Food Supply Chain: Lessons Learned from COVID-19
Food Supply Chain: Lessons Learned from COVID-19
Managing Director, Food, Consumer & Retail
Michael Johns is a Managing Director within BMO Capital Markets’ Food, Consumer & Retail group, based in Chicago and concentrates on industry coverage for…
Michael Johns is a Managing Director within BMO Capital Markets’ Food, Consumer & Retail group, based in Chicago and concentrates on industry coverage for…
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The COVID-19 pandemic put significant stress on the food supply chain. From manufacturers to distributors to retailers, all links in the chain felt the impact.
Now that some of the dust has settled and the U.S. economy slowly begins to restart, leaders in the industry can reflect on the lessons learned. What worked? What didn’t? How will this change industry in the long term?
At BMO‘s 15th annual Global Farm to Market Conference—held as a virtual event for the first time—Michael Johns, BMO Managing Director, Food Consumer & Retail Investment Banking, hosted a panel discussion on how the supply chain has adapted, and how it plans to apply those lessons moving forward. Joining Johns on the panel were:
Brandon Barnholt, CEO of KeHE Distributors, a Naperville, Illinois-based distributor of fresh, natural and organic, and specialty foods.
Leon Bergmann, CEO of Harvest Sherwood Food Distributors, a Detroit-based distributor of proteins and perishable foods.
Mike Duffy, CEO of C&S Wholesale Grocers, a Keene, New Hampshire-based wholesale grocery supply company.
Thom Lipari, CEO of Lipari Foods, a Warren, Michigan-based distributor of deli, bakery and specialty grocery products.
A summary of their conversation follows.
Adjusting on the Fly
All of the executives expressed their pride in how the supply chain has responded to the crisis with flexibility and resiliency. As Barnholt put it, “There’s no supply chain on earth that would be prepared for the kind of shift that we just saw over the last couple of months.”
The crisis has shown the importance of the food supply chain. Distributors and CPG companies have largely been able to meet the dramatic increase in demand while still maintaining health of employees, providing a model for other industries. But that’s not to say there weren’t bumps on the road. Much has been made over managing the demand shift from foodservice to retail, but there were other supply-demand dynamics at play.
With no lead time or advanced notice, we flexed up in some weeks, 40, 50, 60% output at retail to allow the shopper to pantry-load initially, and then replenish as the weeks went on,” Duffy said. “But the crisis did highlight some of the challenges and complexities in moving food across different channels.”
Ordering full pallets allowed for greater efficiency, while eliminating low-performing SKUs allowed for increased capacity. Duffy believes that could be a long-term change.
“The productivity of the SKUs and what we’ve seen would suggest that maybe the shelves are over-SKUed, and do we take this as an opportunity to right-size the shelves and be much more thoughtful as we reintroduce some of those items back into the supply chain,” he said.
The transition from foodservice to retail created a supply chain imbalance. As Bergmann noted, the food supply chain is based on efficiency, and experiencing a sudden shock caused companies throughout the chain to change course quickly. Doing so effectively requires good relationships with partners and customers.
“Demand patterns disappeared, so there was a degree of blindness between the retailers and what distributors and manufacturers were trying to do to be prepared for that,” Barnholt said.
All of the panelists agreed that, amid all the disruption, the food industry has been united in adapting and improving. As Bergmann noted, “Our industry has done a really good job of marshalling resources, talking amongst each other, sharing best practices and really stepping up to support society.”
Lipari pointed out that having technology in place was critical in terms of the industry being prepared. “If you’re ahead on technology and you’re staying up on your systems, you can usually handle these types of situations,” he said. “It’s just ramping up, but you have the technology there.”
The Digital Supply Chain
The pandemic has made it clear that technology will play a key role in making the supply chain more flexible and efficient. Lack of visibility of product movement through the system has been one of the key challenges through the pandemic.
As Duffy pointed out, the digital supply chain encompasses more than e-commerce. “It’s also how you increase collaboration with all of your partners,” he said. “How do you get better connectivity in your IT systems? How do you get better collaboration around forecasting, planning and faster decision making?
“Some of the challenges we’ve had over the past eight to 10 weeks were due to the lack of visibility of product moving through the supply chain,” Duffy continued. “The digital supply chain theme will probably be well-overused in the future, but it’s relevant. And certainly if we had better visibility in product movement we could be much more efficient, and maybe offset or defray some of the costs that are inevitable with the enhanced safety protocols that we’ll all be putting in place.”
Barnholt pointed out that perpetual inventory will be a crucial capability for retailers going forward. “Any retailer that doesn’t have perpetual inventory capabilities, this has driven them to get there as fast as they possibly can,” he said. “If the retailer doesn’t know exactly what’s happening on their shelves, this is a real problem for them.”
The Future of Grocery
Duffy noted that with more people eating at home, certain categories are likely to thrive. “Frozen food demand has continued at elevated levels,” he said. “The power brands will continue to be strong, but private label has filled in a lot of gaps. And if the consumer keeps trading down based on the need for value, private label is going to emerge even stronger than the trends have suggested over the last couple of months.”
Lipari added that online grocery shopping will likely become mainstream, and that will change how suppliers go to market. “I’ve talked to so many store owners and retailers that are doing so much more click-and-collect type of product, and they’re using that technology where customers are picking up product and they’re not coming into the stores,” Lipari said.
“How do we as wholesalers promote and advertise and drive our volume at the store level when the technology is changing and the consumer isn’t walking into the store, isn’t seeing that end display? I think we’re going to have to adapt to this new technology. We’re going to change how we market as an industry. Unfortunately, none of us really know yet what those changes are going to be and where it’s going to take us. You just have to deal with it day to day as they come up.”
One thing that appears certain is increased regulation. Duffy said working collaboratively with government entities will be essential to avoid “introducing unnecessary costs and regulations.” But Bergmann is bracing for an increased level of scrutiny across the supply chain, and Lipari believes new regulations will result in costs being passed on to consumers.
“We may call it inflation over the years, but there’s going to be added costs,” Lipari said. “We do a fair amount of manufacturing in our operation, and there are new procedures you have to put in place, limits in floor space, and those types of things that are going to drive costs up. I think we’re going to see a certain portion get passed on through the cost of goods to the consumer.”
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