Why We're Now Living in The Golden Age of Snack Food

25:47Whole natural, lightly salted, and then toasted coconut, maybe. So how did this happen? How is a company that specialized just in like, we're going to sell bulk almonds, then able to whip out like 11 different flavors like this? They made the production choice to build new facilities and new lines solely for snack production. During this time, the almonds don't stop growing. You have to harvest them. So when you're dealing with growers, they have the product. So they were essentially able to vertically integrate themselves into becoming a snack producer. And once you've decided you're going to make these little snack packs and you can make a one ounce or two ounce or six ounce bag of almonds, you have your various lines and you, they're all producing different sizes.

26:31And then all you're doing is roasting your almonds and flavoring them and then cleaning that out and changing it over and doing a different flavor. So you could run lightly salted and then you could run regularly salted without a real issue there, right? And then you could run maybe one more flavor after that before having to mess with things before you damage the flavor, right? When you talk to – you mentioned, of course, you have to clean out the flavor because you don't want the blueberry – you know, you don't want to do the blueberry run and then the sriracha run right after and there's still residue from the blueberry run.

27:02And has that process changed the sort of switchover process of getting one flavor in and one flavor out since you started in the industry? Absolutely, it has. Depending on what your product is and what your pipes look like, you're sending steam through, essentially doing what's called a clean in place process. So you're sending your cleaning fluid or steam through the pipe, and then you're changing out your nozzles and making sure that clean equipment is in there. Everything is stainless steel. It's food grade. It might get sprayed down, washed down. But what we've been able to do now is detect a cleanliness within the pipe that instead of running on timing, we can say we know the pipe is clean when we see these certain parameters go through or we can understand that this sensor, as it comes through, it's now clean.

27:51And that's allowed gains of somewhere. If it was a 30-minute process, maybe you've been able to gain four or five minutes. But if you want to do that three or four times a day, you've gained a lot of production because you're doing maybe 200 bags a minute, right? So when you math that out, you're able to take these small, we sort of describe it as the power of gaining 1%. You gain 1 % in 12 different places. You've gained the ability to produce a whole other product for an hour, you know, potentially.

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30:20So Joe brought up the Korean almonds. And of course, we started this episode mentioning Kit Kats, among other things. But it does seem like Asia, in some respects, has had a head start on experimenting with lots of different types of flavors. Can you maybe talk about what enabled them to do that? You know, places like Japan and Korea, how were they manufacturing all these different varieties? And is it a case that we're sort of catching up to that technology? Or is it a case that the market was just more amenable to experimenting with these types of varieties? I'd say it's a mix of both. I think the factories, when you're looking at production in Asia, tend to be newer, where the production in America has retrofitted older factories from some of these legacy companies, that a lot of these factories have changed hands.

31:12There's an ice cream plant down here that I think has changed hands like six different times and makes Haagen-Dazs bars. But it's been owned by a bunch of different companies and it's been around for 50 years. And you didn't see that in the Asian markets. And I think that when they came in there with American flavors to produce for Asian markets, they didn't sell in the same way that they wanted them to. So they started experimenting locally by necessity to try and move product. I always think of it similarly to Procter & Gamble making spicier toothpaste for India, right? So they adjust to the local flavor.

31:46And I think some of that's market research and some of that's just sales data that they didn't perform. So they had the other flavors. And I think it took a long time for them to understand that America doesn't just want to eat barbecue chips, right? That we'd love to get... I remember being very excited when I got my first Lay's all-dressed bag of chips that I found in the store because I had seen online that they were big in Canada. And I don't know why that was exciting that I had the very... That's legitimately exciting. I'm excited for you. And they were good. I mean, I never bought them again, but they were good.

