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Supply and demand: A conversation with Dan Elrod of Wallace & Carey

©CU Photography - www.cuphotography.ca - Edmonton Wedding Photographer - 780-716-3915

Dan Elrod ©CU Photography

Dan Elrod is president of Wallace & Carey, a leading logistics and supply chain solution to the convenience industry Canada. The family-owned business started in Calgary in 1921 with one truck and eight staff—today it has touchpoints coast to coast to coast, stocking more than 12,000 products in 10 modern distribution centres, a fleet of more than 140 trucks and 700 staff. With more than 1,000 deliveries a day, and millions of items each year, the company is an integral part of the supply-chain network for convenience retailers, which represent about 80% of the company’s business.

Elrod, who hails from Texas, retired from distribution giant McLane in 2017 and in 2018 moved to Calgary to join Wallace & Carey.

CSNC editor Michelle Warren spoke with Elrod about challenges, changes and fresh opportunities. 

What brought you to Canada? DE: One of my key decision points on deciding to join this company was, ‘Do we have competent, skilled professionals in the key areas of the business?’ That’s in purchasing and in operations, that is sales and marketing—the answer was very much so yes, in every area. I thought that I could be of benefit to the business after looking at what their opportunities and needs were, and decided to give it a shot. 

What’s the first thing you noticed about the Canadian convenience industry? DE: There has been some consolidation occurring through acquisitions, where some larger groups are bringing on or taking over some smaller regional and local players. I would say the independent convenience store retailer is very much fragmented, including sourcing, which is an inefficient process for those retailers.

 How are you addressing this? DE: Wallace & Carey began an initiative last year, to increase our retail store base by a net 300, over a 12-month period, and we achieved that goal. Success with independents is getting their order to them with the products that they need at the right time at a good price. You have to have a sales force that is actually making physical calls into retail, and talking to those customers, and developing the relationship so they trust we know what’s going on, what’s available in the market, what the trends are, the new products—things that a large chain is going to hear immediately from the manufacturer. The independents don’t have that luxury: Bringing those offers, options, deals and promos directly to them on an ongoing basis, is a huge added value proposition.

 Tell us about some core initiatives. DE: We’ve taken a number of steps to improve our performance. Wholesale distribution, if you run extremely well, you hope to achieve maybe 5% gross margins and maybe 1% pre-tax operating profit. It’s tight, so what do you do? If you raise your price to your customers, then you’re not competitive. Instead, you become more efficient in what you buy and how you manage it. We have focused on improving our value added services to our suppliers so we have more productive relationships with them. The other side is being a very good service provider. To a convenience store that means you show up on time with the products that they ordered. That’s your service levels, your fill rates. We’ve always been good at that, but it’s cost us money to be good at that because of some inefficiencies.

How did you turn this around? DE: We’ve become more efficient in our inventory management. We’ve also become much more efficient in our operating costs and routing. That’s essentially asking if we are matching labour expense to the volume of work that we’re doing on a minute-by-minute basis: Literally, it is minute by minute. For instance, now we create a route that’s got 10 specific stores on it and each one can be delivered to within a two-hour ETA. Really, blocking and tackling operational execution, running things efficiently, finding areas of waste or inefficiency, and solving for those, is where a distributor can make a material difference. Everything has to be measured against a standard: Is it contributing positively to the bottom line or is it not? We have focused and grown in areas that were positive and productive to our business.

You’ve added cannabis distribution to the mix: How did that come about?

CannabisDE: Timing is everything. I joined officially in September of 2018, and cannabis became legal in Canada in October. However, Canada did what countries always do with initiative like this, they forgot about the supply chain. All of the regulations are around what a manufacturer-producer can do, and about what a retailer can do, but what happens in the middle? What we quickly found was that our expertise handling, managing and shipping, high value, highly regulated product was very well developed, because of what we do with cigarettes and tobacco. We developed a very extensive set of best practices and procedures, specific to that product—this is what you need to manage, and secure, and protect, and stay within the laws and guidelines of getting your product from point A to point B.

What is your role now? DE: The key point is we do not buy, own, we don’t even warehouse cannabis. Our involvement is in transporting. We essentially saw a market need, and the solution fit our business model well. We’re venturing into areas and situations where it makes sense, but it’s by no means our core business—that continues to be convenience and that’s where we invest our capital resources, in our infrastructure and systems growth and development of our core business and core competencies. That is convenience store wholesale distribution.

Do you see any links between the future of cannabis and convenience? Might there be opportunities, down the road, to marry these businesses? DE: What I hear is, ultimately, most in the industry believes that they will be selling cannabis in some form eventually, and that’s from the largest chains to the smallest store. You put your regulations around it, and then you make it available to the public. You don’t tell them where they have to go to buy it. 

