However, this part of the F&B sector, also referred to as the Hotel-Restaurants-Café industry (HORECA), has been hit hard by the rapid spread of COVID-19 in 2020. HORECA, which represents nearly 30% of F&B demand worldwide and is widely represented in the UAE, faced a severe crunch during global lockdowns, according to a report published by Altios. Shutting down entire countries and regions generated travel restrictions, airline shoutouts, tourism stagnation as well as prevented employees from working in food processing factories around the world severely impacting global F&B supply chains. Therefore, hotels and their restaurants, specialty cuisine, fine-dining, catering, and food service companies belong to the most affected areas. As a result, many industry players were forced to adjust their business models serving only delivery and takeaway orders covering about 50% of their capacity.
Excluded from the downfall within the F&B industry has only been the retail sector which has indeed benefitted from the COVID-19 outbreak. Food items have been bought in bulk in grocery stores by consumers who needed to replace eating out by cooking at home. Panic buying and confusion have disrupted the standard demand estimations for food products during the lockdown period in the UAE. Indeed, long shelf-life products have gained nearly 20-25% while other categories such as confectionaries have seen a decline of 30-35% since the start of the pandemic. Consumers have been rather going for the most essential items and in bigger quantities to reduce store visits and potential shortage. By experiencing an unexpected growing number of consumers virtually and physically, food retailers, however, have been facing other challenges such as meeting the increased demand for online orders and home delivery, provision of constant food supply, and implementation of sanitary measures in supermarkets.
While the world is recovering from the virus and the vaccine development is advancing fast, stakeholders of the HORECA industry in the UAE need to prepare for the long-term impact of COVID-19. Undeniably, the bottlenecks faced by F&B managers are countless owed to a slowly recovering market demand, fierce competition, and the fact that a disruption like COVID-19 has drastically affected entire food supply chains into the UAE. Countries in the GCC region are highly dependable on global food supply chains due to the limited availability of arable land, scarcity of water resources, rapid population growth and the high cost of local agriculture. Logically, in a region where countries import 85% of their F&B consumption, due to the Altios report, the supply chain becomes even more critical than in regions that produce locally parts of what they consume. According to the SME10 report, the overall expenditure on F&B in the UAE is estimated to increase by 6.9% year-on-year (yoy), reaching US$37 billion in 2020 from US$34.6 billion in 2019. KSA is likely to witness a 5.4% yoy growth which translates into US$50.6 billion over the same period, totaling in over US$80 billion for both markets. At the same time, the amount of food wasted along the supply chain is expected to increase by 1.9% from 2015 to 2030 globally. This may seem a small rise but when put into perspective with the current 1.6 billion tons wasted every year, this figure will increase by 30.4 million tons, according to the Boston Consultancy Group (BCG).
These numbers mandate greater collaboration between public and private sector entities, and the development of long-term policies and strategies that contribute to improve agricultural productivity, while also taking necessary steps to achieve self-sufficiency in food production and seamless supply chains.
F&B manufacturing supply chain challenges
Let us now look at the concrete factors posing significant challenges to F&B manufacturing supply chains and logistics operations, and how they can be addressed.
1. Food safety Food safety is one of the most affected areas when it comes to disruption of any kind. The UAE faces significant challenges in producing food domestically. Only 0.5% of the land mass is arable, extreme heat limits the capacity to cultivate and store food, and the country receives very minimal rainfall. As a result, the UAE currently imports roughly 85-90% of its food supplies which leads to greater risk that food is wasted along cross-border food supply chains.
2. Product traceability Government food safety agencies require food to be tracked through all stages from production over processing to distribution (also known as farm to fork). The aim is to enable quick and effective corrective actions in the event of disruption, such as a product recall, and prevent contaminated products from reaching consumers. Supply chain management systems need to capture sources of raw materials, additives, other ingredients, and all other inputs, and provide product batch or lot identification, production, and expiry dates. Apart from batch and lot tracking, Warehouse Management Systems (WMS) need to effectively manage inventory and FIFO (First In First Out) rules. In many cases, major grocers will only accept consecutively numbered batches and expiry dates.
3. Secure supply chain To analyze the vulnerabilities and risks in the supply chain, food companies must fully understand all the parties involved in producing, storing, and distributing their ingredients and products from farm to fork. Integrating social, governance and EHS principles in supply chain management is complex, but the risks of not doing so are significant. Consumers demand more and more information about the products they are buying and their supply chains. End-to-end visibility enables a firm to increase its efficiency, lower inventory, build brand loyalty and provide transparency throughout the supply chain.
4. Cost pressure The need to optimize productivity and reduce costs in supply chains has never been greater for F&B manufacturers. While labour costs continue to rise and drive the need to increase productivity, cost pressure is being compounded like never by the increasing concentration of the grocery retail market and increasingly price conscious consumers. A continuing trend towards concentrated grocery retail markets means fewer retailers are becoming dominant. Consumers also remain highly price conscious and are favoring low-cost supermarkets over convenience stores. Volumes shift towards lower-margin grocery retailers at the expense of higher-margin convenience and small food retailers. Consumers are also increasingly open to purchasing an expanding array of private labels, further placing pressure on F&B manufacturers’ margins.
