Staying in Stock: How retailers, suppliers are managing the pandemic
Everyone, from the consumer looking for much-needed products, to the president of the United States, wants to give a big shout out to the hundreds of thousands of men and women stocking shelves, running registers, cleaning stores, working distribution centers, driving trucks and much more during the coronavirus pandemic that has swept the country over the last six weeks.
The bottom line is that without their efforts, and sacrifices, there was no way the supply chains could keep stores stocked with product during this pandemic.
“We are deeply grateful to our store associates for their tireless dedication during this critical time. I appreciate you highlighting them,” said Andrew Whelan, a spokesperson for Albertsons. “They are working long hours under difficult circumstances to make sure their neighbors have the food, medicine and essential goods they need. We couldn’t be more proud of them.”
Doug Baker, vice president at FMI - The Food Industry Association, also felt compelled to recognize those working tirelessly in retail these past two months. “We’re humbled by the way this industry comes together in a time of crisis, and we applaud everybody that is getting up every day and going to their jobs to support citizens in their communities.”
Indeed, it is this brave manpower that is keeping product moving through warehouses and into stores, cranking through shortages, delivering online orders, running plants 24/7. But how?
The following pages will address just how store brand suppliers, retail partners and fulfillment companies are doing it. What strategies did they execute? How have they been working together through a global crisis the industry’s never seen before?
WHAT HAPPENED
COVID-19 stems from a member of the coronavirus family that is similar to SARS and MERS, which have had outbreaks in the past but not at this scale. To combat the virus from spreading, the government and health experts have been telling consumers to regularly wash their hands, use alcohol-based sanitizer, stay indoors, avoid large gatherings and routinely wear masks. The country has seen stay-at-home measures put in place in many major cities, with restaurants, movie theaters, hotels, arenas and social businesses forced to close.
As families braced for life inside, “panic buying” in grocery stores, big box retail, c-stores, drug stores, dollar stores, hardware stores — anywhere deemed essential — blitzed the retail supply chain. The peak periods were early and mid-March. Nielsen reported astronomical sales lifts: hand sanitizer sales were up 313% for the year through February, up 127% year over year for that four-week period. By the end of March, hand sanitizer was still up 238.5% for that four-week period. Disinfectants, face masks, canned food — oat milk! — several categories were seeing double- and triple-digit lifts. And toilet paper became gold.
Through March and into April, shoppers have continued to apply pressure to the supply chain. Toilet paper is still gold. Retailers have new challenges to enforce “social distancing” in stores, getting shoppers to stand six-feet from one another, sanitize stores and hire more workers. Then there’s paying workers extra money and awarding extended sick pay.
But as more and more challenges continue to steamroll the retail industry, the greater the industry has been responding — all to keep the supply chain moving.
SUPPLY CHAIN STRATEGIES
As FMI’s Baker said, “the machines are running,” and at a round-the-clock clip, so it is not necessarily a supply chain issue but a demand issue. “It becomes a supply chain issue if you start having equipment issues, if you start having ingredient issues, if you start having labor issues,” he said.
Within that supply chain, private brand manufacturers and retailers are working together to execute the most efficient strategies to keep up with demand. Baker said strategies include suspending slower-moving items and pack sizes to focus on fast-moving ones.
“They’re doing us favors by simplifying their selections,” said Mark Singleton, vice president of Rudolph Foods, the world’s largest producer of pork rinds, including private label for several retailers. “Instead of eight SKUs, it’s asking for five SKUS,” he said, noting that it saves the company time on the line to not have to stop and change out film and bags.
Singleton is not in a category like toilet paper or poultry where the challenges have been exceptional, but snacking is a category that saw a big boost, and he said like everyone else they’re learning as they go on how to adapt.
Officials at GOOD PLANeT Foods, a plant-based cheese company, have been working in private label for the last two years and also see a tremendous need for product, even as a smaller niche brand. “Due to ingredient lead time, imported products and other challenges, it can be difficult to meet our partners’ current levels of product needs at the speed at which they ask for them,” said David Israel, the company’s CEO. “To help solve that problem for one of our private label partners, we’ve actually air freighted product from Greece so they have something to have on-shelf.”
Israel said the company will absorb that cost. “Not because it necessarily benefits us, but because we want to be a good partner, and we want them to do well.”
