If the coronavirus has brought much of the world to a standstill, you wouldn’t know it inside the huge Kraft Heinz factory in Champaign, Ill., where production lines are running around the clock to meet surging demand for the company’s legacy brands.
“We can’t make enough mac and cheese right now,” said Dilton “Dee” Gibbs, plant manager at the facility that makes half of the Kraft Macaroni & Cheese sold in the U.S., as well as A-1 steak sauce, mayonnaise and salad dressings.
The packaged food giant, along with many of its peers, has had to ramp up production amid an abrupt reversal in consumer trends. Shoppers who in recent years shunned processed foods in favor of fresher, healthier and more premium products are now loading up on shelf-stable standbys as shelter-in-place orders force vast swaths of the nation’s population to prepare for a long stretch of cooking at home.
Food manufacturers are faced with the dual challenge of keeping retail shelves full while also ensuring their workers stay healthy — and motivated to keep showing up despite fears of COVID-19.
Gibbs, who oversees some 900 employees at the 32-acre Champaign plant, has imposed social distancing measures in the break room, where tables meant for four are now allowed to be occupied by just one. During a recent lunch break, as each worker ate alone, it looked as if everyone had been given a timeout.
Employees worry about contagion, Gibbs said. But he works to keep morale high at a time when he needs the plant to operate at maximum capacity.
“We talked about how this is the breadbox of the country here, and we should all be proud that we’re helping,” said Gibbs, a 30-year company veteran. “We should be proud that we’re supporting the country now.”
Processed food renaissance
Kraft Heinz, co-headquartered in Chicago and Pittsburgh, said demand for numerous products, from ketchup to Kool-Aid, has been up sharply since pandemic fears sent consumers into a stockpiling frenzy.
Macaroni and cheese sales, which grew just 1.6% in 2019, were up 27% during the 13 weeks that ended March 21 compared with the same period last year, the company said. Sales of Heinz vinegar have been robust, perhaps because people are using it not only to cook but also to make cleaning solutions.
To be sure, all sorts of food has been flying off the shelves. Year-over-year sales of rice, beans and pasta more than tripled during the week that ended March 21, according to Nielsen. Fresh meat sales doubled, and oranges, dense with immunity-boosting vitamin C, grew 57%.
But products that had fallen out of favor in recent years are making a fierce comeback. Packaged soup sales shot up 237%, according to Nielsen. Canned meat surged 282%.
“It’s like we’re in the ’70s,” said Nicholas Fereday, executive director for food and consumer trends at Rabobank, a bank focused on food and agriculture. “People are revisiting brands they haven’t touched in a while.”
Kroger, the nation’s largest grocery chain, reported a 30% jump in March sales at stores open at least a year. Credit Suisse has projected that retail sales of packaged food companies will grow, on average, by as much as 15% to 30% during March through May. Some of the largest companies have announced production increases by as much as 40% to keep up with demand, it said.
Though the pantry-loading panic has subsided, shoppers continue to stock up on groceries amid a mass shift away from dining out, which used to eat up half of people’s food budgets. More than 90% of the nation’s population is under some kind of stay-at-home order.
That’s been devastating to the restaurant industry, which the National Restaurant Association has forecast will lose up to 7 million jobs, but it’s created optimism among some food manufacturers.
Conagra Brands, whose broad portfolio includes Healthy Choice, Slim Jim, Chef Boyardee and a big frozen foods business, raised its guidance for the year after seeing a significant bump in sales that it expects to continue through at least April.
The grocery shopping sprees are likely to lessen once people head back to the office and restaurants open again, but many shoppers Conagra never anticipated attracting are trying its products for the first time, which is an opportunity to turn them into long-term customers, CEO Sean Connolly said.
Because people are consuming every meal at home, demand is up across categories, he said. Panicked shoppers first were buying canned goods, but then they moved to frozen vegetables and single-serve frozen meals that people can pop into the microwave for lunch. Snacks are now seeing the fastest daily sales growth, he said.
“The priority right now is producing the maximum amount of food that we can possibly produce,” Connolly told investors on a conference call last week.
The company has shifted employees from its food service production lines, where demand has dropped drastically because of mandated temporary restaurant closures, to the lines making products sold in grocery stores.. Its planned rollouts of new products are being put on hold at some retailers that want to focus on core staples.
As a result, consumers might see less variety on shelves as companies focus on churning out the most in-demand products, said Geoff Freeman, CEO of the Consumer Brands Association, an industry trade group. Unilever has said some variations of its products may be unavailable as it focuses on its most popular sizes of Hellman’s mayonnaise and flavors of Knorr meal mixes.
“There will be no shortage of product,” Freeman said. “Product will be there, but perhaps not some of our choice.”
The adjustments have not been easy. Shifting production from food service to retail involves different packaging and distribution channels. The Food and Drug Administration relaxed labeling rules to remove some of the hurdles.
More challenges lie ahead given stretched supplies of sanitation and personal protective equipment, which are important for food production, Freeman said. There is also potential for supply chain disruptions if imported raw ingredients don’t make it in or trucks can’t get food to shelves fast enough.