32:18And I think a lot of people have that experience where they want a snack variety, but they want it to taste good. And I think that's the fear is that variety will sell, but the flavor won't get another sale. And I think we've proven that sort of wrong, that we can always just create more flavors. Right. This is exactly what I was going to ask next. So you mentioned you never bought that particular thing ever again. It does seem like there is a consumption pattern here where a lot of it is all about the novelty value. So, you know, a new flavor comes out, you try it, you either like it or you don't.

32:51But even if you like it, how much repeat business are these types of experimental flavors actually getting? It feels like it's very much about the cycle of launching new products. Yeah, it's definitely about the cycle of launching new products. And we've seen over the years that certain types of flavors have tended to hold up like a chili lime flavors on a lot of different chips have showed up and stayed. Flaming hot varieties of every chip have stayed. So it seems with spicier flavors, they tend to stay. A lot of the novelty dessert flavors I don't think do very well. They kind of bounce in and out.

33:27Cinnamon churro chips sound great and then they're fine. So I think if you trended, if you walked into your store and took a picture of your chip aisle every week for a year, you'd see a lot of different flavors and you'd see some new flavors never leave. And those kind of get added into the production rotation. And that's all built into the business analytics from these companies that they can see they're selling. They move off the warehouse shelves. They have to move these chips within a certain amount of time for freshness reasons. If they're not leaving the shelves, they don't get made again.

33:58This might be a really stupid question, but obviously in the era of Instagram and DTC companies, you know, we know about Frito-Lay and these big companies, but there's obviously a million smaller brands that try to, maybe they try to pretend to be a little bit healthier or maybe, you know, whatever it is. Is it easy now? Like if Tracy and I had an idea for a chip shape and a chip flavor, is there sort of like off the rack infrastructure and capacity for us to just sort of buy some time and space on a line and sort of without having to do any infrastructure investment ourselves, like have a chip brand?

34:35Yeah, so we call these companies co-packers, the same way you would use for beverage producers. And there was a fun example I ran into the other day of a company like this deciding they wanted to make a pea protein mix of a Cheeto, right? Company had this idea, this manufacturer built it, And lo and behold, now you can buy pedos at Costco. So they sold this to Costco, had this idea, found this company to make it. And the production facility was there for them. I'm sorry. I'm losing it a little bit at pedos. Sorry. I know. I wanted to bring it up because I love the name. I thought it was so clever.

35:18I'm trying to think where to go next. Okay. You've given pedos. Sorry. Um, what's the next big thing in snack food manufacturing? Sorry. I'm so sorry. That's a serious question. What? Okay. So you walked us through all the technological enhancements that have enabled us to develop these new types of flavors and manufacture them in a more efficient and faster way. You know, things like sensors detecting cleanliness, the ability to observe the chips that you are producing for quality in a sort of automated way. What's next? What's really exciting in terms of that technology? I think the thing that's moving the technology along now is the movement of robotics into the production process in as many, many places as we can get it.

36:11So where I'm starting to see it is so you would now see robotic arms in most manufacturing facilities at the end doing the palletizing process. So taking the finished boxes, It's a big robot arm, picks them up, puts them on a pallet, arranges the pallet, and then sends it off to the forklifts or automated guided vehicle back to the warehouse. And then we're starting to move where now we're even using robots to start picking packs of things or stacking different parts of the process to get them, stack 10 rice cakes and get them in a line so they can get wrapped and moved to the process. So when you start to think of the technological innovation in a production line, you want to work backwards.

36:49words. So you can start at the warehouse because you'll never have a problem where you've created a bottleneck because you're already at the end. And then you can move to the palletizing process and the wrapping process because that's also the end. Now we're starting to move further and further through the production line and we're having robots that move alarmingly fast as you stand next to them that are doing a lot of these processes that maybe weren't done by hand, but we're done with a series of blocks and conveyors where a line would make the product turn three times and then it would get it into the right position to get into a bag and get everything moving.

