Wednesday, March 18, 2020

The Retail Supply Chain Has Inverted – Formerly Efficient Operations Now Least Effective – Small Markets Best Supplied


Ꮃ³Ꮲ is spending time on this issue because the food distribution sector is the most important sector in all commerce. Having some familiarity with the supply chain might help people to understand the challenges; and possibly help you locate product.

The Inversion – Big chain markets; those who spent millions developing their own proprietary ‘just-in-time’ distribution networks and automated ordering systems; are currently the least equipped to deal with the level of demand.  Meanwhile smaller chains, or mom-and-pops, who rely on third-party brokered distribution are faster to respond.

Several factors have increased retail market demand for food products and non-perishables.  People stocking up, kids out of school, some panic shopping (example toilet paper) and now curfews/quarantines have people purchasing more for ‘meals prepared at home’.  Add in a level of closed restaurants and the demand on retail food markets is severely stressed.

In major urban areas the larger retailers are unable to keep up with demand.  This is creating an outward spread as people drive further and further distances to find their needs.  Those who travel a distance ultimately stock-up more; thus the outward spider web-cycle is created.  Based on ground reports Atlanta Georgia is a prime example.


Depending on the distance from the distribution center [SEE HERE] large regional chain outlets are now in a downward inventory spiral without escape.  That is: compared to their needs they are not getting near enough product.  So long as demand continues at a level beyond distribution capacity this will only get worse; especially for those stores more than 50 miles from their distribution hub.

Costco announced Wednesday that it will start to limit certain items members can purchase in response to the surge in business from the coronavirus, though specific items were not outlined. The membership wholesaler also stated it will start limiting the number of members in stores at one time and asked customers to practice social distancing when shopping. (more)

Part of the reason the larger chains like: Safeway, Kroger, Albertsons, Publix, Mejers, etc are in such bad shape is their reliance on thin ‘just-in-time‘ supply chains.  While the proprietary distribution process and JIT is more profitable, it collapses when that distribution needs to triple overnight.  Once a point of extreme diminished inventory is reached, it takes a long time to recover.  That issue is now crossing into Club stores.

If the consumer demand keeps up at the current pace, these larger regional food retailers will not recover; the outflow will always exceed the ability of the inflow to catch up.  They will further reduce operating hours and shoppers will remain frustrated.  Until the demand slows down, they simply cannot catch up.  They are operating beyond capacity.

Meanwhile the smaller area supermarkets (1 to 10 stores), who use much more costly brokerage distribution, are able to get replenished much faster.  Right now they are benefiting from a much more responsive supply chain.  In the long term that will change, but in the current phase those outlets are the best option for a better in-stock position.

A limited number of fixed assets are also a choke-point for larger chains blocking their ability to ship product.  Proprietary tractors, trailers and truck drivers are exhausted and the demand on leased haulers and independents to fill the distribution gap is no-where near enough.  The entire country is currently looking for trucks, trailers (refer and dry), and drivers to handle the increased logistical demand.

As a direct result, during this phase of extreme demand, the big regional chain stores, who are usually the most efficient, are now the least dependable; particularly if they are far away from their distribution warehouse.  Smaller retail operations are doing much better.

So if you are looking for product and have the time to travel (gas is cheap now too), you might consider these options:  (A) travel to the retail stores closest to the distribution centers for regional/national outlets (should be less than 100 miles).  (B) travel to smaller retailers that don’t have as many stores.  Don’t forget to bring a cooler for perishables.

[However, a note of caution on the “B” option… over time (less than 10 days) they too will lose their ability because the broker distribution network (for independents) will end up in the same position as the larger corporate and regional retailers.]

Hopefully this panic shopping will stop soon.  There is no need for many of these shortages other than the psychology of worry and fear.  The fear is made worse when someone goes to their favorite store and sees aisles of empty shelves… that then creates a psychology to purchase even more… and so it goes.

Hopefully all restaurants will adapt soon, there will be more food options available, and people will settle down from the panic shopping.   The seemingly endless quest for toilet paper is really one of the weirdest shortages.

This too shall pass….

Try to avoid this (crazy video):



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