August 6, 2020

Potato chip industry sees boon in retail sector during COVID

A pandemic doesn’t come with many positives, but it hasn’t been bad for the potato chip industry.

Unlike Western U.S. producers of russet and table-stock potatoes, who ended up with a surplus when demand from foodservice customers declined sharply, growers and processors of chipping potatoes have been making hay.

“The big problem we had with fresh potatoes going into foodservice was pretty much isolated to the large russet potatoes coming out of Idaho, and a bit from Washington and Oregon,” said John Toaspern, chief marketing officer for Potatoes USA, which represents some 2,500 commercial potato growers in the U.S. “It didn’t impact the chipping sector at all other than a slight decline in demand for potato chips (in foodservice), which was made up for at retail.”

That’s because as many states issued shelter-in-place orders and consumers began hunkering down in their homes in March, grocery store potato chip sales began roaring.

They still are.

“Certainly what we saw from the retail figures during (the pandemic) and continuing was the big spike in retail sales,” Toaspern said. “Chipping potatoes and potato chips are the largest way in which potatoes are sold at retail, interestingly.

“There was about a 22% increase in sales at retail for potato chips for the period following the implementation of restrictions in the U.S.”

A May 2020 Potatoes USA report showed that total potato dollar sales for the (July-June) marketing year to date increased by 10.5% over 2019, with volume sales up 9.3%. Data showed that every potato category increased in both dollar and volume sales — that’s with the exception of deli-prepared sides, which declined as retailers began removing parts of their deli-prepared sections around the beginning of March.

Within that, potato chips represented $5.492 billion in year-to-date sales, or a 6.8% increase. They were at 37% of the volume sales at retail — up nearly 6% over 2020.

Supply

When it became clear that potato chip sales were starting to skyrocket, processors looked to their growers, who Toaspern says were able to fulfill most of the need. He explains that processors tend to draw from a “rolling harvest” of fresh potatoes, with growers maintaining storage to fill in the gaps.

“Chipping potatoes are storage potatoes going into storage up in Washington, Michigan, Wisconsin, Maine and other northern states, but they’ve got a system where they also harvest fresh potatoes throughout the year — starting with potatoes out of Florida, then they move out of North Carolina, Virginia, Missouri, Kansas and out west with Arizona and southern California,” he said. “They’re using more fresh potatoes throughout the year than other sectors.

“It’s hard to store chipping potatoes as long as other types because if it’s too cold in storage, the sugars go up, and then you get dark chips.”

Kelly Turner, executive director of the Michigan Potato Industry Commission, said Michigan State University has worked extensively with growers to develop practices that enable storage of chipping potatoes for up to 11 months while maintaining the level of quality processors require. Seventy percent of Michigan’s potato output is chipping, and Turner says when chip sales went up, growers stepped up.

“We have growers who were working 24 hours a day, seven days a week,” she said. “They added extra shifts so they could get those potatoes washed and graded to get to processors so processors could keep up with the higher demand they were seeing.”

The growers made it through by holding on to what they had in storage and parsing it out at a pace that meant running out of supply at about the same time they would have anyway, Turner added.

“When growers store potatoes, the longer you can store them for, there becomes a premium for those longer-stored potatoes that can still meet the quality,” Turner said. “Some of these guys, part of their business plan is to hang onto the potatoes in storage as long as they can because they can get the higher price.

“So maybe selling quicker, maybe they didn’t make as much as they could have, but in the end, they were a lot more fortunate than those growers out West with billions of pounds of potatoes with no home.”

Jason Davenport is president of Allied Potato, with farms in California, Oregon, Washington and Colorado whose output is about 80% chipping potatoes. While the supply of chipping potatoes typically tends to run out in May and June from storage areas, this year it was sooner due to the heightened demand, he says.

“We (California) fill the May, June and July gap with fresh crop chipping potatoes, but this year we didn’t plant any opens or extras to cover some of these gap situations — we only planted for our contracts — so literally, there were no extra potatoes to ship anyone this year where typically customers come down and buy from us when they run short on supply,” he says.

While most processors were able to source the chipping potatoes they needed from alternate sources when they experienced gaps in their regular supply chains, Davenport says there were some instances where processors did turn to the glut of russets.

“There has been some russets meant for the french fry market that have gone into the chipping potato market,” he says. “It’s really not a detriment — it’s still a potato — it’s just more of a texture difference and difference in sugar content.”

He added there can also be fry color issues because of the higher sugar content in russet potatoes.

“But when processors are desperate and the market is asking you for your brand or your product, you’ve got to do something,” Davenport said. “It wasn’t common and I only know it was just a few weeks of supply.”

Going forward, Davenport is a little concerned about supply for next year.

“Planting is already done for the 2020 season — all the planting is pretty much finished up by the end of May in most states and early June,” he says, “and this year, with seed shortages, I don’t think as many potatoes were planted as what some people hope for.

“If the market rebounds and is strong, there’s a good chance by January, February, March of next year we’re going to be running short of predominantly russet-type potatoes for french fries, and a decent chance even chip potatoes, if they continue to sell the way they’re selling.”

Demand

Phil Gusmano, vice president of purchasing for Detroit-based Better Made Snack Foods, said that because the crop was already in when COVID struck, Better Made was able to source enough chipping potatoes to get through. The company buys from Michigan growers for approximately 11 months out of the year, moving south to North Carolina, Missouri and Indiana to fill in the gaps.

In addition, he says, the surge in sales of larger bags at retail was balanced by a decrease in convenience and party store sales of snack-size bags.

“It still hasn’t ended,” Gusmano said in late June. “We’re still muddling through it. The volume has kind of stayed the same — it’s just shifted from smaller bags to larger bags.

“So, if we were selling 100 pounds last March, we’re still selling 100 pounds, but the product makeup that gets us to that 100 pounds is larger bags.”

Jake Lake is in charge of potato procurement for the Campbell Soup Company’s potato chip brands (Kettle, Cape Cod, Jay’s and Krunchers among them) and soups. That’s, as he puts it, “a lot of potatoes.”

Campbell’s experienced “unprecedented broad-based demand” across its brands, according to the company’s June 2020 third-quarter report. Net sales in the snack category, which includes chips as well as other items like popcorn, pretzels and sandwich crackers, were up 12% — driven primarily by volume gains reflecting higher demand due to at-home consumption.

Lake says the onset of the COVID-19 crisis coincided with what is normally the beginning of Campbell’s busiest time of year for chip production at its eight processing facilities across the U.S.

“I don’t feel like we’ve really been affected as acutely in terms of sourcing on the chip side of the business,” he said. “Generally speaking, production really starts ramping up prior to the summer months when chip consumption generally peaks, so we were already contracted and planning to handle full-capacity production schedules at all of our chipping facilities.”

In fact, he says soaring soup sales — Campbell’s saw a 35% increase in the U.S. in the third quarter — prompted the need for off-contract potato purchases to fulfill that need. But he says the company, which tends to use white potatoes for both chips and soups, was able to source enough chipping potatoes for its chips.

And he expects to stay the course.

“We are fully planning on the COVID crisis to be continuing and we expect it to affect how consumers behave and their consumptive habits,” Lake said. “Because the majority of our brand portfolio is consumed at home … we’re preparing and are prepared to meet that increased demand.”

— By Kathy Gibbons, contributing writer



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