Future of fresh dairy business in the home-delivery age
The fresh milk market has turned full circle with home delivery becoming popular. What are its effects on the fresh dairy business?
Some 50 years ago, fresh milk was delivered to homes by milkmen on bicycles and motorcycles. However, the introduction of refrigerators into homes slowly killed off this business. Increased car ownership also made consumers more mobile, and the demand for home delivery waned. Fast-forward, the pandemic has put home delivery back in fashion and this trend is growing rapidly.
At the crossroads
The fresh dairy sector was severely impacted by the COVID-19 pandemic. In many instances, there was nothing we could do except to roll with the punches. We were faced with the lockdown of travel and tourism and airfreight services. There were other logistical problems as well. Our Australian suppliers had the products we needed but no packaging materials were coming in from China so shipment to Singapore was not possible.
Contrary to the popular focus on supply chain disruptions, most businesses in the fresh dairy industry were hit a double whammy during the COVID-19 pandemic as it affected both demand and supply. Hotels, airlines and F&B outlets are big-bulk purchasers of dairy products. As they lost their customers, in a blink of an eye, they cancelled all our orders. There were no tourists, airlines were grounded, hotels were empty. Suppliers like ourselves were caught in a pickle not knowing what to do with all the stocks.
It was indeed a tough time for the industry. Importing fresh dairy products such as butter, milk, yoghurt, fresh cream, and cottage cheese required daily airfreight delivery. Some companies, whose product range included chilled beef, lamb, pork and venison, also required weekly deliveries. Developing alternative supply sources were not convenient or easy options as the pandemic was a global phenomenon and countries worldwide were all in some state of lockdown. There was no airfreight service – a situation made worse by the drastic slowdown in shipping. Many in the business branched out into importing products with a longer shelf- life via ships. But this also became expensive, as shipping costs per container skyrocketed from S$5,000 to S$20,000.
Our business is also highly time-sensitive as our distribution networks are very wide. They include supermarkets, retail outlets such as butcheries, mini-marts, and health food stores, restaurants, fast food chains, catering companies, ship chandlers, food service companies as well as those in the baking industry. With the growth of home delivery services, there are additional players that we have to consider now and delivery schedules can become convoluted if not planned meticulously. Many firms now repackage their stocks into smaller portions to sell to households. It is extra work and cuts into our profit margin. But this is a necessity for survival.
Technology doesn’t by itself disrupt an industry. Disruptions come about when the benefits of the new technology coincide with consumer preferences and market needs. The home delivery business model arose because of this combination of factors.
To survive in a digitally transformed world, businesses need to keep abreast of the impact of technology, and its potential interaction with the demands of its consumers. Companies that are alert to such changes will be in a better position to stay ahead of its competitors.
Businesses are already instituting processes that reduce interaction, not just between consumers and workers, but also within businesses themselves. In addition to having more employees working remotely, the pandemic has also pushed fast adoption and increased innovation in areas such as contactless customer service and delivery, robotic warehouse management and order fulfilment, and automated food service. Many of these jobs will require new skills that complement the emergent technology. Companies are aware of this and many have taken advantage of government grants for digitising operations and retraining staff.
Looking forward, business recovery is unlikely to be fast and easy for the fresh dairy industry. It will take some time for businesses to get back on our feet as we are still faced with manpower and logistics issues. The industry is also implementing processes to speed up workflow through automation, increasing productivity with new equipment and increasing shelf life of products, wherever possible, with the latest technology.
While the home delivery business is booming because of the pandemic, offering this convenience to customers adds to business costs and increased cost prices. As such, some analysts predict that the trend may not last once things return to normal. Until then, businesses have to continue to keep a close eye on their margins.
By Mr Chung Suan Lim, Managing Director of Xie Chun Trading Pte Ltd (XCT)