37:25And the speed that we're creating on the back end has driven a lot of the speed demand on the front end now because we've got more production capabilities and we are ready to move. And when I think about the future, it's just going to be more of this variety. I think that the food manufacturers have looked at things like Ozempic as a challenge. And the way that they're going to tackle it is through novelty, right? Nestle just came out and talked about that we are going to innovate. And I don't know how Nestle can innovate except by making more product. Ozempic is going to kill our demand for snack food.

38:02But the way they're going to respond is by just such tantalizing, incredible, creative flavors that it will overwhelm the medicinal suppression of our appetites. I'm excited for this cat and mouse battle of whether they could just sheer innovate their way back to consumer demand. It's worked for me so far. I'm just thinking this is such a thematic all thoughts episode because we talked about pallets, chips, although a different kind of chip. And then we're also talking about Ozempic and automation processes. But Ryan, you alluded to this earlier, but what is the labor picture like right now for snack food manufacturing?

38:42And one of the reasons I ask is I don't think my husband will mind me mentioning this, but one of his after school jobs in the UK was packaging chips. And he said it was the most boring job and tedious job that he's ever done. And I think he did that for quite a while and just spent hours and hours putting like bags of chips together. But what is the labor picture like right now? How easy is it to find workers for this type of job? It's very difficult to find workers that want to staff these facilities. It's a boring job and it's a stressful job sometimes. You know, things are going down. You're getting hollered at.

39:22You're holding up production depending on what you're doing. and you might not know enough about the process, especially now where the machines have gotten so difficult, it's not a push button anymore. It's a iPad or it's a touch screen that you have on on the line that is controlling things. And you might need to click through several screens and make adjustments or start or stop something to cycle things to get everything back running. To go back to our 2004 example, what you might have seen in the past is staff at every single machine center. So you would have someone at the fryer, you would have someone at the bagger, at the palletizing station, someone might be putting chips in a box, like you mentioned, Tracy.

39:59And now what we're seeing is we can probably have an operator controlling two to three lines potentially on an iPad, walking around, making sure that nothing's breaking, looking at it and acknowledging alarms on their system. And when we talk about things like robotics in the palletizing station, so typically you're going to use two to three people per shift to do palletizing if you don't have a robot there, someone stacking boxes, or you've got a machine and what you're doing. So one robotic arm eliminates somewhere between six and nine jobs for a three shift factory per line. So these products and these processes are removing operators, but out of necessity, really, these jobs are very difficult to hire for and are always at a staff shortage.

40:45Every factory I walk into has a hiring sign we can interview you today, you know. So speaking of robotics, you know, one of the things that I've sort of actually there was an interview with Jensen Wong, the CEO of NVIDIA about this. I've heard this from else is that the power of robots will really be amplified with AI. And I imagine and the idea is right, like that if you have some sort of robotic arm picking up a bag, it helps if there it has like the bag is at maybe like a 45 degree angle that it can't just like it has to like shift a little differently or something like that. Can you talk a little bit about that more, like how AI or maybe machine learning sort of makes it so that robots are becoming more efficient?

41:29Is that something you see so that they can respond to deviations or a weird chip shape comes through and it doesn't automatically, you know, it's still able to pick it up? Can you talk a little bit about this sort of intersection of AI and robotics and whether you see that as a force amplifier? Machine learning, certainly, when we're talking about it, is already being used. And you'd be surprised how often a very slight tilt in something will disrupt a robot entirely. So that does make sense. It's looking for a very specific shape. Sometimes you have to really build the process out in front of it.

42:00Because this is what I heard from someone recently about why we still don't have, for example, like robotic pizzerias, which is just that they're still at the point where like if there's like if one of the pies is like a little bit smaller or a little bit bigger, et cetera, like the robots still aren't nimble enough or agile enough that they would be able to respond and then that would break the whole process. And so the argument is, well, if you have some sort of AI sensor vision and stuff like that, then in theory, it can respond to these deviations faster. Yeah. Right now where we're at with robots is that you'll see when they start to make deviations, sometimes they can respond for the first few issues, but they have trouble coming back to a home position to reset when the product is good again.

