Food Distribution Practice: Balances in the Food Service and Grocery Sectors

Retail grocery distribution has proven too much of a shock for the food service industry.

FREMONT, CA: Disruptions in the food distribution industry that began before the pandemic have only intensified during the crisis, and they will continue to do so. This is because more shippers are experimenting with direct-to-consumer delivery, and retailers are adding distribution hubs closer to consumers. And as a result of the growth of these regional hubs, the demand for short-haul drivers has increased, exacerbating the already severe shortage of long-haul drivers.

These factors have increased the cost of transportation, which trucking companies have passed on to manufacturers. The amount they can charge is, however, limited. Shippers must understand the landscape and all intersecting trends to meet the new demands. This is possible with the correct analytics. This article explores how to navigate the following food distribution trends—variable consumer demand for restaurant and supermarket purchases, the increasing significance of direct-to-consumer models, and increased suburban distribution.

The massive disruption of food logistics caused by the COVID-19 pandemic in 2020 continues to reverberate throughout the industry and will have a lasting effect.

Before the pandemic, critical food distribution industry developments had accelerated. Retailers are adding e-commerce distribution hubs closer to consumers, and an increasing number of shippers are experimenting with direct-to-consumer delivery, both of which could introduce additional inefficiencies into the food supply chain if they are not carefully monitored and managed.

These modifications occur in the context of shippers' other ongoing challenges, such as a truck driver shortage that shows no sign of abating.

For instance, the sharp rise in e-commerce sales—up 32.4 percent in 2020, according to the Commerce Department—fueled demand for short-haul drivers and drained the talent pool available for long-haul labor. This trend will continue.

REBALANCING THE GROCERY AND FOOD SERVICE SECTORS

Bureau of Economic Analysis data revealed that grocery stores accounted for 47.2 percent of total retail and restaurant sales in February 2020, before pandemic restrictions began to appear in the United States. In April, the ratio increased to 67.7 percent due to widespread panic buying.

According to a supply chain economist at Michigan State University, the grocery sector's share of the food market will decrease to 54.2 percent of sales by February 2021, but this will still represent a significant volume increase compared to the previous year.

The sudden shifts in demand throughout the restaurant and food service channels had disrupted food logistics, resulting in an increased reliance on spot freight services and a reduction in the efficiencies that are normally built into transportation routes.

As consumption patterns settle into a "new normal," food industry shippers must continue aiming at a moving target.

On the transportation side, shippers' carriers may change as restaurant volumes recover and grocery volumes decline. There will likely be a reversal in the allocation of that expenditure.

Shippers must remain flexible and closely monitor consumer spending patterns to optimize their logistical efficiencies.

The shift from food service to the grocery channel is a shock that the system has proven it cannot absorb.

The obstacles surrounding adequate freight capacity may persist. While trucking companies have placed significant orders for new trucks to increase their capacity, there's a list of reasons why those trucks may be on the road slower than they would like.

Over the past year, food suppliers have also developed more relationships with brokers as they have used spot freight capacity more frequently.

Shippers have relied on brokers like never before, and the experience has been generally positive.