Supply chain disruptions, fluctuating commodity prices, unprecedented changes to supply and demand, sporadic pricing, digital transformation… what should food and agriculture companies focus on in light of COVID-19?
In this video, Genesis Longo Miranda interviews Barney Debnam, Microsoft’s Business Strategy Lead for Agriculture; Daniel Wolf, PROS Senior Strategic Consultant for Food and Consumables; and Fabio Freitas, PROS Strategic Consultant for Food and Consumable to discuss this and more.
Hear these experts’ perspectives on what food and agriculture companies should do as they navigate this crisis and prepare for the new normal.
They also provide expert advice on sporadic pricing, process improvements through technology, and the acceleration of pricing and selling through digital channels.
Other resources on how to navigate disruption through COVID-19:
Resources from Microsoft
Resources from PROS
- The PROS Commerce Platform for the Food Industry
- Request a Free Consultation With a Pricing Expert
- PROS COVID-19 Resources
- The Definitive Guide to Food Industry
- Pricing in the Food Industry: A Powerful Lever to Increase Revenue and Margins
[03:41] Barney discusses what’s going on in the agriculture industry
[06:00] Daniel shares that his prospects are rethinking pricing strategies, supply chains, and dynamic pricing
[07:23] Fabio discusses that food companies will come out differently than the way they came in and that pricing and strategies will be substantially transformed
[08:50] Daniel gives more detail about sporadic pricing
[10:35] Fabio shares that AI needs to be combined with the human factor to give the best pricing outcomes
[11:55] Barney shares that it’s great time to look at look at pricing as a practice in a more aggressive manner
[13:14] Fabio discusses that right now it’s all about supply-aware pricing, dynamically understanding market conditions, and tailoring pricing to each individual opportunity
[15:20] Barney talks about managing the here and now, the recovery/ comeback, and then the new normal
[16:30] Daniel talks about the importance of utilizing technology to make sure that food companies respond in as real time as possible
[17:21] Daniel discusses how food companies should address financing through this this disruptive period
[18:26] Fabio talks about the acceleration of pricing and selling through digital channels
[20:29] Daniel and Barney discuss technology usage, price gouging, and improving processes
[22:09] Barney discusses digital transformation in agribusiness
[23:00] Barnie, Fabio, and Dan give advice to food companies on digital transformation journeys
Genesis: Hello everyone and welcome. My name is Genesis Longo Miranda and I'm the industry marketing manager at PROS. Today is April 20th, 2020. And before we get started talking about what's going on in the food industry, I just want to give a huge thank you to all of the food companies that are tuning into this and watching this. You have all been dealing with unprecedented change and you've managed to keep us fed and supplied. So, on behalf of pros, thank you so much. I'm also very delighted to have food experts here with me today. I have Fabio Freitas, Daniel Wolf, and Barney Debnam. So Barney, why don't you go ahead and introduce yourself and tell us why the food industry is so near and dear to your heart....
Barney: Sure. Thanks for the intro. I'm Barney Debnam, I'm the business strategy leader for Microsoft focusing on agribusiness. So I work with our largest agribusiness clients around the world. So you think of upstream from the food sector. These are the companies like Bayer Crop Sciences, Corteva Agriscience, Syngenta, Deere & Company, would be some of the companies that I work with to really provide Microsoft capabilities and think about how our partner ecosystem can deliver value for them and their customers. I'm located in Redmond, Washington today and certainly experiencing the disruption that we all are. Before joining Microsoft about six months ago, I worked in industry both for an ag tech startup and then many years at DuPont, where I was the CIO at DuPont Pioneer before I when I went ahead and joined some startups and ultimately Microsoft. So great to be with you today.
Genesis: Yeah, it's great to be with you too. Thanks for taking the time to be here. And PROS is a really proud partner of Microsoft, so we really appreciate working with you guys.
Genesis: Daniel, why don't you go ahead and introduce yourself.
Daniel: Yeah, thanks, Genesis. So I'm Daniel Wolf on our strategic consulting team. I've been with PROS about 10 years. Spent the first half of my career at PROS working on the delivery and implementation side of food, consumables, paper packaging type PROS customers. And then the last five years have been focused on the presales consulting role where I've worked in the North America, Europe, Australia, New Zealand and focused on anyone from dairy products to potato products, manufacturers, a lot of ingredients and agricultural customers. And yeah, it's been a challenging time. We're obviously quarantining at home here in Nashville, Tennessee, but really excited to join all of you guys today.
