The one overarching topic ruling the news of 2020 is the Covid19 pandemic and it does not stop at the topic of supply chains. How could it? We all need products and groceries delivered to our doorstep more than ever. Retailers and logistic suppliers noticed this within the first few weeks and reacted swiftly. High street retail would suffer, but if one buying channel suffers, that always gives potential for growth to others. In this case online purchases.
It is no news that online buying has increasingly threatened high streets and in Q2 of 2020 high street retail was effectively in hibernation. Online retail needed to be more resilient, faster, and reliable than ever, as more customers wanted their purchases quicker and more conveniently. However, not everyone was set up to do this, and even those that you thought would be set up for success creaked at the seams and had to close their doors to new customer, for example Ocado.
The changing approach to risk
There have been retailer collaborations in the past, a good example being Calvin Klein with Amazon in 2017 on the college campaign, however, the amount of those collaborations has significantly increased over the last year. Food service took this a step further – Côte quickly diverted its central kitchen direct to your door, providing restaurant quality meals ready to re-heat in the comfort of your own home.
But what stopped retailers from doing this earlier? Risks include making yourself reliant on another party, while customers get used to receiving orders quicker or using a specific marketplace to buy their goods. Changing your collaboration partner in that case would always include a risk of losing a percentage of customers. Being in this economic dependence gives the bigger party the upper hand and the deal becomes volatile to price elasticity. A simple deal can evolve into a pricy one-way partnership.
So why did so many retailers decide to collaborate on their supply chains during the pandemic and chose co-opetition? The answer is simple – the upsides have outweighed the downsides, and this is now becoming the future of retail. In order to prepare your business for this economic crisis, it is crucial to take risks to survive this downturn.
Part of these are delivery time, cost, customer service offerings and inventory. Joining forces with another company and achieving this is usually a long-term endeavour and can give you the security of a long-lasting partnership. In order to survive in the current environment, businesses, and their supply chains, need to react to innovation and market demands quickly. The rapid onset of the pandemic has been a good teacher and shows that making many of these changes is easier said than done. Big companies, which own large parts of their supply chains like Amazon, Alibaba and Walmart can guarantee same day fulfilment and invite other brands to jump onboard. Why not?
Opportunities for growth
Deliveroo has risen in the past year and grew significantly in 2020. Originally only collaborating with restaurants, their client base is now including smaller off-licence stores, larger supermarkets like M&S, who test-drove their online range for their Ocado collaboration, and other grocery brands like Holland and Barrett. H&B being specialised in healthy living groceries has made a significant jump here in terms of their ecommerce strategy. Whereas you can order online for £2.99 delivery in 3-5 working days, a Deliveroo order offers the same delivery price for instant Deliveroo. This makes H&B more convenient to order from compared to their competitors.
In particular, the demand for food deliveries has increased as people are less inclined to leave the house for grocery shopping during lock down. Not just Deliveroo benefited from this trend, Ocado’s share price has risen by 83% over the last 6 months and is now worth twice the value of Morrison’s and Sainsbury’s combined. Ocado is now selling their grocery picking expertise to other supermarkets with Ocado Solutions, as supermarkets without the technological know-how struggled during the run on supplies in the UK in March. Over the summer, Ocado completed their partner switch from Waitrose to M&S products and after a few technical issues at the beginning, this turned out successful.
Collaboration in Retail is not just between retailers of complementary capabilities, but with their broader supply chains as well. The collapse of supply chains as the scale of COVID became apparent magnified a problem that the commercial race to the bottom, and increased dependency on the Far East or other global sources, had created, in that supply chains got longer, more complex and geographically distant, let alone the impact on UK Plc.
Things need to change and there is a push by consumers and retailers alike to prioritise supply security and the ESG benefits of nearer-shoring over the COGS benefits of far east sourcing. UK Plc has also improved its manufacturing efficiency in some categories now making these credible commercially and a no-brainer overall.
Supplier management practices need to change too. Fresh grocery apart, Retail trails many other industries in how they effectively manage their supply partners with short term focus, despite multi-year relationships, poor alignment of demand and supply information sharing and almost adversarial approaches to supplier management when you compare to other sectors.
Changing source of supply or how you manage a particular supplier is not simple but we’ve worked with many retailers in helping them with these challenges to increase supply chain resilience through identifying new suppliers and supply chains that reduce risk, increase agility, build brand relevance in the ESG economy and control cost.