So far, Conagra has been able to meet 90% of its orders, Connolly said, and he is keeping a close eye on the supply chain. His biggest concern “is always the unknown,” he said, of which there is plenty in this unprecedented situation.
“We do our best to anticipate what is coming our way,” he said. “But nobody understands what’s coming our way.”
Keeping workers safe
One of the biggest unknowns food manufacturers are bracing for is what happens if employees contract COVID-19.
PepsiCo temporarily closed a Frito-Lay plant in California as a precaution after several employees showed symptoms, and halted several production lines at a Quaker Oats plant in Iowa when a worker there tested positive.
Conagra had one plant employee who tested positive and is recovering, and another who is suspected to have the illness, Connolly said. The company followed Centers for Disease Control and Prevention guidelines to quarantine the individuals and disinfect the premises.
Food manufacturers, which already have extensive sanitation policies, have instituted additional cleaning regimens to try to keep workers from getting sick. Tyson Foods, which employs 4,500 people across five meat production and distribution facilities in Illinois, is doing temperature checks as workers arrive for their shifts.
Proven Partners Group, an Illinois-based contract food manufacturer and packager with several large clients and about 250 employees, has staggered breaks so different crews don’t mingle, said CEO Suley Muratoglu. As it shifts production to accommodate spiking demand for high-nutrition products for seniors, the plant also has reduced the number of people on the production floor at a time to create more distance between them.
Most large companies are relaxing attendance policies, so people aren’t discouraged from staying home if they feel ill, and adding paid sick or quarantine leave. They also are promising perks to reward employees for continuing to come to work despite the risks.
Conagra and Tyson are each offering plant workers a $500 one-time bonus. PepsiCo, which is trying to hire 6,000 workers, is paying $100 more per week to 90,000 employees and guaranteeing 12 weeks of pay if a plant closes because of COVID-19.
Oreo-maker Mondelez International, which is trying to hire 1,000 workers, is offering a temporary $2 per hour raise through May 2. Kraft Heinz is providing a $100 weekly premium to nearly 19,000 full-time and temporary employees.
Concerns employers expressed at the inception of the health emergency that employees wouldn’t show up do not seem to be playing out, Freeman said. Muratoglu, who is hiring, said he has seen a spike in job applications, some from laid-off restaurant workers, whereas before the pandemic he struggled to find labor.
Bob O’Toole, president of the United Food and Commercial Workers Local 1546, said the concerns he hears most from workers are about finding child care amid school closures. In addition, a growing number of union members are being laid off from meat processing plants that supplied restaurants, conventions, airlines and cruise ships, and don’t have the right licenses to pivot to retail.
Still, many food production employees are worried about going to work, especially at meat processing plants where they stand close together, O’Toole said. But companies are being careful about safety and “most people are showing up,” he said. “These people are living paycheck to paycheck.”
Gibbs, the plant manager in Champaign for two years, said it has taken some time for employees to get used to distancing.
That isn’t usually a problem on the highly automated production floor, where a single person can staff a line that spits out 1,700 cartons of macaroni cheese or 450 bottles of salad dressing per minute. But elsewhere, “We have to remind people from time to time that you can’t stand on top of each other,” said Gibbs, 67.
Gibbs said he holds daily meetings to address employees’ concerns and educate them about how to protect themselves.
“What I tell my teams is, if you think like you got it, you won’t ever get it,” he said.
Housekeeping staff is cleaning doorknobs and other commonly used surfaces every four hours, and employees have been asked to do the same at their stations.
Some employees don’t feel comfortable despite the safety measures, Gibbs said. . But to him, keeping the factory running through the pandemic is a duty.
“This job we do day in and out is very important,” he said, “especially because we make a product that people can afford.”
Long-term impact
Whether the pandemic-driven shifts in consumer behavior are here to stay remains to be seen.
As layoffs continue and economic pressures mount, low-priced foods may continue to be enticing, Rabobank’s Fereday said. But the experience also may make consumers particularly protective of their health and willing to invest in products that tout their nutritional value, he said.
Some long-term impacts on the food industry are starting to show. The share of Americans buying groceries online or using delivery services like Instacart or Amazon Fresh had risen to 39% as of this week, up from 18% four weeks earlier, according to a survey from the Consumer Brands Association.
And the lean, efficient supply chains companies have adopted to save money also are being reconsidered as manufacturers weigh the benefits of redundancies in the event of an emergency, Fereday said. There will likely be a move toward de-globalizing the supply chain in favor of local suppliers, he said.
Other consequences depend on how long COVID-19 upends people’s lives.
Smaller, emerging brands that have pitched themselves as premium products could be in for some difficult times if people go back to basics, Fereday said.
Big Food’s focus in recent years on growing through innovation and new product launches could take a back seat if companies simplify their portfolios, reducing choice, said Bahige El-Rayes, a partner in the consumer practice at strategy and management consulting firm Kearney.
El-Rayes also wonders if the mass cooking-at-home experiment could change how often people dine out, returning restaurants to a once-in-a-while treat rather than the everyday occasion they had become. Even when life begins to move more normally again, he said, it’s likely people’s wariness to gather will linger for a while.
