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Breakfast With Relog - REALIGNING AND OPTIMIZING DISTRIBUTION OPERATIONS FOR COVID-19 NOW

Since April 2020, Relog has been part of a Covid-19 weekly forum with some of the major South African grocery retailers to discuss and plan ways to ensure food availability for consumers during the pandemic. The forum was and has been a successful, collaborative platform which has benefited the industry, consumer, and South African economy. As grocery retailers are classified as essential services and were operational throughout the highest levels of Covid-19 lockdown (since 27th March 2020), they have had considerable experience in dealing with the distribution and supply chain challenges, as well as safety requirements brought forward by the pandemic. The intention of this webinar was to pass on the learnings gathered during the forum sessions to assist the wider supply chain community in sustaining their stock availability – Although based in the grocery industry, the content discussed is translatable to all distribution operations in all industries. The webinar commences with a presentation by Relog which includes a summary of the learnings from the weekly forum. Thereafter, there is a panel discussion with some of the retailers involved in the forum. Topics discussed in this session included: affected areas of operations, measures to ensure production uptime, minimising risk to staff, keeping within the Department of Health’s and Department of Labour’s requirements, PPE, contingencies and redundancies, transportation challenges, social distancing measures, local and international case trends, and more!

 Q&A - Panel Discussion

Prinolan Pillay

with an increase in number of cases and shutdowns at stores, does this not pose a food security risk as we move toward peak infections in 2 months?

Gary Benatar

From my perspective store closing is limited and sufficient alternative stores exist for shoppers, DC’s which support anything from 200 – 600 stores create a major risk if closed

Mark Mountjoy

Massmart has an extensive store Network and on-line capability to service customer need. The food safety protocols adopted will ensure all food safety concerns are addressed. Customer and employee security is at the forefront of all our protocols

Mahen Naidoo

What is the implication on range/assortment size ? Are you seeing any shopper behaviour that suggests you should reduce the range in certain categories ?

Gary Benatar

I guess its still early to pick up enough trends, lots of noise (possibly poor supply – which would skew data – however, at the lower end price will drive change

Mark Mountjoy

We strive to meet all customer preferences. In instances where product vendors may not supply the exact range/assortment size, we regard this as temporary and we offer our customers alternatives whilst the temporary issues are resolved.

Dewald Geldenhuys

Hi Gary, just out of interest, Given the current change in the retail climate, what shifts have you seen to accommodate for pallet automation in the distribution centres or bulk stock holding pattern shifts as opposed to a huge drive in lean operations and micro fulfilment?

Gary Benatar

There is a drive to remain obviously still efficient in the DC. Some products safety stock has increased to accommodate the risk of availability. Pallet automation is not a focus of retail DC’s. Definitely a drive in lean operations – micro fulfilment is a focus for small items and slow movers but more focussed on ecommerce. At this stage South Africa is far behind Europe or America and majority sourced in store – not Dark Warehouses

Floris Visser

Do you see the volumes in e-commerce being sustained or have people been moving back to traditional in store buying?

Gary Benatar

It was expected to grow, this has just given it an accelerator, it will continue to grow as long as the service and cost is competitive

Mark Mountjoy

I concur – we expect e-commerce volumes to increase COVID has brought about South Africa’s ecommerce inflection point sooner. Many customers have changed behaviour during this time and while we believe there will be some normalisation post-COVID the growth will be sustained.

Saad Chothia

Good morning guys. We’ve see some strong growth (mid teens) in food retail sales in China , US, AUS in April, May and June? Shall we expect similar growth rates from SA food retailers during and post the lockdowns.

Gary Benatar

We are seeing similar pick up due to the closure of restaurants, fast food outlets and workplace (where canteens provide at least 1 meal a day) so there is an obvious drive for more consumption at home. Post lock down will depend on disposable spend to eat out and confidence that its safe. Thanks

Mark Mountjoy

The food retail and wholesale sales are expected to continue to grow post the lockdown Retail continues to grow however in the wholesale sector, informal channels are growing however formal trade has been impacted by business closures or reduced activity.

Kyle Ashford

What is the forum view of black Friday trade and volumes this year? Are we expecting a significant difference in demand due economic downturn? and do we believe buying trends will significantly change i.e electronics etc?

Gary Benatar

Hard to comment still a while away, but stretched consumers will be looking for a bargain.

Mark Mountjoy

Massmart offers incredible Black Friday promotions and we shall continue the trend this year. Black Friday planning is underway. Any promotions that drive congestion in stores would be irresponsible.

