better visibility of products.