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Published: October 7, 2020
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Since its emergence mere months ago, the novel coronavirus has rapidly and dramatically changed how we work, live, shop and spend money. The swift rise of grocery e-commerce that experts thought was still half a decade away is already here. The future of grocery retailing has arrived early, and the needs and demands of living with COVID-19 have brought tomorrow to us, today.

Adjusting to shoppers’ irrational behaviours and changing preferences in the first wave of COVID-19 has been an extraordinary task for grocery retailers and their supplier business partners. The second wave will also pose challenges as the lifestyle changes brought about by staying home and stockpiling food mean that habits have changed and while shoppers are a little less frantic now, how and what they buy is inconsistent.

Now is an excellent time to reflect on grocery retailers’ and suppliers’ critical learnings gained from the pandemic’s first wave. Aside from shortages for some items and occasional empty shelves, grocery supply chains did well for the most part and were able to provide shoppers with enough food and essential products. The underpinning of this success is in the strength of retailer-supplier relationships. When fueled by cohesive ways of working, preparedness to meet changing consumer demand, adapting strategies to maintain product availability and deal with a marketplace in flux, the grocery supply chain has shown it is capable of great flexibility and strength under pressure.

Hope for the Best, Prepare for the Worst

COVID-19 has made us learn about the fragility of the modern world. In the first wave, the sight of empty shelves, both in-store and online, was unsettling for grocery shoppers – a warning signal to the public about how society was coping with COVID-19. Grocery suppliers and retailers had to keep up with the unyielding demand for toilet paper, cleaning products, and other essentials. They also had to battle consumer perception that the empty shelves reflected a fundamental breakdown, an indicator that something we relied on was not working. The reaction was panic and stockpiling.

Most noticeable was how toilet paper flew off the shelves, and stockpiling led to stores running low on pasta, flour, canned foods and other items. Simultaneously, restaurants closed, and people began relying almost exclusively on groceries for their meals, which also impacted product inventory.

Dr. Sylvain Charlebois, Professor in food distribution and policy in the Faculty of Agriculture at Dalhousie University, believes that this time around, industries will be more prepared to bear the weight of increased consumer demand and that grocery stores and food manufacturers will be ready. “For months now, the food industry has been preparing for a potential second wave, so they’re even more prepared than for the first wave,” he said.

Dr. Charlebois noted that grocery stores’ online delivery services have improved over the last few months and will likely make everything a little bit easier in the second wave. “Barely six months ago, it was almost impossible to get a grocery order delivered within eight days. Now, most markets offer great home delivery service and will deliver just about anything, including groceries, within two hours.”

women on street

Be Rational

Panic-buying creates unnecessary tension in the grocery supply chain, but by putting some subtle rationing initiatives in place, retailers can help reduce the potential for consumers, including online resellers, to engage in sustained panic-buying and hoarding in the second wave.

One way is by limiting the number of items available to each customer. Limiting product quantities for purchase is a policy that customers have become accustomed to during sales. To combat online resellers, retailers should keep a closer eye on what is being sold on their websites and quickly eliminate the predators.

According to Metro News, Morrisons, a UK grocery retailer, has started rationing certain products again as fears of a second wave of panic-buying sweep the UK. Purchases will be restricted to three items per customer on products such as toilet paper and disinfectant, as the UK records the third-largest jump in cases since the pandemic began. This comes after shoppers were forced to line up at 6 a.m. to buy essential items during the first wave of COVID-19 in March. A Morrisons spokesperson says that while their stock levels of essential products are good, they want to ensure that they are available for everyone.

Other supermarket bosses have also urged the public not to return to stockpiling, saying there is more than enough to go around. Tesco CEO Dave Lewis named panic-buying in a second wave ‘unnecessary,’ adding that it ‘creates a tension in the supply chain’ that is easily avoidable.

Not only will retail rationing practices reduce hoarding — customers do not panic-buy when they know the product will be there — it will make the lives of online resellers seeking to profit more complicated. It will also help fill the shelves again, reducing public anxiety and showing customers that retailers are protecting them while signalling that progress is being made in managing the COVID-19 crisis.

Adding Fat to Lean Supply Chains

Grocery retailers have spent years making their supply chains efficient. Then a pandemic hit, and the strategy no longer worked. A ‘just-in-time’ supply chain requires minimal up-front spending, low inventory levels and fast-moving inventory. All while keeping up with customer demand. Supermarkets ran out of toilet paper for the same reason that hospitals ran out of PPE — because their lean supply chains, which call for holding as little inventory as possible to meet demand, are built to optimize efficiency, not resiliency.

