How the frozen food supply chain can navigate soaring energy costs

It’s a turbulent time for the grocery supply chain sector. Inflationary pressures and rising costs across labour, transport, fuel, ingredients and materials are increasing financial pressures, while post-Brexit admin and the ongoing labour shortage adds complexity to day-to-day operations.

Additionally, frozen and chilled food manufacturers and retailers are having to contend with huge increases in energy costs to warehouse and transport their products. The situation is set to worsen further from April, as the government reduces its energy bill support for businesses.

The cost for manufacturers to put their products through the freezing process, and then maintain cold stores at temperatures of –20°C and lower, is being dramatically increased by the spiralling cost of energy. High total energy prices reportedly wiped out Iceland’s operating profit and free cashflow in the first six months of 2022.

The knock-on impact to the business was significant, with executive chairman Richard Walker shelving new store openings due to “unmanageable volatility” and “completely unsustainable” costs. More recently, the frozen food retailer has announced it is reducing the amount of chilled food it sells, and is investing in more modern fridges, doors for warehouse fridges and solar panels for stores and warehouses, to try and lower its energy bills and become more efficient.

Now more than ever, frozen food businesses need to navigate the challenging landscape and be as efficient as possible with their energy usage to minimise bills. As such, the age-old principle of storing products and filling vehicles efficiently just got a whole lot more important.

Most modern cold stores already use crane systems, as well as mobile and other high-density racking systems, to store products to avoid keeping empty space cold. However, those that aren’t operating these systems will see more wasted spend on energy at sky-high prices, and therefore a higher incentive to move to more intensive storage systems.

Transportation of goods also often results in energy being wasted in keeping empty space cold. As many retailers still require products to be presented on maximum 1.6 metre-high pallets, while standard trailers are capable of carrying pallets of up to two metres, over 25% of trailer space is very often wasted in transportation.

Although there has been an encouraging increase in the use of double-deck trailers to make frozen food transportation more efficient, there is undoubtedly opportunity for greater use. And with high fuel costs, manufacturers and retailers need to ensure they’re getting the most out of every journey.

While cold stores and frozen food transport and display units are an inevitable energy drain and cost, businesses need to make sure they’re buying and using energy as effectively as possible. Many companies already work closely with their energy suppliers to ensure they’re on the most cost-effective tariff and cutting back on any unnecessary usage, but those that haven’t touched base with their supplier recently, or haven’t shopped around for some time, could stand to make significant savings on utility bills by doing so now.

Iceland is expecting to see the financial burden of energy bills on the business reduce as it negotiates new fixed contracts at lower prices on the wholesale market, describing prices as still “uncomfortably high” but putting the company in a better position than it was.

Unfortunately, the geopolitical and economic turmoil we’re experiencing isn’t set to ease any time soon, and there are still undoubtedly difficult times ahead. However, by driving efficiencies and building resilience into frozen food supply chains, businesses can minimise the impact.

Making cost savings on energy wherever possible, and maximising cold storage and transportation, can be key to frozen food businesses’ survival and ability to compete. And, while implementing new processes and technology requires resource and investment, these changes can drive significant cost and energy efficiencies, putting businesses in a better position to withstand disruption and soaring costs.