42:45So they can sometimes function for up to an hour in a sort of failing state, and then they fail entirely. And then the process has to be put back onto where they are in the grid and relearn where they are, and then you can fire it back up. So with robotics, we still have a lot of limitations there. And I think those limitations don't have to exist, but for the mass produced robots that we're using right now in production facilities, we still have those limitations. So I don't think Jensen is wrong that we could start using AI in these processes. And I think robotics is probably the first place to look.

43:21When we talk about machine learning, we're using that all the time where we're a closed loop process that the machine can determine. Dairies are especially good applications for it. Cheese making where you're heating the product and moving it through. You're able to adjust times depending on variations of the product. And you can visualize what an ideal product would look like and know that and make adjustments with all the different sensing units you have. You're like, I need this moisture content. I need this temperature. I need it to get to at least this. It needs to be this color. If it's not this, continue.

43:53Like all that's happening, but we are not to a point where we're letting anything sort of make decisions on its own. By the way, there are a bunch more blue diamond almonds than I said before. So anyway, there's various chocolate covered ones too. All right. I have one last question. One thing we haven't talked about is the distribution side, because I have to imagine that like, okay, it's great if the manufacturer can quickly change over their lines and reduce, not have to worry about downtime as much when they're shifting from one stable process to another. But then you have this explosion of SKUs.

44:26And I have to imagine that makes a warehouse, you know, you have before you might've had a warehouse that had two kinds of Fritos and now you have a warehouse or probably, you know, a hundred kinds. What is required on the sort of distribution side to handle the explosion of variety of snack food? Yeah. So we're seeing a rise of fully automated warehousing and essentially what a fully automated warehouse looks like when you're dealing with pallet sized product is you're going to have a series of conveyors and you're going to build it up in a multi-story elevator situation. and you'll have carts that are not operating dissimilarly to what you would have in an Amazon warehouse where they're picking and placing something and going, but they're taking small totes, right?

45:06And we're dealing with pallets. So we're almost running it like trains and elevators moving to certain locations that are then visible on a 3D grid for the warehouse operator. So it's typically we can have one or two people operating this warehouse now and calling down for the packages they need in an automated way. So saying, we're going to fill this truck with these pallets in this order so that when we get to the various stops, it's going to make it unloads in the proper order. And all these different pallets are located in bin 114 on floor five of our system and pulling through where in the past at right now in a sort of a traditional warehouse, you'll have a sticker on the outside of a pallet and someone drives up with a forklift and scans it and then pulls it in based on what order they're pulling something from.

45:53And it's a lot more hectic to deal with multiple SKUs. And you see a lot of forklift drivers moving pallets to get to a pallet behind it because of something that happened where you don't see that in an automated situation. Tracy, are you convinced now that we are indeed in the golden age of snack food? In terms of technology, yes. Yes. Well, and I am very intrigued by the idea that maybe in an era where people are eating less if Ozempic and the GLP-1 drugs become even more popular, that food companies are going to have to offset that loss of consumption with creating new and tempting varieties of things to try.

46:32However, I will say not all of the flavors are evenly distributed. And you and I were experimenting with this earlier, trying to order particularly exotic varieties of stuff and you can't find them everywhere. You can get most of the things off Amazon, but they're not in every grocery store. And also like prices are still pretty high. Like, I don't know if you've bought Lay's or something recently, but it's kind of insane how much it costs nowadays. By the way, there's Elote Mexican street corn flavored almonds, which you can buy from Blue Diamond. I'm going to buy them. Ryan Harlan, thank you so much for coming on Odd Lots.

47:10That was an absolutely fascinating conversation and a great explainer of how technological innovation in the back end truly gives us this wonderful world of variety. So thank you so much. That was a lot of fun. Thank you for having me. Thanks, Ryan. I've never been more hungry. Same.

