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Consumer flexibility is forcing retailers to focus on agility
November 5, 2021
Authored by RSM Canada LLP
Joe Reilly, CPA, CA, CBV shared this article
The Real Economy Industry Outlook: Retail and food and beverage
INSIGHT ARTICLE |
Supply side constraints
Retailers continue to focus on managing inventory levels as they face supply chain and staffing pressures.
Shipping rates have climbed as goods from China experience longer lead times. Increased wait times for ships in the Los Angeles and Long Beach harbors have caused larger retailers to take matters into their own hands as they seek to be agile.
Walmart, Home Depot and Lululemon have all sought alternative approaches in bringing their goods to market. Both Walmart and Home Depot have secured their own vessels, with a focus on smaller vessels able to utilize alternative ports to get around the bottleneck. Lululemon, with its smaller items, is looking to air freight to circumvent the delays and land products closer to where they are needed. Even when ships finally reach the dock, limited staffing at the ports to unload containers or a shortage of truck drivers to get them to their destination all add constraints to the supply chain.
Impact of the labor shortage is not only affecting supply chains; heading into the holiday season, the lack of help in stores and restaurants could create significant challenges on the customer-facing side of businesses. Customer experience remains central regardless of the channel through which consumers choose to shop across a brand’s retail ecosystem. If retailers and restaurants cannot solve the labor equation in time for the holiday season to provide the experience customers expect, they stand to lose far more than just short-term sales.
Consumers are quickly adapting to the anticipated supply constraints around the holidays by starting their holiday shopping earlier. Like last year, retailers are mirroring the elongated approach by offering deals throughout the month of November to ease pressure on anticipated lower inventory levels.
Middle market retailers must look to data analytics to help with pricing and inventory to improve and maintain margins. Many retailers are utilizing their data to automatically adjust pricing based on real-time demand. While the concept of the dynamic pricing model has been used in the airline industry for years, middle market retailers have only recently had systems in place to start to utilize this model.
Outlook for rising costs in food and beverage
From farm to table, costs are rising across the supply chain, and despite demand continuing well above pre-pandemic levels, food and beverage businesses are reluctant to pass along costs. Through September, consumer prices for food at home and away from home outpaced producer prices for final demand foods by 8.6% and 8.4%, respectively. Those manufacturing, distribution and retail businesses caught in the middle are feeling the margin pinch the most.
While supply chain and operational disruptions stemming from the pandemic are expected to ease over the next 12 to 18 months, some cost drivers predated the pandemic and will create cost pressure into the future.
Relief in sight for commodity prices, but volatility risk remains
Food companies may get some relief in input prices heading into the end of the year.
After a pandemic-fueled surge in demand for agriculture products met disrupted supply lines, labor shortages and a La Nina weather cycle, prices for everything from grains to livestock soared to their highest levels since 2011. These increases found their way into household refrigerators and pantries, too. Growers have responded by increasing acreage dedicated to high-demand crops. The Department of Agriculture expects 93.3 million acres of planted corn in 2021, up from 90.8 million acres in 2020, with a yield expectation of 176.3, up 2.5% over the prior year. The result is a corn price of $4.99 per bushel, down from its peak of $6.74 in May. Other commodity prices have followed suit as price growth slowed in the third quarter.
While this still could be an area of relief for food and beverage companies, input prices are still susceptible to the risk of extreme weather events. According to the USDA’s summer weather review of Sept. 28, the droughts and wildfires of the West Coast and Pacific Northwest have severely damaged rangeland, pastures and other summer crops in those regions. It should also be noted that the United States experienced its hottest summer in 127 years, according to data from the National Centers for Environmental Information. Food and beverage companies may look for innovative solutions in agricultural technology and farm modernization to help reduce this volatility in the ecosystem in the long term.
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Source: RSM Canada
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