Pandemic taught grocery supply chain valuable lessons

Major inventory disruptions and the simultaneous boom in online shopping brought by the COVID-19 pandemic will reshape the grocery supply chain going forward, consumer packaged goods (CPG), retail and distribution executives said in a panel discussion at the FMI Midwinter Executive Conference.

Session moderator Thom Blischok, chairman and CEO of CPG and retail advisory firm The Dialogic Group, said “the unparalleled impact of COVID-19” on food and beverage retailers and manufacturers — now nearing 12 months — caused an “interruption in the way we do business” and has “necessitated a fundamental restructuring of the retail and manufacturing environment as we see it today.”

The industry experienced a double-shot: an “explosion in omnichannel” and an overtaxed supply chain, Blischok said in the virtual event, titled “The Post-Pandemic Rubik’s Cube of Supply Chain — Where Do We Go from Here?”.

“Online is now offline, and offline is now online. We will see that journey continue through 2021 and beyond,” Blischok said of the omnichannel growth surge in grocery. “The supply chain absolutely stretched to the limits — broken, in many cases. We saw disruptions in supply itself. We saw disruptions in what was going into the store. We saw disruptions in logistics and distribution.”

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Other panelists included Stuart Aitken, chief merchant and marketing officer at The Kroger Co.; David Smith, president and CEO of Associated Wholesale Grocers; Eric Reynolds, executive vice president and chief operating officer at The Clorox Co.; and Steve Oakland, president and CEO of TreeHouse Foods.

"The monomaniacal focus of not just Kroger, but our industry, on the health and safety of our associates and our customers was second to none,” Kroger’s Aitken said. “In fact, one of the things Kroger did was create this Blueprint for Businesses. There was something we wanted to publish to ensure that, whatever we learned, we could share it with everybody. This was a crisis in the U.S., and we had to all look to one another for help, whether it was manufacturers, our supply chain folks, our sourcing folks. Overall, I was so impressed with how we as an industry came together, how we as an industry helped our customers and truly looked after our associates.”

Echoing Aitken, Clorox’s Reynolds said the industry moved with “a speed and a flexibility that I don’t think I’d ever seen in my career, all because we’ve got very clear in what mattered” by focusing on the safety of employees, customers and trading partners and maintaining service in a time of need. 

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"[Shoppers] didn’t necessarily want to go into stores early on. Because of the fear factor, we had to reimagine every aspect of our supply chain and how we got product to our customers.” — Stuart Aitken, Kroger

"We were not built for this level of volatility, and we’ve seen the fractures in our systems and our technologies. And that’s disappointing, not just to consumers but our retailers who are counting on us and our brand brands in their stores, virtual and otherwise,” Reynolds said. “So I think it’s been both a ton of incredible pride, but also a big dose of reality and humility that we have so much more work to do to never disappoint shoppers.” 

The supply-and-demand crisis thrust upon the industry by the coronavirus outbreak provides a big learning opportunity for CPG manufacturers, suppliers and retailers as they take a closer look at what worked and what didn’t in their response, according to AWG’s Smith.

“Everyone understands that whenever the supply is less than what the demand is, everyone’s going to have some level of disappointment. I think that as an industry we have a tremendous opportunity to learn from this because we will have other things we’ll deal with in the future, but we had never really dealt with coming up with a good way to deal with product shortages. We need to be smarter and more nimble with moving the supply around,” Smith explained. 

“What we found was that the number of items being sold declined by 18.5%. Consumers were much more precise on what they were buying." — David Smith, Associated Wholesale Grocers

“Collaboration and partnerships really rose to the top,” he noted. “We reacted very quickly. So I think there are tremendous opportunities for us to apply these things that we’ve learned to build a much more transparent, collaborative relationship all the way from the manufacturers, suppliers and producers to that retail shelf.”

In the private-label arena, where manufacturers produce the same products under multiple labels for retailers, adjusting to the abrupt shifts in demand and supply during the pandemic has proved especially difficult, TreeHouse’s Oakland pointed out.

"We have built a business to harness complexity, but we've done it with no volatility. It really exposed how weak the supply chain is. We were built to master complexity, not to master volatility. And so we’ve got a lot of work to do,” he said. “I’m sure we’ll talk a lot about supply chain as we go forward. But one area, as we work together, is that there are some tools on forecasting. We’re using artificial intelligence, we’re using a number of things to help us with forecasting, that I think can harness some of that. Machines can think through that complexity much better than humans. So I think there’s a real opportunity, but we’ve got a ways to go.”