47:37joe you know you mentioned the mexican street corn flavored almonds so this reminds me i was in the supermarket the other day and i saw there were mexican street corn elote flavored cheetos but and i was i was tempted okay yes but i didn't buy them because i think it was like eight or nine bucks for a pack a package and i just couldn't i couldn't justify like the novelty value just like maybe a one-off though tracy by the way i did order some uh kit kats and uh doritos before this so maybe tracy you can you know and i'll bring them into the office you'll subsidize uh my chip consumption. No, I'm saying now you get those.

48:16Just like a good industrial policy should. Return the favor of me buying. I will bring you actually, I will bring you some of those Korean almonds. Okay. Because now that we've been talking about them, I really want to go get some. But just this idea. So like there were so many fascinating things in the conversation. For one thing, I just loved like how clear Ryan was about explaining how all these processes worked. That was really cool. But then you think, okay, you have this factory and you try to get like some sort of like maximum, like 99 % uptime or maximum throughput, you can understand once you've achieved a certain level of throughput, why you'd be really hesitant under the old regime 2004 to like, let's try something new.

48:56Yeah, this is what I find really fascinating. So the idea that in this one respect, in the world of snack foods, it feels like technology has enabled risk taking. And so often we kind of see it go the other way, like people's perfect stuff and then they kind of like double down on efficiencies and then they get sort of like hardwired into doing one thing perfectly. It's really interesting to me that in this world, we're using technology to enable variety in a more efficient and maybe interesting way. Totally. And I love like the simple example that you don't think about like, okay, let's say you have to clean the pipes, which of course you do between different flavor runs.

49:37Before you're like, well, the solution to making sure you have clean pipes is to just let the washing process go along. So maybe 30 minutes. But what if you could do it in 20 minutes and you just those extra 10 minutes are a waste? And then you can like, you know, it only seems like 10 minutes. But what was it? The rule of 1%. If you can find 12 1 % efficiency gains, then you can get an extra hour of throughput through a factory. and if you're doing hundreds of pallets. Right, it's exponential. Yeah, so it's pretty cool. But also, you know, Ryan mentioned that game Factorio and the idea that, okay, it's a video game.

50:10It kind of, I've never played it, but it kind of looks like SimCity, but for factories and you create your own simulation of a manufacturing process, the idea that that's actually happening in real life. So you can come up with an idea and then you can use software to basically figure out how you would produce this with your current resources in the cheapest and fastest way, presumably. That seems really interesting, too. And a big difference to, I guess, how things were previously manufactured, where you would come up with an idea. You'd have to do all this research and development, lots of customer testing, but you'd also have to talk to the factory floor and figure out how you would make these new things.

50:52Totally. I want to see one of... First of all, I want to play Factorio or at least check out the trailer. It looks good. It looks really fun. And then also, yeah, this idea, I think what digital twin, I think was the term he used. So you could just create an entire digital version of the factory. And if the simulation is good enough, then you just run the whole test in the digital twin. That's a really cool idea. Also this idea that like the point at the end that robots still aren't very good, that if you could eventually it becomes a problem. If too many of the bags are tilted and then they have to be manually reset, It seems like there's potentially low-hanging fruit there if, I don't know, AI can make it so that the robot can just automatically do whatever.

51:31It's really exciting. We should have Ryan back in 2034 to talk about the state of snack food manufacturing. I'd be into that. And then maybe at that point we really will be in the golden age of snack foods, of cheap and abundant and interesting things to eat. Can't wait. All right. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks.

52:08Thank you to our producer, Moses Andam. For more Odd Lots content, go to Bloomberg.com slash Odd Lots. We have transcripts, a blog, and a newsletter. And you can chat about these topics and more with fellow listeners in the Discord, discord.gg slash oddlots. And if you enjoy Oddlots, if you want us to bring Ryan back on in 2034, then please leave us a positive review on your favorite podcast platform. And don't forget, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is connect your Bloomberg account with Apple Podcasts. Thanks for listening.

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