How PFMA members are addressing supply chain & inflation
The state of retail in 2022 might be described best in one word: pivot.
With just the first quarter in the books, retailers face lingering effects of COVID, complications of labor shortages, rising fuel prices and fresh challenges caused by the war in Eastern Europe. Supply is low, costs are high and frustration is mounting.
That’s why the ability to pivot is a must. Two years into a deluge of unanticipated changes in the food and beverage retail industries, members of the Pennsylvania Food Merchants Association are making it work with agility and creativity.
Supply chain issues change daily, said Dan Coffin, vice president of category marketing and strategies at Sheetz, Inc. “It impacts everything from how we build stores to how we serve customers.”
Some major brands have cut back on the variety of products, offering fewer innovations. In that case, it’s time to focus on core products, Coffin said. Large suppliers might have the products in stock, but no employees to distribute them. In one instance, Coffin said they arranged to pick up their own delivery.
“It’s affecting every category,” he said.
The impact has been felt across out-of-stocks, shipment delays, logistical delays, loss of revenue, loss of income, empty shelves, and trying to keep higher levels of inventory with the anticipation that the next delivery might not come.
Food companies and distributors are experiencing a wide range of issues that affect their ability to provide products. Chuck Tullis, senior vice president at Utz Brands, Inc., said it’s hard to pinpoint the most significant supply chain impact. Utz has experienced the effects in people, freight cost, resin for film, input cost and edible oils.
For National Convenience Distributors, the fourth-largest c-store distributor in the U.S., the pressure hits multiple areas as well. “The impact has been felt across out-of-stocks, shipment delays, logistical delays, loss of revenue, loss of income, empty shelves, and trying to keep higher levels of inventory with the anticipation that the next delivery might not come,” said Dennis Williams, executive vice president of procurement for NCD.
In its recent “2022 U.S. Grocery Shopper Trends” series, FMI—The Food Industry Association, in partnership with The Hartman Group, said that shoppers are less anxious about contracting an illness while shopping, but their concern grows over product availability and pricing. The FMI report shares that nearly half of survey respondents (45%) see out-of-stock items as an issue.
Joe Tripi, senior vice president of Tripifoods, said they are experiencing a loss of sales on customer invoices ranging from about 3 to 5 percent, based on manufacturer’s out-of-stocks and production issues. “This has caused us, and our customers, to reevaluate products that we currently carry that are having supply issues,” he said. “We have brought in similar products from other manufacturers to offer our customers an acceptable replacement. Overall, our sales volumes are up considerably, even with these unprecedented out-of-stock situations from the manufacturer.”
These issues have created the perfect storm for near-historic inflation. The U.S. Labor Department reported in April that from March 2021 to March 2022, the consumer price index jumped 8.5 percent. That is the sharpest increase in 40 years.
A Bloomberg article published in late March suggests Americans should budget $5,200 more this year because of inflation. Prices for food and energy account for more than 40 percent of that increase.
“Inflation has hit every input in the snack category,” Tullis said. “The total impact is staggering.”
Utz is working hard to cut back where they can, Tullis said, including price adjustments, product weight adjustments, limited promotions and alternative materials. Tripi is rotating in new products with more consistent availability. NCD is focused on a more efficient ordering process and better lead times with manufacturers.
“The impact on retailers has been exactly the same,” Williams said, “difficulty ordering products, empty shelves, loss of sales, loss of revenue and loss of income.”
As these problems trickle down, customer frustration ticks up, said Andrea Karns, vice president of sales and marketing for Karns Foods. Karns said the frustration among shoppers is noticeable. The grocery retailer is working closely with its suppliers on product availability, promotions and pricing to help alleviate the sting at checkout.
“While many individuals have become accustomed to product issues, their patience is starting to run thin,” she said. “Regarding price increases, shoppers feel it and see it. They are shopping more intentionally than ever.”
Mirroring 2020, shoppers nationwide are noting a shortage of meats and eggs. Karns is launching a creative new program in May to beef up stock in its meat department. Last year, the central Pennsylvania grocer announced a new partnership with local beef farmers to help control supply and keep local farmers in business.
“The biggest shift for Karns is that we recently changed our fresh case beef. We now own our own herd, which will better secure our supply chain,” Karns said.
Sheetz has kept shelves stocked by considering new and different products. Coffin said relationships also are key, helping them to negotiate with suppliers when in a pinch. “Our operations team does a fantastic job and has really been able to pivot.”
Maureen Gillespie, a spokesperson for ShopRite, recognized that supply is a problem for all retailers right now, but their stores have remained staffed and stocked.
“While there may be limited availability of some items, we are confident that our customers will find everything they need, thanks in large part to our dedicated associates and strong relationships with vendor partners, local growers and suppliers,” she said.
Customers seem to understand the daunting challenges faced by grocers. For ShopRite stores, owners are part of the community and understand what shoppers need, Gillespie said.
“We are a low-price leader in the market, and our weekly sales and promotions throughout the store have always been designed to help customers save,” she said. “We also have a new program called Locked-In Price, which guarantees prices and locked-in savings on hundreds of popular items throughout the store for a limited time, generally four to six weeks at a time.”
As the world of food and beverage retail has learned to expect the unexpected, Williams said one of the most important things is maintaining strong communication. With manufacturers, communication enables NCD to develop better contingency plans. With customers, it helps them to work through challenges. “Communication with manufacturers and customers are helping us and our customers to stay prepared,” he said. “Our customers need to be aware that these issues are a continuing challenge. Unfortunately, we have no control over inflationary factors that are affecting all of our businesses today, but we refuse to accept this new norm and are continuing to find different ways of easing supply chain, product availability and pricing challenges.”