By: Bob Goldin | Barry Friends
July 15, 2020
As we are painfully aware, the pandemic has – and continues – to have a hugely adverse impact on foodservice. We forecast industry sales will be down 30 – 35% this year and believe a recovery to pre-pandemic volume levels will take at least three years. Along with other analysts, we also anticipate that there will be a very significant (20+%) contraction in supply at all levels, most notably of independent restaurants.
The suddenness and severity of the pandemic created major supply chain challenges in most major industries, including foodservice. Somewhat paradoxically, simultaneous foodservice challenges included both excess inventory and supply shortages. While some product shortages still exist, the industry did make necessary, pragmatic and, in many cases, costly adaptations to an unimaginable and unprecedented crisis. We fully anticipate that the pandemic will be a “wake-up call” to buyers and sellers with respect to their supply chain practices. New and enduring inbound and outbound protocols (some of which are “overdue”) will be implemented to create a more flexible, responsive and secure supply chain. Supply chain resilience will take increased precedence over the traditional focus on low cost and efficiencies. Of necessity, trading partners will make concessions to meet the requirements of new business realities.
We fully expect to see the following 12 supply chain changes occur (along with many changes to manufacturing and product handling procedures). In light of extremely difficult and unpredictable industry and macro-economic conditions, the changes are going to be “sooner rather than later” as many industry participants have a deep sense of urgency to take immediate and meaningful action.
- SKU rationalization – the industry has long recognized the benefits of a more efficient assortment (e.g., improved working capital management) but, for various reasons, has been ineffective in its SKU reduction initiatives. For a variety of reasons, just the opposite has occurred as SKU counts have continued to proliferate. Operators are actively streamlining menus, which will somewhat enable manufacturers and distributors to eliminate slow moving and/or duplicative SKUs (or, at a minimum, use alternative means to distribute them). Minimum movement KPIs will be developed and implemented. Emphasis will be on a core assortment; for major broadline distributors, private label will be a key component (but it will be managed more “tightly”).
- Greater safety stock including more forward warehouses
- Shorter order lead times (from manufacturers)
- Increased use of redistribution (Dot Foods, Bunzl/R3, etc.)
- More diversification of supply sources
- More reliance on domestic suppliers
- In certain categories, smaller case sizes and/or more “variety” packs to accommodate for lower volume usage
- Fewer inbound miles (in other words, more “close by” suppliers)
- Given the reduction in average unit volumes for almost all operator types, a reduction of delivery frequency is likely (and/or use of smaller delivery vehicles), which will necessitate longer shelf-life on selected perishables. Depending upon their unique situation, some suppliers may also reduce their order minimums.
- Increased use of online sources (including Amazon, Walmart and Costco) and manufacturer direct for specialty items, special orders, slow movers, new products and the like
- Far more flexibility in delivery scheduling to minimize inevitable cost increases resulting from reduced operating efficiencies
- Dramatic increase in the use of technology for ordering, order status tracking, receiving, inventory management, and related functions.
We realize that many of the above changes represent a “sea change.” Companies that are able to move aggressively and thoughtfully to reinvent key portions of their supply chain will improve their odds for success. To revamp and optimize your “Go-to-Market” strategies and tactics, including supply chain, please:
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