Yash Patel

With higher customer demands such as wider SKU range, shorter lead times, retailer going to the customer, etc.. how are food retailers dealing with these challenges?

Gary Benatar

This trend has been ongoing for years and retailers have been improving supply chains to be more reactive and increase availability. E-commerce while small is on all the retailers radar. The challenge will be to measure and react to the changes in customer demand during and post COVID-19

Mark Mountjoy

Massmart is ensuring we have an agile supply chain to meet customer demands.

Anonymous Attendee

how are we seeing throughput at the ports at the moment ?

Gary Benatar

There is still a significant backlog, its improving and to be honest our ports are generally congested and underperforming. However, new systems and equipment is in the pipeline and I’m hopeful of a long term improvement. I have a personal opinion that we need to move more containers by rail inland and reduce congestion of truck into and out of the port, but this is a longer term fix and will require significant investment and commitment from both government and private sector.

Mark Mountjoy

Port congestion and the ramifications for supply chain are being managed. We are proactively managing the situation with all our stakeholders.

Kathryn Robinson

You mentioned the spikes and changes in buying habits (and the resulting frustrations to demand planning), do you think we go back in time to the same buying patterns as before post virus?

Gary Benatar

I actually doubt it – we have learned new shopping and consumption habits – I expect somewhere between. I’m not an expert, just an opinion.

Mark Mountjoy

We are continuing to adapt and customise our supply chain in order to meet consumers needs – irrespective of their shopping choices and preferences

Cobus Broodryk

Are retailers looking to diversify and perhaps localize their suppliers?

Gary Benatar

Food is predominantly Local with some international promotional and speciality imported – I expect this will continue if there is demand and a sustainable supply chain. General Merchandise is predominantly imported, this will only change as the availability and cost of local supply becomes viable.

Mark Mountjoy

Massmart strives to offer the consumers the best shopping options and we therefore source products locally and internationally. We are a proud South African retailer and shall always continue to support local suppliers and also develop the local supplier base ( reference here to our successes in the development of local suppliers via our SDF – Supplier Development Fund initiatives)

Anonymous Attendee

Can you provide your view on e-commerce in food retail and whether this is long term sustainable trend and a margin enhancing method of sale? Reason being is that food retailers are unable to up sell and e-commerce is a lower margin business?

Gary Benatar

As with any business economies of scale count. As demand grows the opportunities to invest in distribution solutions that lower cost for E-commerce makes it more competitive, but at the same time the delivery mechanisms add cost. We are seeing a significant shift to “click and Collect” which is generally offered free and with delivery charged unless the order is large enough to accommodate the costs.

Mark Mountjoy

The E-commerce growth experienced around the world is also evident is SA. We are constantly reviewing and augmenting our e-commerce offering to our customers. DB – Low density home grocery shopping is difficult to be profitable without unattractive convenience charges. Nothing is cheaper than a customer doing their own picking / shopping. In order for grocery home delivery to be sustainable densities (geographic participation) need to increase dramatically. We agree that click and collect is a more sustainable model.

Anonymous Attendee

Are you seeing any reduction in the number of incidents at the DC’s

Gary Benatar

I am assuming you are referring to COVID-19 positive people being identified in the screening, the DC’s are a reflection of the broader community and as it picks up in the community we see a parallel in the DC’s Cape Town is now reducing and Gauteng increasing.

Mark Mountjoy

The covid-19 incidents affect all spheres of our society and accordingly we have implemented robust protocols to manage any Covid impacts at both our stores and DC’s

James Wates

How well have the 3PL's performed from a Distribution perspective. Were there any specific issues?

Gary Benatar

Hard to comment, but everyone in the supply chain has been amazing and trying

Mark Mountjoy

As mentioned at the breakfast, the supply chain and stores team have been remarkable during the execution of our distribution and selling activities. We regard our front line staff and distribution partners as absolute heroes.

Anonymous Attendee

With the major Port congestions of over 3weeks in the Cape town, how have you mitigated the supply risks?

Gary Benatar

This has had little effect on Food supply more on GM and speciality items, which I also expect luckily has had lower demand.

Mark Mountjoy

We have not been impacted by port congestion in Cape Town

Anonymous Attendee

How are you dealing with the on and off alcohol sales? How are the manic buying periods impacting the supply chain? Further, what is the atmosphere with the supply side? I assume they are sitting on major volumes.

Gary Benatar

Its part of the challenge of being in the supply chain and the Government going out of their way to challenge us.

