Why are shops are running out of flour and yeast? This is now a common situation across UK and Ireland retailers.
Firstly, consumer responses have changed as people have more time at home, are concerned about the availability of staple food and have begun to bake bread in large quantities (Breadmaker sales were up by 670% in the UK in March). Secondly, the supply chains are complex and packing for household quantities has become a bottleneck. Normally, 15% of flour produced goes into household size packs with the rest into wholesale and commercial bags. In March and April that demand has trebled to reach 45% of total demand for flour. Hence, some retailers are selling flour bagged up in local stores and some have empty shelves. Shortages of yeast have exactly the same root cause – plenty of bulk yeast but limited capacity to pack in household quantities. So, how are the food retailers responding?
The key dynamics in the UK and Ireland retail profile have been the switch from ‘out of home’ to ‘in the home’ consumption as restaurants, cafes and take-aways have closed and people go out less. Panic buying in March and early April drove demand up in certain product categories such as tinned food, home baking products and staples like rice, flour and pasta. Initially this also led shoppers to shop more frequently and queues developed as supermarkets opened. However, in April, the trend in shopping has reversed with many shoppers reverting to a pattern of larger less frequent shops on a weekly basis. This was last seen ten to fifteen years ago and is a dramatic swing back.
The retailers and manufacturers have had to respond rapidly across their supply chains. Initially that required controls on purchase quantities, hours opened and increased labour. Shelves emptied for several weeks but now patterns of buying have settled down. Customers shopping online increased dramatically and retailers have seen a 150% growth in sales in UK and Ireland through this medium, and that appears to be continuing.
The key areas for retailers to focus on now are:
- Labour availability and flexibility: Will the immediate need for more labour in store remain or is it more likely to drop off? How will the ability to service the growth in online demand be sustained longer term?
- Simplification of the supply chain: There is already a significant reduction in product range that is also being felt by the manufacturers with less manufacturing change-overs, and improved order volumes by product. This reduces the cost of supply and simplifies in store processes
- Supply into the retailers distribution centres and stores: Fresh fruit and vegetables are becoming a focus area as the summer period puts pressure on labour to pick and pack. Traditionally this labour has come from workers from Eastern Europe, and the crisis is limiting that option despite emergency moves in the UK and Ireland by growers to ship planeloads of workers in. Suppliers themselves are under huge financial pressure as markets change and are dislocated, and cash flow stops. Retailers are now looking to support by prompt payment and working directly to streamline supply.
Supply Chains have had severe dislocations and further disruptions will occur. It has become increasingly important for retailers and manufacturers to stay aware and flexible:
- Globally borders have been closed to people movements and in some places to goods and vehicles.
- Where borders are open there are restrictions on the movements of some goods.
- Capacity on sea and air transport has been hugely impacted by different factors driven by labour, equipment and schedule disruptions.
- Asia is ahead on the Covid-19 curve and therefore is restoring supply chain connectivity, but Africa and the Americas are only now starting to see impacts – so complexity will continue to increase.
- Health and wellbeing of workers, and risk of disease transfer will continue to drive decisions ahead of supply needs.
- Government policies are key and vary immensely at present across the world.
As a result, manufacturers and retailers must have a full knowledge of their supply chains, especially where international supply is concerned. Points of entry into the UK and Ireland are under pressure due to lack of storage and the need to ensure safety and security of product from a health viewpoint. According to a survey by the UK Warehousing Association (UKWA) published in April, 90% of respondents reported facilities at full capacity, and suggested the overall market had just 10% capacity available. According to UKWA chief executive Peter Ward, that remaining capacity is likely to be full by early May. Supply routes from abroad that relied on air and sea have been hit by capacity constraints that look to be continuing for some months ahead.
All this requires both manufacturers and retailers to be aware of the international supply points and routes, and to break that understanding down to ingredients as well as the manufactured product itself. Going forward this will mean creating alternative sources of supply, and establishing responsive and flexible approaches.
In summary, the retail situation in the UK and Ireland remains volatile and changeable. This will continue as lockdown rules change and government responses to the health risk alter. What is happening in the UK and Ireland will be similar in other retail environments globally, but with different patterns driven by local, cultural, taste and political responses. Wherever you are in the world, as supply chain professionals it has never been more important to understand each aspect of the supply chain, and respond professionally using and sharing your knowledge and understanding.
This is an example of a business response from UK and Ireland which we are sharing as part of our global best practice resource to help you think about and determine appropriate responses locally.