Genesis: Thanks for joining us, Daniel. Fabio, on to you.
Fabio: Hi everyone. My name is Fabio Freitas. I work with Daniel and the strategic consulting team at PROS. Prior to joining PROS, I used to be a customer actually, so I've been using the PROS solutions for about 10 years within the food and consumables environment. So I've been to many food companies out there like Unilever and BRF for example. And I joined the first team about three years ago on the strategic consulting team.
Genesis: Well, thank you Fabio for joining us also. Well guys, let's get to it. I mean we know that the food industry is going through a lot right now and that different segments of the food industry are being affected in different ways. I mean, we know that Walmart sales like 20% growth last month and at the same time restaurants are shutting down. We have manufacturing plants shutting down. So maybe Barney you can shed some light onto what's going on the agriculture side of the business.
Barney: Yeah. When you think about ag, there's the livestock segment and the crop segment. Mainly in the livestock segment we're reading about just today, the large packing plants in the US, many of them are closing because of health concerns around employees primarily. Many of those disruptions are temporary in nature, I would say. Certainly, causing some concern in the livestock supply chain that we'll work through, but my view is we'll get through that just as we got through some of these other occurrences around the world and there'll be back up and operational and as soon as possible.
Barney: On the crop side it's a bit more challenging on the commodities. Large, long cycle commodity crop, certainly prices are impacted. The price of oil doesn't help, right? That drives a lot of other commodities down in terms of pricing just as the normal Northern hemisphere is planting. So that's creating certainly some anxiety for the commodity growers around the world as we step into the 2020 season. The more immediate impact is actually on the perishable side. So you can think of dairy, fresh fruit and produce, the whole disruption between consumer and food service where restaurants are largely shut down. And we think about how much of our food, particularly fresh food, goes into the food service industry that just like, the spigot shut off overnight. So that's creating some ripple effects downstream where growers are having to destroy products in some cases or look for opportunities to redirect in some cases.
Barney: So one example would be, you know, think about Subway. It's the largest purchaser of red onions, I think in the world. And all the Subways, there's still some activity, but certainly not at the same level as they would have historically seen. So those, those disruptions are certainly causing challenges and making supply chains become reactive right now.
Genesis: Absolutely. Well, thanks for sharing that, Barney. And Daniel, what are you seeing from our customers? What's going on in their world right now?
Daniel: Yeah, I've talked to a few of our customers and quite a few of my prospects about that. I kind of just lump manufacturers together across all the different foods sub-segments, a lot of things that Barney was just saying is what they're echoing. In-restaurant dining basically came to a halt overnight just about across the country. Takeout is skyrocketing. The retail sales have gone up and so they really had to take a step back and rethink how they were going to not only handle all their pricing strategies, but a lot of these supply chain issues that Barney was mentioning. A lot of these conversations have driven us towards dynamic pricing as a conversation. You know, they see extreme fluctuations in their data. A lot of people have sent me emails with the title of sporadic data, help, question mark, type of emails there.
Daniel: We're wanting to lean on technology to make sure they're looking at real time market data and even some manual intervention as it relates to business rules or pricing rules to ensure they're thinking about what's happening correctly. So you know, they want to make sure it's not, they want to ensure that it's not affecting their prices in the future, but make sure they obviously get a handle on what's currently going on.
Genesis: Absolutely. And Fabio, you worked with a lot of food companies in the past. What are you seeing there and also with your customers and prospects?
Fabio: I think most companies right now are starting to realize that we're going to get out of this differently than the way we came in. Right? Pricing strategies are going to suffer a substantial transformation, which can be positive if dealt with properly. And I think what we're seeing right now is an increase or a steady supplies for a sharp drop in demand, which will effectively change the way we price. And to Daniel's point, I think companies out there that are prepared to deal with dynamic pricing and to deal with inserting dynamic elements of market conditions, product conditions, point of sale conditions into the way they price. They're going to see an easier path during this transitioning period on keeping profitability and on keeping up a steady pricing structure within the portfolio of products that they sell in. And that is not only for retailers, so not only downstream, but also on the manufacturing distribution side as well.
