The past few years have seen massive disruptions to the global supply chain, from shifts in consumer demand to labour shortages to geopolitical situations such as the war in Ukraine and lockdowns in China.
These factors have impacted the day-to-day running of businesses across Australia and the world and have forced companies to pivot and re-evaluate the way their business operates.
Looking at the P&C supply chain, Darren Park, CEO of United Convenience Buyers (UCB), said that across the value chain we collectively expect to buy products on-demand, through preferred partners and suppliers.
“This challenges supply chains to have the right product, in the right place, at the right time, and at a competitive price. This has been generally a stable platform for quite some time, but the world has changed. Australia is part of a globalised supply chain, that includes finished products and raw materials. COVID-19, natural disasters, cybersecurity breaches, inflation, trade disputes and many more events and behaviours continue to take their toll on our supply chains.”
While these are the obvious and well-known contributors, Park says that what people aren’t talking about is the existing and new market entrants that have accelerated their growth over the past 24-36 months, which have retrained consumers and shoppers to expect on-demand access.
“So, not only have we as retailers been dealing with massive supply chain vulnerability, but we also have shoppers that still behave like every item, is just one click away. That continues to be a challenge to manage.”
Theo Foukkare, CEO of the Australian Association of Convenience Stores (AACS), points to the current labour shortages as being one of the most significant factors affecting the supply chain.
“The challenges from the last two years are still with us and are affecting us all the way through from manufacturing, logistics, and warehouse management. Leading into Christmas, suppliers were constrained by how much they could physically get out the door to customers based on available staff. This is slowly addressing itself, however, I believe that it will still be an issue for at least the first six to nine months of 2023.
“Supply chain disruptions make it difficult to achieve consistency in store execution and customer availability, not only causing frustration for everyone, but also letting customers down. It also presents retailers with compliance challenges to their planogram range and promotional.”
Kristie Davison, Vice President Sales Asia Pacific, RELEX Solutions, a company that helps retailers improve planning in all functional areas, from forecasting and replenishment to planogramming and workforce optimisation, believes that we’ve had a series of challenging years and that 2022 was no different.
“While the pandemic began releasing its grip somewhat, Russia’s invasion of Ukraine flung us into a wartime economy, bringing steeply rising energy costs, inflation, and materials scarcity, unlike anything we’ve seen in decades.
“These challenges have become more acute within the retail and consumer goods industries, as shown by the rapidly shifting consumer behaviour we’ve seen in many markets. Retailers aren’t alone in feeling the pinch of increased commodity prices and have seen a reduction in consumer buying power as a result.”
This new challenge of reduced buying power as a result of record-setting inflation has imposed a new challenge on business following the years of supply chain disruption.
“Decreased buying power has forced retail customers to make hard decisions about the goods and brands they spend their money on. This need to adhere to a stricter budget comes at a poor time for retailers who find their margins shrinking as the cost of products rise.
“Even though it may be possible in some categories to raise prices and pass along the increases in raw material costs to consumers, it would be unfeasible in many categories. The retailers able to refrain from raising consumer prices seem to be winning in their markets across geographies.”
Dealing with difficulties
While it may seem like there is a perpetual parade of problems affecting businesses across the country, Park believes that recovery will happen, but it will take time, perhaps another 12 to 18 months.
“We need to see normalisation of labour availability (both domestically and internationally) and even though sea freight for example is slowly trending back from its highs, raw materials are still hard to access especially via China, where at the time of writing lockdowns are still in force, impacting manufacturing capacity. There are some other complex issues in play now too such as interest rate increases in Australia, which ironically may impact demand too.”
Looking at UCB, Park says that supply chain difficulties have affected their business through such things as “visible” as not being able to find your favourite energy drink, potato chip, or confectionery snack on shelf, to “less visible” but keenly felt increases in the P&C industry’s cost of goods sold (COGS).