5. Technology for F&B warehouses Technology will continue to transform the F&B industry. With increasing demand for fresh, organic, healthy yet tasty food items and beverages, leveraging technologies such as IoT, Blockchain and AI helps to simplify processes along the supply chain and ensures improved returns for players in the industry. Automation and robotics reduce production and simplify supply chains, sensors enhance product experience and analytics improve the product mix – these are merely some of the changes that technology and digitalization can bring to the industry. However, implementation of technology requires high investments which not all might be able to afford.
Despite the challenges, we are seeing an increasing number of new developments, optimisation initiatives, and best practices being introduced in the region by organisations, large and small, to overcome the huddles.
1. Use of logistics providers Logistics and supply chain service providers such as RSA Global are emerging as crucial partners to the F&B industry. They have the expertise, network, and infrastructure needed to smoothly run a save and quality assured international supply chain for sensitive food goods.
2. Government regulations The UAE Government and its municipalities continue to improve upon their already comprehensive Food Safety Regulations, such as the Food Code issued by the Dubai Municipality. They operate a strict monitoring regime along the end-to-end supply chain to minimize waste, protect food items coming into the country and the consumers.
3. Customer Experience/Consumer Analytics One of the biggest challenges faced by players in the F&B industry is the “Stock Keeping Unit (SKU) problem”. The presence of multiple product variants, flavors, different size packs coupled with varying demand in different geographies creates a humongous task for any firm to predict the SKU wise requirement for a respective geography. Hence, companies are increasingly using smart devices helping them to gather data and perform advanced analytics in order to better predicts SKUs.
Shelf Sensors: Sensors that are attached to the back of each shelf and use a laser beam to measure the distance to the closest item on the shelf. The laser beam pulsates with very short pulses to not be of any danger. Smart Bottles: They detect when a bottle is sealed and when it is opened. Smart Labels: Labels that incorporate technology that extends the functionality and contents of labels or packaging beyond traditional print methods. Open Source Drink: Instructions for making a drink such as Coca Cola freely available and modifiable meaning anybody can produce the drink, and anyone can modify and improve the recipe.
4. Demand forecasting The dynamics of F&B choices are constantly changing with ranges, seasonality, availability, promotions, and many other factors impacting the supply chain. Errors in forecasting and satisfying demand have historically been a significant needless expense for organisations, and we are now seeing organisations investing heavily in sophisticated systems to capture data, build accurate forecasts, and disseminate crucial information to relevant production and supply chain stakeholders. This not only increases service levels, but also reduces waste.
5. Digitalised approach of traditional supply chain F&B manufacturing, while slower than other industries to transform, is now amid its fourth revolution. The Internet of Things (IoT) is enabling data connections like never before which is, in a nutshell, helping manufacturers to locate assets, materials, transport vehicles and products wherever they are at any single point in time. For many years, the layers of information technology and operational technology were not connected, so this kind of sensing and sense-making was not possible. In many traditional manufacturing organisations even today they are still not linked. Unfortunately, these firms are still manually documenting the data that comes from sensors on the shop's floor into handwritten excel spreadsheets printouts. So, by the time they have detected or identified quality failures, trying to track them back to specific units becomes difficult and time-consuming risking excessive wastage of products. Hardware and software are readily available to collect, store and analyze data that has helped many manufacturing companies to become more agile, flexible, and productive. In an industry as competitive as F&B, manufacturers really can’t afford not to digitise and improve their operations.
The UAE's strategic location, fast-growing world-class airlines, and excellent transportation infrastructure have been helping the country to grow robustly. Two-third of the world’s population lives within an 8-hour fight distance from the UAE. With the expansion of UAE’s logistical capabilities, Blockchain for food security needs alignment with the nation’s future strategies. The Dubai Municipality Open Data Project along with the ventures of the Global Blockchain Council can revolutionise the way UAE distributes food. Today, a vast amount of food resources is wasted, stolen, or replaced with counterfeits. There is a considerable demand for streamlining data flow of food cargo (Gulf News, 2017). No other country has seen such a large-scale implementation of blockchain to its ports and distribution centers. The UAE building an interconnected port network can benefit ports by disposing documentation requirements and customs allowing cargo to leave the port immediately to distribute food to vendors without any delay. A single point of information enables fast, secure access to supply chain information. Gartner predicts that by 2023, at least 50% of large global companies will be using artificial intelligence, advanced analytics and the IoT in supply-chain operations. That same year, over 30% of warehouse workers will be supplemented, not replaced, by collaborative robots. The UAE along with blockchain has the potential to lead the global supply chain and seize new untapped opportunities of a rapidly changing digital world. Efficiency is a vital aspect to successful supply chain management in the F&B industry, particularly when perishables are involved. Strategic planning helps to minimize waste and risk, while tactical implementation of technology can enhance existing systems to edge out the competition. Today’s F&B companies must actively participate in planning measures to optimize production capacity, inventory management, transportation efficacy, and risk management to ensure quality, diminish risk, and drive a competitive advantage. Focusing on alternatives such as organic, whole-wheat, and gluten-free products, and fortified foods, most F&B market leaders are achieving higher margins and revenues through innovation and constantly creating variety. Further, increasing awareness and attempts by governments to curb the intake of unhealthy food items will push the demand for organic and balanced foods. As the demand for packaged food is surging at a rapid pace with a changing lifestyle, there is a growing awareness of organic food and increasing adoption of different cuisines due to Dubai's sizeable expatriate population. A shift towards domestic production will also help achieving food sufficiency and security as per UAE National Food Security Strategy 2051. It remains interesting to see if the agriculture segment will be able to successfully adopt the IoT for food processing and traceability.