Genesis: Yeah. Well, one of the topics that was brought up is sporadic pricing. Daniel, can you dive into that a little more?
Daniel: Yeah, I've heard that from a couple of our customers lately. You know, they're using PROS science to generate pricing recommendations. And some of that is market data and product and customer detailed attributes. But a lot of that's based off of history. Where did I win? And what is a customer willing to pay for a particular product, taking into consideration all these other attributes? So if you think about the situation where you're now not selling, you're selling completely different. Maybe your price strategy is thrown out the window and you're really starting from scratch to try and get out of this. You want to look at business rules and manual intervention of pricing to get yourself to a point where you feel like it's stable again.
Daniel: And then once this is all over, a lot of people are very optimistic and hoping that, you know, this will be sooner rather than later regardless of when it actually happens. How do I think about price history? I've got all of these, you might call them bad transactions over the last six weeks or eight weeks depending on where you are in the country or in the world. And how do I make sure that I'm not leaning on that as much as other parts of my business to generate those pricing recommendations? So it's the same type of concept as if you're having a bad quarter and a particular part of your business or something weird happened in a particular country based off of tariffs or tax or laws or something that affects your pricing. So using technology and using real-time dynamic pricing, you have the ability to kind of restructure the past, if you will, so that you're appropriately looking at that when you're generating your price recommendation.
Genesis: Thank you, Daniel.
Fabio: And that's where the human factor comes in, right? A lot of a lot of companies that we talk to, when they approached dynamic pricing for the first time, their initial conception is a price that is going to be changing all the time or some sort of an AI model that will take control of pricing and not intake any type of human input or feedback. Right? And it's actually quite the opposite. I was looking at a podcast the other day, one of the world's most famous scientists in the AI field, and it's interesting, it's actually quite the opposite. The best AI model possible, it's always going to be the combination on the human factor, the feedback about what works and what doesn't, and the AI algorithm learning from your own data and telling you about certain scenarios that are possible. Looking at actual observation, the sum of those two are always giving the best outcome and every test out there.
Genesis: Awesome. Thanks, Fabio. And I mean, you've all alluded to pricing and this. So Barney, maybe you can talk a little bit more about what you mentioned with commodity pricing and how supply and demand is affecting that.
Barney: Yeah, I mean, I think one thing that we've never ... At least I would say in a US sense, ever experienced in high inflation recently, or deflation, right? Where some of these other emerging economies have had experiences with that truly dynamic pricing environment. And how do I prepare if one of those scenarios comes about in my industry in an aggressive way or my markets. Right? And how am I prepared as a business to adapt in a more digital way and get aggressive around pricing optimization? So that's one area where I think it's a great time to look at pricing as a practice in a more aggressive manner rather than the traditional ways that we might have done it in the AgriFood business. Certainly, it's an expertise in a discipline, right? Around what the setting price and pricing practice or process as well. As a process, right?
Genesis: And it's so important because right now we're seeing some companies go on the side of price gouging. And you have on the other hand, companies that are over discounting. So how do you go about that? Fabio and Dan, maybe you can talk about that.
Fabio: So companies are hesitant in taking more drastic actions with their pricing because there's a lot that goes into understanding how long this is going to last, which frankly no one can say at this point. And we have to think about lead time, right? It takes time for you to adjust your production in a way that it won't impact your price. So it takes time for you to adjust your supply. So what do you do with the supply you currently have? That's what brought us to this situation with the oil price recently. It's all about how, what's the lead time to either stop or reduce or adapt production, right? You can't stop extracting oil at the risk of never being able to extract it any more from that particular location.
Fabio: So when you think about food, if you go to poultry, pork or beef chain of production, it takes three to five months and sometimes more depending on the line of business to adjust production, adjust the raise and the rate that you raise animals and produce your product in order to smooth the impact of price, which leads to spoilage, maybe destroying, having to destroy product up, as Barney said. So what we're seeing right now is a lot of people turning to the basic soft pricing, which even though it sounds basic, it's a lot of complex information to deal with by hand. But it's all about supply aware pricing. It's all about dynamically understanding the market conditions and tailoring the price of each individual opportunity you're dealing with in a dynamic way. So understanding every customer situation, every deal condition that you can in order to tailor your pricing approach to the market.
