Retailers and manufacturers are facing a new world in 2021, thanks to COVID, but if the resiliency of the supply chain proved anything in 2020, it is that they can adapt.
Tom Madrecki, vice president of supply chain and logistics at the Consumer Brands Association, joined Andrew Cox, FreightWaves’ senior retail analyst, on Wednesday morning to kick off Day 3 of the FreightWaves Global Supply Chain Week virtual conference.
Global Supply Chain Week, an eight-day virtual event, is being streamed for free on FreightWavesTV. Register here: https://live.freightwaves.com/global-supply-chain-week. Days will be dedicated to various verticals within the supply chain, including military/aerospace; manufacturing and building/construction; food/perishables; CPG and retail; energy/oil and mining/chemicals; automotive; and maritime.
Madrecki and Cox took a few minutes to look back at 2020 but focused much of the conversation looking ahead, including what grocers and consumer packaged goods (CPG) retailers are doing to build resiliency into their supply chains.
Madrecki noted that it is a mindset change that is needed, shifting from linear thinking about supply chains to a “networked mindset.”
“You are changing the orientation of something away from the pure, ‘what is the most efficient system possible?’ to building in resilience and risk upfront,” he said. “And that isn’t to say that efficiency isn’t still a part of that, but if you know that you are going to have what is increasingly a black swan event … if you know that that is going to happen, or you know you are going to have disruption, how can you build in a degree of replication or duplication in the system so you have the means to go to market?”
COVID triggered a shift to more collaboration among participants, which is part of the bigger shift taking place. Madrecki said that collaboration was initially triggered by basic supply chain questions — “Where is my toilet paper, or where is my product? But it is likely to have a lasting impact on the industry.
“We had a number of conversations with manufacturers that said they were able to get more done with their retail partners in the span of two weeks or even a day than they were able to get done in the last 10 or 20 years,” he said. “I do think it is here to stay, though, again because of that increasingly fast-paced nature of what business looks like today, and the fact that retailers need to shift and account for e-commerce growth and they are changing how they do business, which requires their suppliers — the manufacturers — to have that conversation.”
Madrecki said CPG retailers have learned they need to be both flexible and nimble so they can hit increasingly moving targets — including sustainability initiatives and consumer demands.
Cox asked Madrecki what he saw from brands during COVID that ensured they remained reliable and on consumers’ minds.
“The flight to reliability was one of the hallmarks of COVID,” Madrecki said, noting that the No. 1 factor in this was simply keeping items on shelves. “It makes sense. The manifestation of trust is when I go to the store, the thing I wanted is there.”
Cox said that online grocery sales increased to between 12% and 13% of overall online sales in 2020 — triple what it was pre-COVID — and has stayed at that higher level since mid-March. Madrecki is one who believes online grocery is here to stay, but that CPG retailers and manufacturers still have a lot of questions to ask and conversations to have to make it work effectively.
“It’s not just one monolithic notion of e-commerce grocery,” Madrecki said. “There are so many different iterations of what that looks like when it comes to going direct to consumer, or click and collect, and everybody is going to need to find their own way.”
Some products may not work in an e-commerce setting, he added, and no one has fully figured out the last-mile part of the equation.
“The last mile is a costly and not necessarily an easy space to play in,” Madrecki said. “Unless you can figure that out, make that cost-effective and make those margins work — especially given the CPG industry as it is, is not a high-margin industry — it’s going to be a really complicated and thorny issue for folks to deal with, but you have to have that conversation and you have to figure it out.”
Like e-commerce groceries, manufacturers looking to take advantage of direct-to-consumer markets may find it a complicated landscape.
“At the end of the day, folks may want the ability to purchase all of their products at a store so going through a retail channel or some type of consolidation makes a lot of sense [in that case],” Madrecki said. “I think what you will see is a plethora of different platforms dependent on the product category.”
He noted that prior to COVID, everybody “understood how the CPG-to-retail margin model worked — that’s the standard grocery model.” That model doesn’t exist anymore, though. Some customers may buy online, pick up in store, or buy online and have the item delivered, or select yet another option. “[COVID] has entirely disrupted what that model looks like, so people just need to figure out the financials that underlie all of that,” Madrecki said.
Cox and Madrecki also discussed technological advancements in the CPG sector, including contactless interactions, improvements to end-to-end visibility, and the elimination of paper processes; sustainability efforts in the industry; and the role government can play in supporting the supply chain.
What was clear throughout the conversation: The old way of doing business is no more.