The impact of e-commerce on the retail grocery industry and perishables supply chains has created a phenomenon called Micro Supply Chains. It’s driving rapid change across the industry, which has presented challenges for all stakeholders, but also new opportunities to differentiate and capture market share. What are some of these challenges and opportunities? What actions should grocery retailers and their perishables supply chain partners take to succeed in this new environment? What will ultimately separate the leaders from the laggards in this industry?
Impact of e-commerce on perishables supply chains
Todd’s nearly 27 years in the perishables industry gives him a unique perspective on e-commerce’s impact. I began our discussion by asking him what he’s seeing. Todd notes that e-commerce in the retail grocery industry is growing at an annual rate of about 35% year-over-year. “Predictions are that nearly 70% of retail grocery purchases will be online within two to five years,” says Todd. “This is outpacing the ability for the grocery industry and its supply chains to accommodate this growth, especially for fresh and perishable goods. This can actually be a good thing because it means market share is up for grabs.”
What are micro supply chains?
I next asked Todd to explain in more detail how e-commerce is changing supply chain requirements for fresh and perishable goods. He comments that consumers tastes are changing, especially among younger consumers. They want healthier prepared foods, grab-n-go items and meal kits that are more like commissary offerings than traditional grocery retail. “These fresh and perishable ‘to go’ items not only turn over faster, have shorter shelf lives and require higher demand, they also require special packaging and prep time,” says Todd. “And you may only receive the orders for these items 10-12 hours before they are needed on shelves. On top of that, shelf lives are typically only a few hours to a few days.”
Servicing these rapid turnover special items has created a need for “micro” supply chains. These operations must move at a faster pace, be closer to retail store groupings and hold short shelf life items and packaging. “The rapid growth of demand for these perishable items and the special operations to service them is what we refer to as the macro growth of micro supply chains,” adds Todd.
Todd goes on to explain that the real challenge for grocers is ensuring a positive customer experience every time. “If the item they pick up is spoiled, or if what they ordered online or on their app isn’t there when they [or the Uber/DoorDash/etc. delivery driver] get to the store because of inventory issues, that’s a negative experience that can cost them a customer,” he notes.
Impact on transportation and logistics
The need to be close to retail outlets for rapid replenishment of perishable goods, together with the increasing preference of consumers for locally sourced produce, is fundamentally changing transportation and logistics strategies. “Where large grocery retail chains may traditionally have a few huge warehouses geographically dispersed with long truckload halls to stores, these micro supply chains require many smaller distribution sites close to store clusters,” explains Todd. “Instead of long haul, multi-day shipments, you’ll have more less-than-truckload shipments with much shorter lead times. Grocers will have to build consolidation and deconsolidation points into their logistics and transportation strategies to accommodate this. They also will have to develop relationships with a wider network of carriers to handle these shipments. And they’ll need to adapt their technology to support these strategy changes.”
How to create Micro Supply Chains
We talk a lot about how e-commerce has driven a digital transformation of supply chains, but Todd’s comments show that there is also the need for physical transformation to support micro supply chains. How can companies begin this journey, and what will ultimately differentiate the leaders from the laggards? And what benefits can grocers expect beyond creating superior customer experiences?
Todd had some great advice on all of these topics, so I encourage you to watch the full video for all of his insights and recommendations. Then post a comment and share your own thoughts and experiences about creating micro supply chains.