The pandemic dramatically increased demand in selected categories such as cereals, pasta, eggs, meat, poultry, and hygiene products. In response to this, manufacturers quickly sold out their stocks and started delivering right from production. They increased the number of production shifts and utilized all their production equipment. For some of these manufacturers, it was the first time that they reached their actual maximum production capacities.
Despite these measures, most manufacturers could not satisfy all demand and were forced to decide how to allocate product distribution between accounts. In this situation, suppliers behaved somewhere along the spectrum between the following extremes.
- Speculative – Revision of previously made agreements on assortment, promotions, prices, and volumes. In some cases, stopping or limiting delivery to some customers and redirecting delivery to more profitable customers.
- Partnership – Honoring previously made agreements on promotions, prices, and volumes. Collaboratively working with the retailer to find temporary solutions such as: reducing assortment to minimize production changeovers, limiting geographical coverage, and changing delivery routes.
Typically, a speculative strategy led to tension and hostility between the retailer and the supplier. The partnership strategy typically led to strengthened relations, even though the manufacturer sacrificed short-term opportunities for a stronger long-term relationship.
Irrespective of whether commitments to pre-pandemic volumes of products could be met, retailers valued predictability of deliveries. In this respect, manufacturers demonstrated one of two models of behavior:
- Open – Manufacturers payed a lot of attention to informing their retailer partners about problems and opportunities; proactively and sincerely communicating deadlines and volumes, and promptly responding to retailers’ requests.
- Closed – Manufacturers avoided communication with their retailer partners around whether they would be meeting commitments, did not reply to retailers’ requests, and under-delivered with no warning.
Obviously, retailers preferred the open model. In exchange, retailers were also more open and shared more information related to off-take in stores, stock levels, and planned marketing activities.
Like manufacturers, retailers also had to choose between a speculative and partnership approach with their suppliers. For example, during the pandemic some retailers formally committed to previously agreed promotions but did not translate these discounts to shoppers.
Overall, in the categories with a major increase in demand, relations between retailers and manufacturers either greatly improved or greatly deteriorated.
At the same time, retailers were actively looking for alternative sources of products, including smaller local manufacturers. Some of these manufacturers had never previously received much attention from retailers and had a chance to put their products onto the shelves of some of the largest retail chains. Agreements, which before the pandemic could be under negotiation for months, were now being signed in less than three hours in some instances.