Reynolds also cited volatility, noting that 1% to 2% growth in many of Clorox’s categories normally would mark “an outstanding year” but the company scrambled to keep products on store shelves amid consumer panic-buying.

“So to go to not just that level of volatility, but now we’ve got this split between online and offline, and the supply chain demands of the speed and responsiveness of forecasting that, it just overwhelmed our systems,” he said. “To do it early on, we’ve had to throw lots of human bridges, which is an imperfect solution. And in the middle of the firestorm is a terrible time to totally reimagine your supply chain. So what we’re trying to do is sort of get as simple as we possibly can and get very clear on what assortments we should have, and then work nonstop to try to handle that level of complexity and then plan for a world of elevated demand.” 

“We’ve learned under COVID that the frictions for the average consumer are huge." — Eric Reynolds, Clorox

Same-store sales at AWG’s member stores jumped 22% from March 11 to Dec. 31, which Smith said was “a blessing” but also revealed a concerning trend.

"What we found was that the number of items being sold declined by 18.5%. Consumers were much more precise on what they were buying, and it causes us to think about the retail selling space that we have in our stores and being merchants, and also our real estate digitally, what we’re promoting and what we’re putting in front of the consumer,” he said. “We’re looking to improve the overall for the benefit of the industry and the benefit of the consumer. Each location will have that secret recipe that it needs to match the needs of the consumer.”

Images of bare shelves in stores, emptied by stockpiling shoppers, presented a picture of where Kroger had to sharpen — and lessen — its focus in meeting skyrocketing consumer demand, according to Aitken. That also traversed the worlds of in-store and online.

“Wherever customers could get their products, whether it was in a Walgreens or Kroger or their corner store, they sorted out,” he said. “But what we also learned was we didn’t have the modalities those customers were looking for. Specifically, they didn’t necessarily want to go into stores early on. Because of the fear factor, we had to reimagine every aspect of our supply chain and how we got product to our customers.”

“There will be some kind of systemic tailwind for the at-home food business. How we continue to serve that consumer well is going to be key." — Steve Oakland, TreeHouse Foods

Within weeks, Kroger in some cases was down to days of supply — rather than weeks or months — in stores, Aitken added. “I’ll bet every one of you have photos of empty shelves from stores,” he told the panel. “What I ended up doing myself was going around and taking photos of what was still on the shelf. We have to reimagine what the supply chain looks like with a different level of assortment.”

In terms of lessons learned from the COVID-19 crisis and looking ahead, TreeHouse’s Oakland expects a shift to a “remote component of the economy that will last well beyond the pandemic.”

“We think at TreeHouse there will be some kind of systemic tailwind for the at-home food business. How we continue to serve that consumer well is going to be key,” he said. “Private label, quite frankly, through this [pandemic] has lost share. It has been a long time since we can feel good about shopper volumes and unit volumes in traditional grocery. That’s going to be what we face in the future, and we can’t let them go away. We’ve got to hold onto them. So we’ve got to delight them in this experience.”

Collaboration will enable industry stakeholders to work smarter and more cost-efficiently as well as “look at the entire relationship with the consumer” across channels, AWG’s Smith explained. “From the relationship between us and our member stores, if we can find places that we can come together and make it easier to do business with us, easier for the manufacturers to be able to communicate and work with our business segment, there are tremendous opportunities,” he said.

Reynolds of Clorox posited that industry “conversations” have gotten “a little further away from that common shopper.”

“I think we’ve learned under COVID that the frictions for the average consumer are huge. They’ve got online shopping, in-store shopping. How do you do that? How do they know what's best for them?,” he said. “If we collaborate on those frictions, that’s really the only way we’re going to delight those families at home when they want to shop or learn about products or brands. And that learning is to go back to the beginning, go back to the consumer, go back to the shopper and try to keep the majority of our conversations centered on that.”

Added Kroger’s Aitken, “We have an opportunity to collaborate fundamentally differently. It’s easy to say, ‘We’re going to put the consumer, the shopper, at the center of everything.’ It’s another thing to actually believe it and execute against it. We’ve got a unique opportunity to seize the moment, seize the day and ensure we genuinely keep the customer.”