Mark Mountjoy

As stated at the breakfast – we would urge the resumption of liquor sales. We have learnt from other countries regarding the sales of liquor doing Covid periods and we are confident( as proven by our actions with the resumption of liquor sales) that we are geared and able to offer customers the sale of liquor in a responsible manner.

Hilton Gischen

Are participants experiencing ongoing congestion at the ports and what have they done, if anything, regarding demurrage/penalties, etc which is caused by Government lockdown and appears to be way out of proportion to the holding over costs incurred by shipping companies

Gary Benatar

As Foods were essential and most retail products were released I expect the retailers on the Forum had little demurrage and delays. However, Demurrage is in place as a deterrent for the user to not use the container as extended storage at the cost of the shipping lines (owners of the containers). I believe as the delays due to COVID-19 and the government regulations are the cause of the demurrage this should be reduced and negotiated. Speak to your shipping agents and the chamber of Commerce.

Mark Mountjoy

Despite the initial port congestion, we have managed the import and export supply chain effectively during this time. We do however require the port management to receive urgent and ongoing attention by the port authorities

Johann Nell

I had some technical difficulty so joined the call late, missed the presentation.

Gary Benatar

Apologies, however a full recording is available on our Website

Mahen Naidoo

What further actions/investments are required to enable the shift to e-commerce to make this efficient for the shopper and retailer ? Lead-times are still very long for shoppers and I assume costs are high for retailers.

Gary Benatar

It’s a bit of a catch22 dependant on scale and volume to invest in the right solutions and as this sector grows its very dynamic so often investment is short term as capacity is outstripped very quickly. Using stores as the basis for picking and then moving to specialised e-comm facilities probably gives learning’s and scale. With respect to lead times, this is dependent on the location, availability, the customer model and ultimately what the customer is prepared to pay for. I think there needs to be significant customer education and change in perception before this become a truly profitable route to market. At the moment its largely a need to be place and test the market, Also largely driven my marketing and It in the organisation. Supply chain considerations are often a second thought.

Mark Mountjoy

DB – Traditional retailers in South Africa must find economic models that support ecommerce without the heavy burden of fixed costs. Globally, e-tailers with heavy investment in dedicated assets for ecommerce continue to lose money. Leveraging store inventory and proximity to customers through existing store assets is the best way to sustain ecommerce growth in a developing ecommerce market.

Anonymous Attendee

Have tests been conducted to determine how effective store decontamination is?

Gary Benatar

I think the store decontamination is a bit of a waste as the virus is largely spread by droplets that have a short cycle life in the air. Surface contamination is possible, but hand hygiene does prevent spread. I think the decontamination is done as a health department requirement and obviously should be effective if using the correct protocols. I just wonder is it really worth the cost.

Mark Mountjoy

We have ongoing reviews of all our protocols and benchmark the most appropriate protocols. In this regard I refer to enhanced cleaning scheduled with approved sanitization chemicals.

Johann Nell

My question though- which consumer goods has showed the largest decline? based on these trends, how much less will retailers be able to sell? can this still be viewed as a cyclical occurrence or are there structural trend changes that are already notable by supply chain management?

Gary Benatar

Obviously the products restricted in Levels 5 and 4 as well as liquor and Cigarettes have had significant declines. Some products will revert to old patterns, but some products will certainly remain lower in the future. Seasonal and fashion items also had significant lost potential in sales in missing the time that those items were in demand. It’s difficult to plan the future post COVID-19 expected effects, but will be interesting to see how this develops in the next year or so.

Mark Mountjoy

I agree with Gary’s comments about liquor and cigarettes. We have seen consumer buying trends developing and we have been able to meet these. E.g. increase in home baking during the initial phases of the lockdown

Darren Cohn

Have any material size DCs experienced an outbreak and, if so, how long were they down for, how were the stores they service dealt with, etc

Gary Benatar

All the DC’s have had outbreaks, however some people that worked in the DC were identified as infected due to the screening process. None of the DC’s were fully shut down due to our planning and sectioning of the workplace, maximum downtime was typically 6 hours for the affected section and minimal effect on the stores.

Mark Mountjoy

We have strict protocls in place and we have not experienced any disruption to our supply chain. It is also worth mentioning that we have a geographically dispersed national supply chain grid that we can effectively mobilise as required.

Stiaan Kuhn

I am assuming that your stores are also under pressure to maintain on-the-shelf availability in stores, certainly on high-demand items and supply related items. How has your buying and merchandise teams tackled this issue?

Gary Benatar

From a general perspective I know that all the retailers and supply chain personal have been working tirelessly to ensure on shelf availability. Its unfortunately a difficult task when the supply availability is constrained.