Now, grocery retailers and FMCG manufacturers are building up their inventories to guard against demand spikes in COVID’s second wave and the lost revenue that occurs when consumers encounter empty shelves.

According to an article in the Wall Street Journal, retailer Southeastern Grocers placed its orders for holiday turkeys and hams over the summer, months before it would normally start inventory planning.

In another example, Associated Food Stores has already started building “pandemic pallets” of in-demand products, so it always has some inventory in its warehouses. Some pallets are reportedly focused on food, while others are for cleaning supplies and other goods to keep buyers healthy. While the pallets vary in nature, their overall purpose is to ensure grocery stores can handle demand if shoppers begin to panic-buy as they did in March. “We will never again operate our business as unprepared for something like this,” said one company executive.

As grocery retailers build their inventories for some categories for months of coverage, not weeks, this often involves outside storage locations beyond their regular facilities, with retailers storing 10% to 15% more inventory than before the pandemic to ensure they won’t run out of popular items. Retailers developing good relationships with their suppliers is crucial, as suppliers may help them store the additional inventory.


Production Mechanisms to Handle Marketplace Fluctuations

To keep up with grocery retailers requesting higher inventory volumes, manufacturers are falling back on alternative but reliable procedures designed to handle a marketplace in flux. Some production and shipping facilities have increased their operating hours to reach full capacity and churn out as much product as possible.

A flour mill in Hertfordshire, England hired enough staff to move from a five-day to a seven-day operation. This enabled the company to produce an extra 350,000 bags of flour a week, says Jose Arturo Garza-Reyes, head of the Centre for Supply Chain Improvement at the University of Derby.

Another mechanism, often used in parallel to longer operating times, is to cut down on the variety of different products being made – trading product range to focus on volume. UK supermarket chain Tesco is increasing supply to double its normal quantities of milk, bread, rice and pasta while simplifying its orders, such as refocusing milk production to two and four pints.

Kruger Products LP, Canada’s biggest tissue products manufacturer, is another example of a company adjusting its supply chain to meet demand. CEO Dino Bianco said, “Our assets are running full out, and we’re continuing to build inventory,” noting that the company, maker of the Cashmere and Purex brands of toilet paper, has doubled its inventory of raw materials to maintain a 60-day inventory, up from 30 days. Good news for people who may still be worried about toilet paper. Kruger is also focusing on key products. While consumers will find plenty of the company’s Cashmere brand toilet paper, for example, Bianco said its recycled sub-brand EnviroCare might be harder to come by. “It’s a much slower mover, so we decided to put a halt on that one for now.”

Similarly, some pasta companies are halting the production of different varieties and sizes of pasta only to produce the core types to focus on its biggest sellers. Kraft Heinz Canada has stockpiled millions of extra boxes of Kraft Dinner in anticipation of a second wave. Before the pandemic, the company held an average of three-and-a-half weeks’ worth of Kraft Dinner in its warehouse as “safety stock,” so it could still fill orders even if demand unexpectedly surged. But that supply didn’t last beyond April, and the company was forced to temporarily suspend niche versions so its production lines could focus on meeting the soaring demand for its biggest sellers, KD Original and KD Extra Creamy.

Through the summer, the Kraft Heinz plant in Montreal built up a far more extensive safety stock of 4.6 million boxes of Kraft Dinner, or roughly eight weeks’ worth of average demand, said Chief Administrative Officer Av Maharaj. The company has also expanded safety stocks of other in-demand, shelf-stable products.

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Advantage Perspective

The COVID-19 pandemic has shown us the modern world’s fragility and how much we rely on established systems to work – and how unsafe we feel when they don’t. Despite a rapidly changing marketplace, the grocery supply chain has shown it is capable of great flexibility and strength under pressure.

Collaboration in grocery supply chains is not something that comes easily – it takes time to build trust, establish dependable systems, align strategies and develop strong retailer-supplier relationships.

In the fast-moving world of grocery supply chain management in COVID-19, preparedness, agility, and adaptability keep shelves stocked and customer concerns at ease. The collaborations that will succeed are those where cooperative working relationships exist between retailers and suppliers to ensure the alignment of supply chain strategies to get products to consumers successfully.

We all have enough to worry about as the pandemic continues its spread, but thankfully the availability of grocery and other household products, for the most part, isn’t one of those worries. We are grateful to all grocery retailers and suppliers for their work, which helps us keep our families and communities safe, healthy, fed and protected during this unprecedented time. We are all indebted to you.