Barney: Yeah. I think maybe to add to that, this concept of the managing the here and now, right? The recovery or the comeback and then the new normal. So that's kind of the three things that we've thought about in terms of managing the transition. And the one I'm ... from an agribusiness perspective, this re this managing the comeback, as Fabio mentioned, some of these value chains are very long. If you take a livestock segment it could be years if herds are reduced to have them actually come back and produce in a material way. Sometimes it takes a year to do that if the market signals are wrong. And how are people going to manage that environment? It's important to have some pricing discipline around managing those three phases of work, whether it's the here and now, the comeback of the supply chains, and then what is the new normal going to look like? Right. Maybe it's shorter supply chains in some cases in the food sector.
Daniel: Yeah. Kind of a reoccurring theme on my customers and prospects is really taking full control of their pricing. Kind of sounds like a blanket statement, but when you think about a lot of the things that you both were mentioning around what's currently going on, the lead times that it takes, you can't just get rid of product or you have to throw it away. You think about the full dynamic pricing spectrum, there's lots of things that go into calculating a price, right? You want to feed in supply, you want to feed in demand, you have costs. There's production and plant costs and packaging and shipping and sales, all of these different things that go into figuring out what that final price is going to be. And so utilizing technology to make sure that that is as real time as possible. It's not necessarily going to immediately fix what's going on, but it'll help you minimize the impact in your business at least.
Barney: Maybe Daniel, can I ask you a quick question around how are like financing or like terms factored in? How are people dealing with that aspect? Cause it seems like part of this managing the now as how do I manage my finances through this disruptive period? Right? Of months, or-
Daniel: Yeah. So we definitely want to figure out where that falls. When we think about building up a price from scratch, specifically when we're talking about something like some product based off of a commodity. So want to figure out where that actually comes from, where it's stored, how these financial negotiations are changing and making sure that we're either building that into the price or at least have visibility of it when we think about approving a price, is the right thing that we're trying to put out into the market.
Genesis: Well, we started talking about the new normal. Thanks Barney for that segue. And Fabio on an offline conversation you've were talking to me about how you're recently buying apples online and how you were getting charged like $5 for them. So what's the role of eCommerce in this new normal and what are you seeing in that space?
Fabio: We are going to see a substantial change in consumer behavior. In the channels that we manage in organizations that have already been investing in moving towards a more of a digital commerce strategy and talking directly to customers, they're doubling down on those strategies because we're seeing those channels grow by double sometimes triple digits within weeks. Right? We are seeing cases out there, like the case of the apples you just mentioned, we are seeing cases out there of companies that probably don't have some sort of an AI algorithm helping them with guidance on how to price and basically looking at ... based on guesswork, they're setting up their prices the way they believe to be fair, but what they're actually causing is a price war. Right?
Fabio: One thing that we all have to understand is that discipline right now is super important. If we think about to Barney's example, if we think about a livestock chain where it might take years to adjust, if the three biggest companies on that segment decide to bring their prices down in order to not waste product, the impact that that one category may have and several others in the market. Think about proteins, right? If beef is too cheap, pork or poultry, they're going to sell less, right? So imagine a scenario that too cheap means 40% cheaper than yesterday. So the last thing we need right now is this sort of a price war. Discipline is mandatory. It's very important that we all are very conscious in terms of how we're pricing our product. Companies out there are very conscious in the way that they're setting up their price strategies to avoid scenarios like that.
Daniel: One more thing on that. I wanted to make sure I chimed in on around the technology usage on price gouging and reporting and all of that stuff. You know, if you have a decentralized pricing team and you allow this price change or at least discounting at the local level, you're going to run into certain things like that, whether it's on purpose or not. You don't have the ability to see what's going on. So by having those different approval thresholds where the local level is communicating up with maybe a corporate level of pricing, that's where you can catch some of these things. Introducing automation, having a price reports and price realization. That's how you can see what's going on while still maintaining that decentralized pricing organization. It's more about just having that visibility of what's going on so you don't get caught in one of these situations.
