By Prof. Michael Winter
Research results from other projects on the impact of COVID are beginning to emerge and this month I am highlighting a paper led by some Exeter colleagues based in the Business School here at the University, Rebecca Mitchell and Roger Maull, working in collaboration with researchers from the University of Lincoln. The full paper The impact of COVID-19 on the UK fresh food supply chain can be viewed and downloaded at: https://arxiv.org/abs/2006.00279
The researchers reviewed secondary data on retail demand (using Kantar data) and conducted interviews with 23 organisations associated with the UK fruit and vegetable food supply market, as well as running four video workshops with 80 organisations representing 50% of the UK fresh produce community. The three main questions are:
- What was the change in retail demand for fruit and vegetables resulting from COVID-19?
- What was the impact on UK suppliers of fruit and vegetables?
- What types of innovation are emerging within supermarket coordinated supply chains of fruit and vegetables?
Some headline findings are as follows (but do check out the paper for the full details):
Research Question 1: Change in Demand
- The 12 weeks from 27th January 2020, compared to 2019, saw retail in the sector increase by 11% by value and 12% by volume.
- In the 4 weeks following shut down of the food service sector, retail sales of the same lines increased by 14% by value and 13% by volume.
- There was considerable variability across products. For example canned tomatoes, had an uplift by value relative to the same period in 2019 of 103% at the peak of w/e 15th March, and saw week-on-week uplift in sales volume exceed 22% for 3 weeks in a row. Over the 12-week period, the total volume of fresh vegetables sold was 11% higher than the same period in 2019, with carrots showing a 12% increase but broccoli having the same demand.
Research Question 2: Impact on Suppliers
This section in the paper is quite short and I was left wanting more! Here is a direct quotation indicating the importance of the analysis:
‘One of our interviewees, who source fresh produce internationally, reported that for the first 18 days of the epidemic, orders were running at 120% and then suddenly “dropped to zero”. They noted that their supermarket buyers had left the algorithms that control order replenishment to operate without human intervention, which resulted in supermarkets seeing increased waste as supply exceeded demand. Buyers then began to intervene, manually adjusting the previously automated orders. This had an enormous knock-on effect for the supplier, who ultimately decided not to trust the order pattern of their customer, to make adjustments based on experience and eventually “ran our own plan”. They noted that “whilst supermarket ordering systems are brilliant in normal phase, they didn’t compensate well for large variations emerging because of COVID-19”. The interviewee concluded that their waste bill was twice its normal level, and that profitability would be reduced accordingly. This was not an isolated example. An important issue for our supply chain partners was the “chaos” caused by this algorithmic ordering. Most large retailers use these algorithmic replenishment models and supermarket processes strictly control modifications to subsequent orders, but these huge weekly spikes led to a gross perturbation….’
Research Question 3: Innovation
This issue is the leading motivation for these particular researchers. Again let me quote directly from the paper:
‘In some instances there was evidence that suppliers were able to adapt rapidly to changing market conditions – these were predominantly situations in which suppliers were already focused on the retail sector, and were primarily dealing with uplift in demand. Suppliers usually dealing with the service sector coped better in situations in which there were not significant capital assets (such as packaging equipment) required in order to enable them to switch product line (e.g. to create smaller volume packages to deliver to retail rather than wholesale) or channel (e.g. responding to increased demand from online retailers, or delivering direct to consumers via “veg boxes”). In situations where this was not possible the role of convening groups, representative bodies and levy boards has been visibly important. For example in early May, building on their open-access analysis of potato markets, AHDB launched “The Potato Portal” as a mechanism by which to connect potato growers with wholesale buyers (AHDB, 2020c).’
But overall they conclude that the system is stuck in a rigidity trap, unable to exploit more radical innovations such as more localised supply chains and industrial robotics.