Mark Mountjoy

Our merchants have been resourceful and effective in ensuring consistent on shelf availability

Muhammed Kachwee

Are retailers conducting any exercises to reduce the number of handling touch points within their supply chains (manufacturer - DC - store - return) to reduce physical handling of products?

Gary Benatar

This focus is actually and ongoing from before the pandemic, as any touches cost and are opportunities for delay, damage or in this case contamination. So One-touch merchandising and lean and efficient operations are a core of what we as consultants are developing with our customers.

Mark Mountjoy

I Concur with Gary’s comments.

Kristen Collins

Can you speak about the change in the basket size and shopping frequency of consumers in May and June? What changed since the very start of lockdown, where things were more extreme?

Gary Benatar

Definite reduction in frequency of shopping and increase of basket size. The initial lockdown panic buying was its own problem.

Mark Mountjoy

There was an element of panic buying at the commencement of the lockdown ( e.g. toilet paper) but as consumers realised that supply would be consistent, consumers reverted to needs based shopping ( this includes the extension to online shopping)

pillaym

has the supply chain for retailer adjusted drastically during Corvid 19, is it affecting the DC arrangements or buying pattern - how are you dealing with suppliers on this? Stock holding time, replenishment, store deliveries etc?

Gary Benatar

To a large degree it’s been business as usual in food and essential items – trading has been ongoing and other than adjustment for masks, sanitisers, cleaners and “toilet paper ?” which have become fast movers and then limitations in Liquor and Cigarettes, most supply the same. There has obviously been a need to try increase stockholding of potentially limited items.

Mark Mountjoy

The supply chain teams have adapted to ensuring supply as dictated by any Covid regulations. The Massmart supply chain has not experienced any major disruptions.

Shane Kiernan

How are we preparing for the wave of poverty and recession that will follow, both reduced demand across all LSM's and social unrest ?

Gary Benatar

Good question and will be interesting to see how this develops over time. One can try predict but whatever one plans will be different, I guess multiple planning scenarios should be put in place.

Mark Mountjoy

Massmart will continue to ensure that consumers will receive great value at price points that are suited to their needs. We also have a clearly defined community support strategy where we donate to various food banks

Mariska van Heerden

If someone tests positive in your DC - are you required to name the employee to isolate everyone that came in contact with the person, or are you allowed to protect the name of the infected person. I have heard that there might be a stigma around people testing positive? Just want to get an idea of the law around this please?

Gary Benatar

I would assume each retailer is handling this differently, but we have all been working to make sure that there is no stigma and make sure that the DC as an extension of the communities from where the workers/colleagues/associates come from is a place of safety, education and learning.

Mark Mountjoy

We do not regard Covid as having a stigma and we have implemented strict protocols that are DOL, DOH and POPI compliant. Our number one goal is to ensure that our employees and customers can work and shop in a safe environment. In addition, we also provide ongoing employee support ( cleaning protocols, training, education and PPE) for all our associates.

Liezl Gouws

What are retailers doing regarding all the additional packaging? Thinking landfills

Gary Benatar

Obviously across the supply chain there is and has been a focus on reducing landfills, however there has been an increase due to COVID-19 on pre-packaging items which does increase one way packaging, this is a small percentage – long term reusable packaging and returnable packaging will need to be part of our horizon. Hopefully the consumers are using their recycling bags etc. but this has been one of the side effects of the pandemic, unfortunately necessary to avoid customers exposure in touching products.

Mark Mountjoy

we are committed to environmentally friendly solutions and recycling initiatives

Cara Anderson

With the launch of online shopping platforms by all the retailers - have you experienced a significant increase in Direct-to-consumer grocery sales? and do you foresee this trend continuing?

Gary Benatar

We are seeing this as a natural development of retail in all spheres. The Pandemic has given this an accelerator and as technology and acceptance becomes more widespread this will increase. What the overall percentage will be and which LSM and geographic locations will only be known later.

Mark Mountjoy

Yes, grocery home shopping accelerated particularly during level 5 lockdown. Certainly there will be a new normal post-COVID but the customer-side economics will settle levels to a new normal - the level of which will still be determined but it certainly won’t go back down to the levels pre-COVID.

Pieter Els

What is the impact of availability of imports on the suppliers being able to deliver product ranges?

Gary Benatar

The suppliers have been affected in their availability of raw materials and some of their imported ranges. I believe the picture is getting better, but time will tell.

Mark Mountjoy

We initially had a delay at ports but this been rectified and imports are being managed per plan