Barney: Yeah, Daniel, I would just say most people think about adding processes, slowing things down. But in fact that it speeds things up. Right? As I understand the process, here are the steps and it just triggers, right? Triggers those actions to happen in real time.
Daniel: Yeah, absolutely. And you don't want to get caught in a situation like that where you are price gouging. You know, I went to one store to pick up some stuff and I saw something that was really high compared to what it usually was and I kind of put a bad taste in my mouth as it relates to shopping at that store. So you know, it's the perception in the market as well as, Barney, like you said, not necessarily going to slow things down. It's going to speed things up by allowing you to have a more seamless approval process and visibility into your pricing.
Barney: I think in agribusiness is driving out acceleration of how do I create a digital channel between myself and my customer. And if you think about the most basic interaction businesses have is around price and that need to, what is the price? What's the terms around that price? It's definitely driving that. Probably not as much in 2020, but I certainly see the need that people understand and need to get prepared for what will be the fall. So [inaudible 00:22:37] for these commodity products.
Genesis: And so how do companies get prepared? How should they be preparing for this? I was actually reading a report by Gartner and it was giving testimonials of leaders in the food industry of CXOs sharing that, yeah, they're planning for digital transformation more than they were planning to before this crisis. So what are some practical steps that they can be taking to prepare?
Barney: Yeah, I would ... I mean for me as ex CIO, it's really looking at look at what are the barriers of speed and transparency. Identify those and then look for opportunities to digitize. So in this idea of speed, right? If you look at the throughput on some things and how can I speed those things up and make it, not necessarily touchless, but that there's no ... it's truly digitized, right? It's not a arcane or old process. And I'm able to take advantage of this disruption to drive a high rate of change within my organization. And a lot of the times it comes down to going, executing, right? So from a sales perspective, if we think about how long is it going to take until we can have a handshake again, a lot of companies are thinking of speeding up their digital transformation processes by looking into solutions that can streamline their selling processes on a remote environment. So quoting solutions, CRM solutions, price guidance solutions, and things like that. The trick is no digital transformation is about the destination. It's all about the journey. So it's an endless transformation, right? When we think we're done with it, the world's going to have new technology and we're going to have to adapt again, so it's all about the journey.
It is important, though, that we approach digital transformation from an integrated approach instead of thinking just about a sales process, which might seem like the critical process in evidence right now, we have to think about how that integrates into our planning steps and into the way we design our strategies. Because if we focus too much on a single point, we might deliver speed without having the wheels in the truck to be able to take advantage of follow-up that velocity. Right? So it's interesting to see how companies are tackling that, their digital transformation plans and expanding those plans to incorporate more areas of the company, not just sales or not just pricing.
Barney: Yeah, I would maybe add to that as one thing I am seeing and talking to our clients is sort of recognition of, I've gotten through the shock. Not necessarily through the shock, but the shock is over. And particularly for global companies that saw the shock China, they're now thinking about how do they pivot, like during April, actually to this digital journey, right? And accelerating the digital journey. And those companies that have had exposure first, I'll call first party exposure to China, and what happened in the rebound has seemed to be moving more aggressively down to the digital path, where the companies that are isolated in these other kind of later markets are just moving into that phase.
Genesis: And it's those companies that are going to end up with the advantage. Right?
Daniel: That's kind of a real reoccurring theme that I've heard as well. You know, planning for the unknowns. Everybody wants to know what they're going to do when that happens, but by definition it's really difficult to do. Right? We at PROS have customers and prospects all across the board when you think about the digital transformation journey and where they are, but actually having a strategy and executing towards that is the most important part. You know, it allows you to adapt quickly. Nobody probably would have thought that this COVID pandemic would have shaped up the way that it did, especially when we were first starting to learn about it. But those are the types of things and you plan for it. And that gives you the ability to make really organized and supervised pricing decisions.
Genesis: Well everyone, thank you so much for your time today. Fabio, Daniel and Barney, thank you for your expertise in the food industry. We really appreciate everything that you shared with us today. And Barney, once again, thank you for your partnership with PROS as Microsoft. On the page where we post this video, we will be sharing some resources from Microsoft and PROS for watchers in the food industry. So once again, thank you so much.
Barney: Thank you.
Fabio: Thank you.