It is important to note that suppliers and retailers have stepped up to work together. “Of course, we can mince our words and soften our conversations with our private label partners, but we try to minimize surprises and instead communicate support,” Israel said. GOOD PLANeT, specifically, is seeing its category growing at a rate of three or four times faster than expected, and they’ve needed to seek additional partners to help keep up with demand, so it’s trust, communication and transparency that helps get both companies by.
Baker said retailers grasped the need to get product on shelves, not worrying about differentiation, having certain scents and flavors. “And it’s pleasing to hear that those conversations are actually going on,” Baker said. “That’s the only way we’re going to keep the supply chain flowing and keep key product hitting the shelf.
Whelan said that across Albertsons’ substantial footprint, stockers are refilling high-demand products as quickly as they can through its robust supply chain, and in an effort to focus on the most essential, stores might have a reduced variety. “For example, if we don’t have your favorite specialty pasta sauce on the shelf, there’s a good chance we have an alternative variety available. The streamlining of goods ensures we can provide the most essential goods to as many customers as possible.”
Singleton said first and foremost Rudolph Foods’ goal is to support the retailer’s base volume. “And then we have to discuss their incremental needs because of shelf emptying, refilling pipelines, and that just takes a lot of communication with our customers.”
Marisa Brown, senior principal research lead of supply chain management at the American Productivity and Quality Center, an organization focused on best practices, said private brand suppliers can keep up with demand by continuing to communicate with its key customers about anticipated demand. She also said to consider demand shaping. “Can you shift customers’ demand away from products where you may be in a sole source or backorder scenario to products that you can more reliably manufacture or distribute?” she said.
Jason Adlam, vice president of new business development at supply chain company CHEP, said while certain products are flying off shelves, “manufacturers have flexed to extend production to additional shifts and/or locations to meet demand.”
Brown said private brand suppliers should strive for an integrated view of the company’s total inventory, across channels and locations, and to subscribe to a digital alert system to keep constant updates on any global changes.
She noted that private brands also have an advantage, not only in that they can be a lower cost option which serves well in a time of uncertainty, but that they can take advantage of the retail partner’s analytics and customer insights. “The private label organization can then use that information on customer preferences to make fast adjustments to products.”
LEVERAGING TECHNOLOGY
Singleton said real-time analytics and technology has been critical to how Rudolph Foods operates. “Powerful, forward-looking data systems just play a vital role in this, and our customers have them and some of them even let us have access to them so I can see what they’re seeing right now,” he said
Tech company Crisp applies machine learning and artificial intelligence to generate food-demand forecasts, bringing together sales, inventory, third-party marketing sources and promotions, and has been modeling for retailers during COVID-19.
Are Traasdahl, co-founder and CEO of Crisp said retailers use the technology to consolidate data, sync vast amounts of data throughout the supply chain into a single set during a time of crisis, as opposed to having data sit in isolated silos. From there, real-time insights trickle in and report to retailers, and then it’s up to retailers to share it with suppliers in the supply chain.
“Retailers need to be able to prioritize items in order to replenish the supply of high-demand items, which becomes more important when specific items are in unusually high demand,” Traasdahl said. “There is also a finite amount of truck space available at any given moment, so being able to calculate what and how much of each item to fit into each truck to bring supply to the retailer is paramount.”
Greg Buzek, founder and president of IHLGroup, a forecaster and supply chain analyst, said for peak categories like a toilet paper or cleaner company, he’s not sure predictive modeling is a system that can be of help. “The biggest challenge for everybody in peak categories, you can put the orders in and forecast for it, but you’re not getting the orders,” he said. “How do you ration that stuff during a panic buy?”
J.J. Lewis, vice president of national sales at GlobalTranz, a third-party logistics provider agrees. “The challenge is not communication; it is fulfillment and replenishment. Some suppliers are bypassing their own warehouses and shipping truckloads of pasta, cereal, rice, bread and other staples straight to stores’ warehouses to accelerate distribution,” he said. Lewis noted that because of this, there’s been more flexibility in shipping. “Some suppliers ran out of product last week, resulting in what in the logistics industry is known as TONUs (truck ordered, not used),” he said. “Usually, there are fees associated with TONUs, but now they are being waived in many cases. Some shippers have waived fines associated with on-time delivery and have indicated their priority is to support the needs of consumers rather than penalizing their logistics partner.”
