The Post-Pandemic Market: How Retail Grocery is Adapting

This post is the first in a series of three that look at how the grocery sector is dealing with the legacy of COVID-19 in a post-pandemic market. In this first post, we focus on the broken supply chain and see how the public sector is trying to fix it, in large part by recommending digital technologies.

In the second post, we survey how grocers are committed to sustainability goals despite the ongoing challenges of the pandemic, especially in light of climate change. And in the third post, we’ll demonstrate that the time has never been better to accelerate the digital transformation of every aspect of the grocery sector, for customers, in-store employees, and supply chain partners.

Since the onset of the coronavirus pandemic in 2020, grocery stores have been obliged to remain open as other retail businesses shut their doors or reduced hours significantly. That's because, like medical clinics and hospitals, food retail is an essential service, tasked with providing a population at risk of illness with a healthy diet. After all, while you can put off a haircut or manicure, you can't go without nutritious food.

Since the onset of the coronavirus pandemic in 2020, grocery stores have been obliged to remain open as other retail businesses shut their doors or reduced hours significantly. That's because, like medical clinics and hospitals, food retail is an essential service.

Global in its sweep, the pandemic is testing the capacity and capability of the food service industry in many ways: supply chain disruptions, depleted stocks, overbooked delivery schedules, inflation, and declining sales. All of which mean many frustrated customers.

According to the latest Retail and Consumer Shipping Report from the American Customer Satisfaction Index (ACSI), customer satisfaction with national grocery chains plummeted in 2020. And despite recent renewed confidence as grocers work on rectifying supply chain problems, customer loyalty to their favorite stores is still on the decline due to rising prices.

The Ongoing Labor Shortage

Perhaps the single most significant cause of supply chain woes is a persistent labor shortage. The employment situation has changed significantly since April 2020, when grocers could hire restaurant and other food-service workers left without jobs as lockdowns forced their establishments to close.

Now, with the economy rebounding and food service employees returning to their former jobs, grocers are having a hard time meeting their talent requirements. Making matters worse, vaccinations may also be a decisive factor, as nearly 20% of both food manufacturers and retailers are planning to require vaccination for workers—perhaps presenting another potential reduction to the labor pool.

Given the competitive environment for associates, grocery stores are making efforts to decrease the labor shortage: holding hiring events, raising wages, signing bonuses, and offering promotion opportunities for steady advancement. In fact, half of the $24 billion the food retail industry has already spent to compensate for the pandemic—that's $12 billion so far—went towards increases in payroll and incentive pay.

Unfortunately, despite these initiatives, a recent survey finds that current retail employees expect their employers should be doing significantly more to keep their existing workers from heading for the exits. Among the survey's findings: 42% of retail associates are planning to leave the industry.

Building a Better Supply Chain

As we all know, the biggest headaches caused by the labor shortage have been massive disruptions of the supply chain. Just a few examples:

• • A shortage of food processing workers is creating bottlenecks for dairy and meat products, forcing farmers to dump milk and euthanize animals to cut costs.
  • A lack of truck drivers is slowing distribution to a crawl along the entire supply chain, from farms and processing plants to warehouses and retail stores.
  • Fewer front-line workers in retail stores mean empty shelves caused by gaps in restocking inventory and longer waits for delivery or curbside pickup.

USDA estimates that pandemic-related lockdowns caused foodservice traffic to decrease by more than 80%. In response, President Biden signed an executive order in February mandating a 100-day review of supply chains to advance his policy to secure increased domestic production and ensure adequate inventories, security, and workforce.

Then in June, with the onset of global food inflation, the Biden administration set aside $4 billion in funding through the U.S. Department of Agriculture to strengthen and diversify the U.S. food system. Biden also created a new Supply Chain Disruptions Task Force to resolve supply-chain challenges that could threaten the country's economic recovery from the pandemic.

As a major component of the Biden plan, USDA is launching Build Back Better, an initiative to make the food service industry more resilient by:

• • Strengthening and diversifying supply chains for food production, processing, and distribution to benefit both businesses and consumers

  • Ensuring equitable market access for food producers

  • Aiding food production and processing

  • Improving food distribution and storage

  • Supporting food service workers
    
    

The New Demands of E-Commerce

The breakdown in e-commerce during the pandemic truly revealed how the food supply chain has changed over the last ten years from a linear system to one that has multiple nodes branching out in several directions. Any bottleneck at any one of the nodes makes it difficult to predict accurately the effect on distribution, fulfillment, or delivery--let alone product quality if and when stocks are replenished and made available to customers.

Because of the pandemic, we’ve moved into the digital world 10 years faster than originally estimated.

Understanding the new complexities of the e-commerce supply chain revolution will be key to fulfilling customer needs as they have been evolving in the last decade. If the pandemic has proven anything about consumer trends, it's that consumers have permanently embraced online grocery shopping.

While most shoppers are expected to return to brick-and-mortar stores some of the time, the vast majority are likely to be omnichannel consumers moving forward. A poll by the Consumer Brands Association found that 47% of consumers ordered groceries online for delivery or pickup and that 75% will continue to order online in the future.

Here’s the basic challenge: because of the pandemic, we’ve moved into the digital world 10 years faster than originally estimated. Yet our systems are often bogged down in outdated manual methods. It’s time to close the gap. 

Digital & Data: The New Era of Smarter Food Safety

Even before the pandemic and the Biden administration’s push for supply chain innovation, the FDA had already put forward their own version of supply chain digital transformation because of outbreaks of foodborne illness. In September of 2020, the agency created a rule for traceability of high-risk foods and published a blueprint calling for a “New Era of Smarter Food Safety.”

In short, the blueprint is strongly suggesting the food industry adopt digital technologies so that the supply chain is more transparent and agile. Recommendations include:

• • Using sensor technology to strengthen monitoring of critical and preventive control points, including temperature

  • Leveraging mobile, digital reporting tools

  • Digitizing audits and inspections

  • Adopting digital tools and managerial controls that prompt desired behaviors

Because the FDA’s schedule could require compliance as early as 2023, food companies are being pushed to start planning for implementation.

Given the pandemic, the rise of foodborne illness outbreaks, and new mandates by the FDA, this is an opportune moment to adopt digital technologies that offer real-time visibility into the performance of each node in the supply chain. Now is the time to think about digital engagement much more broadly—not just for online grocery shopping, but for in-store and in-transit experiences as well.

In our next post, we’ll see how leading grocers are recommitting to sustainability goals in a new market shaped by pandemic challenges, urgent climate-related disasters, and consumer pressure to heal both the public and the planet.

Read the rest of the series

• • The Post-Pandemic Market: A Commitment to Sustainability

  • The Post-Pandemic Market: Digital Transformation at the Tipping Point