Vertical integration is having a moment in CPG. At a tradeshow a few weeks back, I was struck by how many up-and-coming brands were there building products around their family farms, and by how many established brands in attendance were already integrated or working toward making it part of their supply chain.
The trend started with chocolate
I first noticed this with the fair trade chocolate bar companies that emerged over the past ten or so years, and it’s something I feel is still prevalent in that vertical. A number of brands started out by developing relationships to support fair trade certified practices with their cacao farmers, then used it as a key selling point of their products. Consumers have increasingly resonated with that as Environmental, Social, and Governance initiatives have steadily grown in popularity.
The trend toward vertical integration has only grown since. Several large companies have made the leap from purely purchasing to having a stake in their ingredient supply chain.
One that is near and dear to my heart is what Simple Mills has been doing in the space, albeit mostly not until after I had left. In the early 2020s they made the commitment that all new innovation would need to have a regenerative agriculture focus, and in order to achieve that (in part) they established a Direct Trade program, working with multiple farmers across multiple states who grow the sunflower seeds they use in their cracker products.
Other examples in the space are Taza’s Direct Trade, which works directly with farmers and sits a step above even Fair Trade certification requirements, and Patagonia Provisions, which created a product using an heirloom grain that didn’t even have a supply chain at the time. They had no choice but to build it out.
None of these companies own the farm
The one distinction in all three examples, from what someone may assume from the textbook definition of vertical integration, is that these companies are not actually owning the farm. They are, however, partnering with it, and nurturing these mutually beneficial long-term relationships.
Where the ceiling shows up
So what happens when these companies, who have a stake in vertical integration but are not fully integrated (or maybe even if they were), experience an event that exceeds what they’ve grown? They can’t plant more to cover it, at least not this season.
This is where ordinary procurement work still applies, and applies harder. Just because these companies are contracted with farmers for a particular ingredient or two, the requirement of a fully built out supply chain is still there. Backups and secondary suppliers are key. A supplier that disappears with no notice is the fast version of this problem, and a harvest that comes in under what demand needs is the slow version. Both end the same way if nothing else is qualified.
The promise on the pack narrows the field
If the package says the sunflower comes from farms you work with directly, or the cacao comes from a named cooperative, you’ve made a promise that lives in the marketing, the certification, and sometimes the label copy itself. That narrows the field to growers already operating the way your program requires. A smaller pool, and usually slower to qualify, not one you can assemble in a hurry.
What the control actually buys you
For better or worse, the demand today doesn’t care about the decision that was made a year ago of what to plant. And retailers won’t care either if their shelves are empty. Doing the work up front to find and qualify additional supply makes a supply chain that much more resilient when it counts.
Owning more of your supply chain gives you more control over what happens. It doesn’t give you fewer things to be ready for.