 One more COVID-19-related question: As the economy reopens, what can the industry learn from and build on to succeed in the coming months? DE: As with most Canadian businesses and elsewhere, Wallace & Carey took immediate steps to protect our teammates and customers, through implementation of improved health and safety protocols. Deemed an essential business, we have continued to operate in support of the needs of our customers and all Canadians…. Wallace & Carey, and our industry as a whole, has learned unexpected disruptions require us to be nimble and efficient, in all areas of the business, at all times. New traffic patterns within our customers’ businesses, changing demand from consumers, a workforce with high expectations for improved health and safety measures, and any number of other variables challenge us to be flexible, adaptable, and open to change that is certainly with us and here to stay.


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Why empty shelves don’t mean we’re out of food: How Canada’s supply chain works

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Shoppers are facing empty shelves at some stores due to unprecedented demand for food and other goods even as grocers assure Canadians coping with the COVID-19 outbreak that plenty of new items are on the way and manufacturers say they have the raw materials they need.

Temporary shortages are to be expected in spite of a supply chain working in overdrive, experts say, because the system isn’t built to predict extreme, large-scale changes in buyer behaviour.

Shoppers stockpile for a number of reasons, said Mike von Massow, an associate professor at The University of Guelph. Some fear stores may close amid the pandemic. Others buy in bulk with the goal of shopping less frequently to avoid unnecessary exposure.

That means right now, “we are seeing demand-based shortages, not supply-based shortages,” he said.

Shelves keep getting restocked with goods still flowing to the stores. Limited hours have been introduced in part to allow time to unpack and display replacement products.

Canada tends to operate with what’s knows as a “just-in-time food system,” von Massow said. That means grocers and other stores tend to receive food products just before they are ready to put them in the store.

It’s more cost effective for companies than keeping a large surplus that takes up unnecessary space. Some food, like fresh fruits and vegetables, can spoil. Rotten food that can’t be sold brings up the cost of the product for customers.

For non-perishable items, like toilet paper or canned black beans, too much so-called buffer inventory ties up money otherwise available for other things and requires storage space, he said. “By minimizing inventory, we keep prices lower in the store.”

Companies determine the exact amount of inventory to order and keep through “a bit of a science and also a bit of an art,” said von Massow, who worked for about two decades in the industry during which time he helped with forecasting.

Data helps companies make predictions. They’ll look at historical and recent sales, special events (the Superbowl, for example, may boost demand for avocado as football fans make guacamole for the big game), what influencers are saying about the product and more, said von Massow.

Increasingly, computers crunch the data and make suggestions. A human then looks at these figures and determines if they need to be adjusted up or down.

“The numbers can help you make a decision. They can’t make the decision for you,” von Massow said he teaches his students during a class about forecasting.

Both manufacturers and grocers will forecast demand, and the level of collaboration and information they share can help make their guesses much more accurate.

This model doesn’t work as well during an unexpected and widespread change in shopper behaviour. As the COVID-19 crisis took hold, Canadians purchased toilet paper, cleaning products and other items in droves. Photos of empty store shelves circulated online, further feeding the buying frenzy.

Canada’s major grocers have worked to reassure customers there’s no food shortage on the horizon as they work with suppliers to keep delivering essentials into their stores and catch up to the demand.

About three-quarters of members of Food & Consumer Products of Canada, a national association for manufacturers, say they’re confident in raw materials supply for two to five months or more, if current trends continue, according to a recent survey of the association’s members.

A fifth projected no issues at any time, even with current trends, while just five per cent foresaw possible supply issues within one month.

This data supports evidence of a demand-based shortage.

If it were a supply-based shortage, von Massow said, shelves would remain empty because manufacturers can’t produce the products or farmers can’t grow or raise the food.

For example, if a disease wiped out 90 per cent of the country’s chicken population, it would be next to impossible to find fresh eggs.

The lag in seeing some products reappear on shelves – such as flour or antibacterial wipes – in this case comes from the supply chain catching up to the spike in demand.

The level of collaboration and integration across a supply chain is another important factor, said Giovani Caetano da Silveira, a professor of operations and supply chain management at the University of Calgary’s Haskayne School of Business.

A classical, textbook example of a supply chain includes at least four players, he said – not only the manufacturer and store where the product is sold, but also distributors and wholesalers.

They could share all kinds of information, such as inventory levels, promotional plans and what markets they may want to serve in the future, he said. Major players may manage multiple parts of the supply chain and be more integrated.

