New study sheds light on root cause of higher food prices

TraceGains, a networked food ingredient sourcing platform, released its latest study about the impact of macroeconomic conditions on the food supply chain.

The new “2022 State of Supply Chain Disruption Report” shows the rising cost of ingredients is pushing CPGs to modify recipes or create new formulas altogether. In terms of the impact on innovation, respondents were nearly evenly split between CPGs continuing to innovate and those making R&D cutbacks. Lessons learned for the future include greater supplier diversity and enlisting contract manufacturers to protect against future supply chain disruption.

The survey is based on responses from more than 300 food and beverage brands. It demonstrates the impact that macroeconomic conditions like ingredient availability and the pandemic have had on innovation, product formulation, and the trickle-down effect on consumer prices and availability.

“As consumers, we feel the pain of supply chain issues each time we walk out of a grocery store,” TraceGains CEO Gary Nowacki said. “This survey sheds light on the problem directly from a CPG brand’s perspective, and lets other food and beverage companies know they’re not alone in this fight. Forward-thinking brands have used this unfortunate time as a wake-up call to modernize antiquated operations and those who already have are much better positioned to mitigate disruptions with as little impact as possible.”

Price of doing business

What is the one thing impacting almost every CPG business? Higher ingredient prices.

New product development and recipe modifications have been instrumental at compensating for this as well as ingredient shortages like sunflower oil, wheat, and stevia.

● Nearly 90% of survey respondents admitted that higher prices have shaped the way they’re doing business today. Thirty-seven percent of CPGs acknowledged modifying more than 20 recipes or product formulas, while another 25% modified between six and 20.

● Roughly two-thirds (65%) were forced to raise prices in the last two years.

● Nearly 50% completely halted production on some products, and another 46% confessed they have not been able to keep up with consumer demand.

Speed to innovation

In the last 24 months, supply chain disruptions have rapidly escalated due to the lingering COVID-19 pandemic and the ongoing conflict in Eastern Europe, both of which have had a huge effect on CPG goods production. And while 35% of organizations conceded to R&D cutbacks, nearly as many (36%) insisted that they’ve accelerated innovation, which underscores the stark difference in how some companies have coped during these challenging times.

Future of supply chains

As CPG brand leaders prepare for what’s next, increasing supplier diversity is the most important strategic shift followed by leveraging contract manufacturers, or third-party manufacturers that make certain components or products over a specified period of time.

● More than two-thirds (69%) of respondents plan to expand their supplier networks in the next 24 months.

● A quarter will reshore their supply base to deal with continued instability, and 41% will change or eliminate product offerings altogether.

● Nearly half (49%) of TraceGains’ customer base already works with contract manufacturers, with 70% of that group using 10 contractors or more.

Over the last 15 years, TraceGains has designed its Networked Ingredients Marketplace to be the one source of truth that enables global brands to gain speed and control over compliance and product development. Today, brands collaborate on 425,000 ingredients from more than 55,000 supply chain locations, creating greater agility, resilience, and sustainability that masters the modern supply chain.

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