Dive Brief:

• Labor challenges, severe weather and an explosion at a key supplier's factory in Q3 prompted Beyond Meat to accelerate its supply chain redundancy efforts, founder and CEO Ethan Brown said during an earnings call in November, without elaborating on what those redundancy efforts entail.
• Severe weather interrupted water supply at the company's Pennsylvania facility for two weeks and damaged packaging at a storage center. "Though we were able to reallocate certain materials from other locations, the loss of packaging materials at our storage facility had a sustained impact on our ability to fill orders as we awaited replenishment of damaged inventory," Brown said.
• In addition, labor constraints at Beyond Meat's facilities, vendors, co-packers and 3PL partners "impacted our ability to fill certain orders."

Dive Insight:

For years, Beyond Meat's top concern had simply been producing enough product. After doubling its production capacity in 2019, Beyond Meat acquired its Pennsylvania co-packer and brought more of its production in-house last year, aiming to reduce costs and bring its products' prices in line with meat options.

But the protracted pandemic caused wavering demand as well as problems with labor in Beyond Meat's and some of its customers' facilities, Brown told investors.

"The combination of COVID's long tail and related labor shortages has had a particularly disruptive, and we expect transitory, impact on our growth trajectory," he said.

The pandemic forced Beyond Meat to spend millions repacking its finished product to be diverted to retail stores from restaurants as people stopped going out to eat as much. Retail revenue rose from $129 million in 2019 to $264 million in 2020, while restaurant revenue dropped from $70 million to $61 million, according to an investor presentation.

A business model weighted toward retail also demands different types of packaging than for restaurant customers. Beyond Meat's lost and damaged packaging in the past quarter might not have been such a sustained problem if not for limited supply availability.

Beyond Meat is not the only food producer struggling to maintain adequate packaging inventory. Chipotle Mexican Grill CFO Jack Hartung counted paper among the "material shortages" challenging the company during a Q3 earnings call last month. For Shake Shack, "basic paper goods … we may not be able to get," CEO Randy Garutti told investors in a Nov. 5 earnings call. "You're seeing this happen across every industry."

Plastic packaging has been costlier and more difficult to come by, too. Resin, a key ingredient in plastic products, has seen persistent shortages this year because of severe weather that halted a significant amount of U.S. production and drove up prices 30% to 50%.

The packaging issues, along with other headwinds, impacted Beyond Meat's ability to fill orders — another challenge which firms in the food industry have brought up on investor calls.

Sysco reported order fill rates lagging historical standards. The food distributor offered signing, referral and retention bonuses and added 1,000 employees, mostly in transportation and warehousing, as it grappled with higher volumes, CEO Kevin Hourican said in a Nov. 9 earnings call.

Improving supplier performance will be key to improving customer fill rate and satisfaction, Hourican said, adding that he has "personally engaged with top suppliers."

"We have strong relationships with our key suppliers and a merchant team that is extremely focused on finding and sourcing product substitutions," he said.