Companies with well-integrated supply chains “can react more quickly … to sudden changes in demand,” he said.

But extreme changes in demand, such as what companies experienced recently with COVID-19 panic buying, are nearly impossible to anticipate, he said.

He noted Canada’s grocery chains seem to have responded well despite the unpredictable spike. That may be explained by the number of companies with collaborative, integrated supply chains that were able to respond to the unanticipated demand quickly, as well as a strong, capable logistics network to move the product from the manufacturer to the stores.

“There appears to be quite a good logistics capability here in Canada, in this case,” he said, particularly for grocery stores and consumer products. “So that also might be an explanation.”

 

 


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Retailers prepare for coronavirus stockpiling

Disinfectants, bottled water and canned goods are flying off shelves and Nielsen says this will likely shift to shelf-stable and frozen foods, too

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Retailers are bracing for a run on staples like water and canned goods as consumer fears about the coronavirus continue to escalate, with Nielsen predicting it will have an “almost immediate” effect on supply chains for the most sought-after items.

Nielsen said in a report that efforts to build so-called “pandemic pantries” have been particularly pronounced in China, the U.S. and Italy. Stocks of face masks and hand sanitizers have already dried up in some markets, it said.

There has also been a spillover effect on other grocery items. In the U.S., dollar sales of oat milk have increased by more than 300% as fears about the coronavirus took hold, and there have also been double-digit sales increases for fruit snacks, pet medicine, dried beans and energy beverages.

Nielsen said there’s “little doubt” that buying will shift toward shelf-stable and frozen options as consumers assess what items can be kept for long periods. Frozen fruit sales in the U.S., for example, were up 7% for the week ended Feb. 22.

Stories also continue to emerge about grocers placing limits on certain items to prevent shelves from being cleared. The U.S. chain Kroger, for example, has limited sales of sanitization, cold and flu-related products to five per order. Major Canadian grocers including Costco declined to comment for this story, with a company spokesperson saying only: “As always, our focus is to have merchandise available for our members at low warehouse prices.”

In an email to CSNC sister publication Canadian Grocer, Andrew Fuchs of Food & Consumer Products of Canada, said there are clearly areas in which consumer demand continues to increase, including non-perishables and household products, and manufacturers are responding to address the surge in demand and to ensure inventory levels can handle any additional demand moving forward.

“The difficulties are in the variables,” said Fuchs. “That’s why it’s so critical for retail and supply to be working hand in hand through this period since retail is at the front lines of customer demand, they are our eyes and ears.”

Nielsen also expects to see an increase in categories adjacent to health items like face masks and hand sanitizer, such as aerosol disinfectants. It also expects an increase in sales of hand lotions and body lotion, since the increased emphasis on hand washing and disinfecting will negatively impact people’s skin.

Sylvain Charlebois, senior director of Dalhousie University’s Agri-Food Analytics Lab, said about one-quarter of Canadian households currently have sufficient food supplies to last for three to four days regardless of a coronavirus outbreak, but predicted more than 10% of households would look to stockpile important items.

Charlebois said “panic buying” by consumers has the potential to negatively impact supply chains, noting that the introduction of cost-cutting measures such as lean manufacturing, offshoring and outsourcing that have been put in place by companies in recent years could exacerbate the problem.

However, Charlebois said fears about a widespread supply chain crisis are misguided. “Most regions in Canada are serviced by retails [that] have emphasized investment in logistics and supply chains over the years,” he noted. “The prospect of some areas of the country running out of food is highly unlikely.” Remote regions are likely the most vulnerable, he said.

One of the areas where there could be a spillover effect is e-commerce, with Nielsen noting it expects to see an increase in online shopping if fears about the coronavirus do take hold. Meanwhile, a study conducted by research firm IMI on the impact of the coronavirus on people’s intentions found that 9% of Canadians—compared with 8% of Americans—are less likely to go to the grocery store in the next three months.

Online delivery service Inabuggy has seen an approximately 35% increase in the volume of orders over the past two weeks, with increases on items such as face masks, water and non-perishable items like canned tuna. “It sounds like a little bit of panic has set in, and people are ordering these products that they don’t normally order as much of,” says CEO Julian Gleizer.

Inabuggy has already suspended the purchase of items like hand sanitizers and face masks because they have become difficult to source, says Gleizer. “It makes no sense if a customer comes to Inabuggy and orders a box of face masks and they’re not available,” he says. “That’s not the experience we want to pass on to our customer.”

RELATED READ: Coronavirus and the rise of panic buying

Originally published by Canadian Grocer.