Businesses get creative to battle Covid-19 drop-off
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When the UK government ordered the closure of restaurants in March due to coronavirus, Caws Cenarth, a small cheesemonger in the west of Wales, saw 85 per cent of its orders disappear overnight.
The cheesemaker mostly supplied the hospitality industry, including festivals and catered events — all things that were affected by the lockdown and social distancing.
The business realised it had to get creative. Its owner, Carwyn Adams, filmed a plea for people to buy the cheese at full price, half price or even just to take it off his hands for free so it did not go to waste. It was a success.
But pivoting from the service sector to retail was not simple. Employees had to learn how to use the internet to their advantage, improve their social media presence and deal with many small orders rather than a few bulk ones. Deliveries could not be guaranteed with the UK’s courier services under pressure, so some cheese did not arrive on time — and the company could not insure those losses.
“The big issue we faced was being thrown into a massive internet business from selling next to nothing [online],” says Ian Rowley, business development manager at Caws Cenarth. “[This] threw up problems with logistics as couriers are struggling at the moment, so we had issues with parcels going astray; we had issues with the volume of orders coming in. It was a steep learning curve.”
The oversupply of food across Europe that would have been destined for the service sector has prompted farmers and food associations to implore consumers to eat more of certain foods, whether potatoes in Belgium, strawberries in the UK or cheese in France.
Caws Cenarth was one of the luckier businesses. While the service sector accounted for the bulk of its orders, the cheesemaker already had some sales directly to supermarkets or households. That meant it had some processes in place to switch its focus to the retail sector. It also avoided some of the more dramatic scenes of dairy farmers forced to pour away their milk, and concerns that independent cheesemakers might not survive the lockdown.
But others have not been so fortunate. Supplying the retail sector rather than the services industry brings with it a raft of regulations that can hamper their ability to switch their business in the current climate.
One hurdle is packaging. The regulations governing food sold to consumers require products to bear sell-by dates, as well as clear labelling on ingredients. Branding is also an issue. Retail food suppliers know that branding is important to build a relationship with the consumer, but many suppliers that usually work with restaurants may not have this in place. “It’s nearly impossible to create that brand and have a relationship with the shopper,” notes Clive Black, an analyst at Shore Capital in London.
It is also more common to supply the service sector with frozen food in bulk packaging — so switching to unfrozen retail packaging units may prove challenging. Production lines need to be configured to cope with smaller-weighted products, which can require the costly installation of packaging machinery.
Supermarkets also wield great clout when dealing with smaller suppliers, who can be at the mercy of what the retailer wants: a certain type of packaging, for example, or fewer varieties of their products. “It’s a really fundamental difference,” says Mr Black.
Many food suppliers have preferred the hospitality industry over the retail market in recent years, due to the pre-Covid-19 growth in eating out and the thin margins when supplying the retail sector: Shore Capital says the market for food outside the home has been growing at twice the rate as food in the retail sector in recent years. That means pivoting a business permanently to retail may not make financial sense, and would reverse the decade-long direction of travel for many food businesses.
There are different legal considerations in the retail sector, too. Ross Denton, a trade lawyer at Baker McKenzie, points out that consumers get more legal rights than businesses in most systems — so a food supplier selling in bulk to a supermarket would face different challenges when selling directly to consumers on the legal as well as logistical front.
But even for suppliers that have been able to adjust to new markets, the outlook is unclear. Caws Cenarth says its production is at 40 per cent of previous levels due to social distancing and suppliers whose workers are on furlough. It is producing to what Mr Rowley calls “stab in the dark forecasts”: wholesalers are unable to guarantee orders and the hospitality industry is unlikely to return in full force any time soon. While households will replace a portion of sales, they will not plug the gap altogether.
One area where Caws Cenarth does see more certainty is online sales and it is launching a new website to cope with a jump in direct orders. With social distancing here to stay for the foreseeable future, Mr Rowley says: “For the next at least 12 months the internet will be a really important part of anyone’s business and you’d be crazy not to embrace it.”