“There are multiple actions we have taken and will need to take into 2023. We must, and we have, adjusted price, it’s a reality. But we need to temper that with the other reality, which is our UCB members are not large multinationals, UCB members make money from buying and selling merchandise and to keep competitive in their local communities, they may not always be able to extract the maximum profit from their merchandise.
“We will need to be more aligned with our trade partners about how we help them sell more, reduce cost, and share fairly in those jointly gained benefits.”
Addressing concerns over disparities between how different retail sectors have been favoured during supply chain disruptions, Park says that if you asked 100 people what they thought, then many will say Retailer X seems to be getting an advantage over Retailer Y, but for Park the answer is a little more sensible.
“If you can track inventory, manage shipping, and keep updated on which items are moving the fastest, in real time or as close to, it can appear that you have an advantage over a retailer that might not have some of that capability.
“What I will say though, is that many in convenience rely on many trade partners who are logistics experts, and my message is that I will be expecting to see more visibility from them across their business on my members’ supply chain positions in 2023.”
Foukkare acknowledged that he has heard the stories around how some retail channels, particularly organised grocery, are favoured ahead of others, but is not close enough to the supply chain to comment further.
“I believe that all retailers should be entitled to access stock proportionately to their sales and planned activities to ensure fairness.”
Davison believes that until recently a convenience store’s main competition was simply another c-store, but that has now changed.
“Quick commerce businesses have made aggressive moves into the convenience space, promising delivery of small baskets, as we saw this year with the ramp up of Metro60 in Australia. Quick commerce faces very unique supply chain challenges as consumers are increasingly looking for fresh food and food-to-go.”
Retailers looking to stay relevant must improve, streamline, and automate in-store operations to elevate the customer experience, claims Davison.
“C-stores have unique challenges related to their small footprint and high cost per square foot. They must balance high availability with the ever-present risk of waste and lack of backroom space to hold safety stock. They also need to ensure that their customers can find exactly what they want and quickly make a purchase.”
Offering advice to retailers, Davison says promotional planning is more relevant than ever as customer shopping patterns change and that many retailers still use a “copy and paste” method using the previous year’s data to develop their annual promotional plans.
“Considering how quickly customer demand and shopping patterns have changed these days, it is easy to understand why this approach is not the most cost-effective. As such, we found an opportunity in the market to improve how retailers and consumer brands use data and analytics to predict the impact of their promotional plans.”
While the challenges we’ve faced of late are likely to continue into 2023, Davison says that companies that can react quickly and nimbly are the ones who will make it through challenging times the best.
“I’m confident our solutions will continue to help retailers and consumer goods brands reduce their costs through improved efficiency, accuracy, and transparency throughout their supply chains in the coming year and into the foreseeable future.”
For Foukkare, he believes that great communication with partners will allow stock to flow into their most needed areas.
“While some suppliers can afford to bulk up their stock to satisfy their customer demand, other suppliers aren’t able to be given the shelf life. Some partners are looking at multiple supply/manufacture options and looking at more production locally, however this comes with its own set of challenges.”
Echoing Foukkare’s sentiments, Park agrees that having effective communication between all involved parties is one of the most important aspects of navigating supply chain difficulties.
“For too long, supply chain has operated as an important but rarely spoken about function. Very few trade partners bring supply chain to our table. UCB is a valuable and complex network with a supply chain that mirrors that.
“What can we do together to focus on consistent optimisation? What benchmarks are feasible to aspire to? How do we jointly share savings and also build efficiency and security for all? This is not a trade partner only problem, it’s a joint one and it needs to be treated in a way that supports mutuality of understanding.”
The importance of the power of communication as a vehicle to jointly share issues and look for sensible ways forward is important to Park and UCB.
“From my perspective, I want myself and my team to be involved and aware early, so we can help to decide if we solve issues or live with them.”
We want to hear from you
Are you a retailer who has experienced difficulties in acquiring stock? Have disruptions in the supply chain caused you to change the way you run your business? Reach out to Thomas at email@example.com to take part in an article on the challenges currently facing P&C retailers.
This article originally appeared in the Feb/March issue of C&I Retailing magazine.