This sort of understanding and communication has played a critical role in how companies manage the crisis across the supply chain, according to CHEP’s Adlam, who said communication has increased among manufacturers, retailers and transporters. “We hear retailers are more frequently sharing demand forecasts while manufacturers are open about their production capabilities. This may sound cliché, but everyone in the supply chain has rallied together and are collaborating to keep America moving with food and everyday essentials on store shelves.”
NOT YOUR AVERAGE CRISIS
Tornados, hurricanes, floods and other natural disasters that may occur and rock a region of the country are situations the retail supply systems are very much attuned to; they have contingency plans for those situations. For example, a hurricane is readying for a coastal town and trucks get rerouted to stock staples in stores as consumers stockpile for the event.
But the global magnitude of COVID-19 is something else. “I don’t think anybody has a contingency plan for when everything just stops completely nationwide or worldwide,” said IHL Group’s Buzek, adding that on the other side of that, no company has a plan for when sales triple nationwide and worldwide overnight. “You have contingency plans for the Internet going down, a power outage. You generally don’t have contingency plans for something this widespread, this quick, where in four or five days the world completely changed.” What makes the COVID-19 pandemic unique is the disparity between demand in some industries compared with others. Hotels, airlines, fashion and dining are shut down, but retail — and certain categories at retail — is seeing unexpected sales volume. And the problem isn’t just domestic. “This crisis is unprecedented, due to its global scale,” said Lewis of GlobalTranz. “When the coronavirus struck China, the outbreak hurt Chinese exports to the United States. That meant fewer shipping containers were arriving at ports in California. The lack of outbound freight from California drives up inbound rates to California because carriers typically establish dedicated ‘lanes,’ or routes for more efficient shipping.”
He noted that this causes a ripple effect — a shortage of containers in the United States because China accounts for most of the inbound container traffic, which then puts more trucks on the road, which is more expensive than rail transport. Lewis said GlobalTranz has a cross-functional coronavirus task force to meet and manage this domino effect to help minimize the impact of the virus on the supply chain.
Despite some of the logistical hurdles on the backend — and hoarding on the front end — in some respect, the retail supply chain has been able to keep its cool when shoppers couldn’t. “There is no shortage of food in the supply chain,” said Whelan of Albertsons. “Suppliers have plenty of the essential food, medicines and goods that all our communities need.”
LOOKING FORWARD, AN E-COMMERCE MOMENT
Kroger reported that sales in March were up 30%, year over year. And that’s not calculating in fuel. The supermarket is booming, and with stay-at-home being enforced, e-commerce is having a moment.
“It’s very possible that, during this crisis, we’ve now reached the percentage of the population projected to use online commerce by 2025,” according to Sylvain Perrier, president and CEO of Mercatus. “Looking forward, we believe there will be a defining line in digital commerce for grocery before COVID-19 and after COVID-19.”
Consultancy Brick Meets Click, along with e-commerce platform ShopperKit, surveyed more than 1,600 shoppers on their shopping habits between March 23-25, finding 31% used e-commerce to purchase groceries this past month compared with only 13% in August 2019. The study also found that for those 60 years old or older, 40% used e-commerce to buy groceries online for the first time.
Tech firm Chicory studied online grocery patterns during the coronavirus pandemic compared to shopping seasons like Christmas or back to school. The online ordering has already exceeded that of back to school and Independence Day, and while sales aren’t as high as a season like the holidays, the difference is there’s “sustained ongoing hoarding behavior,” as opposed to a big one-week boost, the firm said.
Perrier said the growing demand for retailers to do last-mile fulfillment has retailers all competing to hire extra people from the same worker pool, making it tough. “Retailers should throttle orders by availability, streamline demand to stores and geographic locations that can handle, and weather the storm.”
But does it have staying power?
“How long is this going to take where you have these peaks in demand for all of these products that just went to Pluto, and at what point can you start to forecast things back to normal for the rest of your store?” Buzek said.
He said looking down the road, it will also be interesting to see what happens with the companies that did well. “The guys who have been doing well and growing and expanding, those guys just got rocket fuel,” Buzek said. “And the guys who were not doing well, and those sectors there, they got blown up, literally ran into a complete wall.”