In the battle to keep essential products flowing to store shelves during the coronavirus pandemic, Retail Business Services has been on the front line.
The service arm of food retailer Ahold Delhaize USA, RBS manages accounting, I.T. and supply chains for five East Coast grocery chains: Food Lion, Hannaford, Giant Food, Giant/Martin’s and Stop & Shop. (It plays the same role for online grocery retailer Peapod.) As such, it has had to grapple with multiple supply challenges arising from the pandemic, beginning with the widespread panic buying that occurred in the early weeks of the crisis.
RBS’s supported brands were already experiencing strong sales early this year, but nothing like what happened when the pandemic hit. Overnight, comps — the measure of same-store sales against an earlier period — went from around 5% to 100% higher. In the first 10 days of the lockdown, inventories in stores and at distribution centers were sliced by half. “Product went out the front of the store quicker than we could replenish at the back end,” recalls Chris Lewis, RBS’s executive vice president of supply chain.
As things began to heat up, RBS sought to boost inventory positions at its warehouses by an extra two weeks, bringing all departments back to within about 90% of previous stock levels within a week. At the same time, it secured extra transportation capacity and labor for the warehouses. The result was recovery of the company’s supply chain to 80% of normal inside of three weeks.
Such dramatic moves might seem obvious in the event of exploding demand, but not every grocery retailer was able to take similar measures. Hence the empty shelves encountered by desperate shoppers country-wide. So why was RBS able to replenish inventories so quickly when others couldn’t?
“We moved fast,” explains Lewis. “Because we were quick to the draw, we were able to get more than our share early on.”
The average grocery supplier was sitting on between two and three weeks of safety stock when the pandemic struck. RBS was able to stretch that period by getting creative. It began purchasing outside its primary supply channels for items such as paper towels, toilet tissue, canned goods, rice and soup.
Temporarily shut-down restaurants and food-service companies provided a fresh source of product, as did suppliers to college campus bookstores. “At one point, we had 500 truckloads of paper goods bought from the suppliers that support colleges,” Lewis says. “That helped to replace some of the gap.”
Access to additional labor was equally crucial. RBS drew on the furloughed or laid-off workforces of food-service companies. It was an ideal match. “They had no work, and we had too much,” says Lewis.
RBS also benefited from highly propitious timing in its long-term corporate strategy. Around the time of the $28 billion merger of supermarket giants Ahold and Delhaize three years ago, and well before emergence of the coronavirus, the unit announced that it was buying back three distribution centers that it had outsourced to C&S Wholesale Grocers. At the same time, it moved to set up two fully automated frozen-food facilities to support the two Giant brands and Stop & Shop.
“It was a big investment for us in technology and automation,” says Lewis. Yet the gamble is set to pay off handsomely, in that it will give RBS near-complete control over its supply chain, with the flexibility to act swiftly and creatively when a event like the coronavirus begins wreaking havoc with the grocery business. The same philosophy applies to the transportation leg, with RBS running what Lewis says is the largest private truck fleet on the East Coast.
RBS’s transformation is still underway. The unit is halfway into rolling out a new forecasting and replenishment tool to cover all of its brands, stores and D.C.s. Lewis says the pandemic taught a valuable lesson about the importance of having better visibility into inventory positions from suppliers to the shelf. “When we had a third party working for us, and we tried linking all that data, there was a lag.” In times of sudden crisis, any delay in conveying crucial information can cripple supply lines.
The strategy looks well beyond the current crisis, with an eye toward meeting rapidly changing consumer tastes and shopping habits. For all grocery retailers, the pandemic accelerated a shift that was already underway toward more online purchases, especially by consumers who wouldn’t have considered that option before they began sheltering in place. Now, many of them have become hooked on the convenience of e-commerce shopping.
“Whether online or in store, we need to own the ecosystem from end to end in order to fulfill customers’ needs,” Lewis says. “To have product at the right cost, and in stock where we want it, it’s pretty evident that we need to have control over critical elements of the supply chain.”
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