CHICAGO — Preparation began before Hurricane Ian made landfall.
Chris Smith, president of McLane Grocery, Temple, Texas, has just returned from the “war room” before beginning the interview for this report. From there, Smith oversees McLane’s coordination of resources to ensure its supply chain is ready, generators have extra fuel and water is being delivered to affected communities.
“In the middle of a hurricane, people rely on convenience to get necessities for their families. Anything that we can do to help improve service levels is going to impact the communities we serve,” says Smith.
Before joining McLane in December 2021, Smith was a customer of McLane working with Walgreens, giving him an unusual perspective over the supply-chain issues the world has been facing since 2020.
“There’s always going to be potential disruption,” says Smith, “be it hurricanes or COVID-19.”
A Series of Shakeups
Hurricane Ian made its first U.S. landfall on Sept. 28, on Florida’s west coast as a Category 4 hurricane with winds up to 150 miles an hour, according to ABC News. Tens of thousands of people lost power and more than 100 people died in the storm’s multistate path. The Weather Channel estimates that Hurricane Ian caused $67 billion worth of damage.
The hurricane is the latest hurdle faced by convenience retail distributors, who have been wrestling with emergencies and supply-chain disruptions for nearly three years. But orders still need to be met, Smith says, especially as Hurricane Ian barrels through multiple states. “Our customers expect us to provide them with the perfect order for their customers. In times like this where money's tight with inflation, people are trying to get the most of their buck and they want what they want when they want it,” Smith says.
McLane is implementing a continuous improvement organization. One segment will be focused on the principles of Lean Six Sigma, a method to improve an organization’s performance by removing waste and reducing variation, to evaluate potential improvements for large infrastructure. Another organization is focused on developing best practices for standard operating procedures and training. “We’re trying to continue to stabilize the workforce, drive efficiency and drive continuous improvement in the name of making sure that we have good outcomes for our customers,” says Smith.
“There’s always going to be potential disruption, be it hurricanes or COVID-19.”
McLane is not the only distributor affected by Hurricane Ian.
“Absolutely the hurricane is impacting us,” says Sharan Kalva, president of C-StoreMaster, Huntsville, Ala. Speaking even as the hurricane made its way up the East Coast, Kalva says the ways in which the disaster might affect C-StoreMaster’s supply chain might not become clear for another two weeks to three months. For instance, he says, a critical supplier might be hit by the storm, causing any number of different interruptions to facilities.
But once C-StoreMaster becomes aware of any issues, there are contingencies in place, Kalva says. “We have strategic plans in place if something does happen to a supplier so that we can pivot, find an alternative or figure out a plan in the short term or increase inventory,” he says.
“We have a cigarette manufacturer whose warehouses are in Florida, so we will be out,” says Kalva. “The consequence of that is when there are disruptions, we become out of stock. But we had enough notice to see this was coming. We will still have an impact, but it will be a couple of days versus a couple of weeks.”
“All you can do to mitigate is plan well and have an efficient supply chain,” he says. C-StoreMaster operates an automated distribution center where a mix of software and robots do most of the physical picking and packing. But an efficient process can only go so far in today’s socioeconomic climate.
“We’re really starting to see the impact of inflation,” says Kalva. “We’re starting to see double-digit [price] increases on products across the board.” When that extra cost is passed onto the retailer is where they start to have trouble making a profit and consumers have trouble affording the products. And even with Hurricane Ian past and the pandemic fading, inflation remains a problem, he says.
Kalva says, overall, things are looking up for distributors compared to the last two years, but that the situation is volatile. “Companies are more prepared for supply issues,” he says. “People got more creative with their sourcing, but if there’s any large swings in demand one way or another, it will catch up. If demand is depressed, people will start making less and the moment things start picking up, they won’t be able to react quickly.
“We might still see a supply disruption here and there, but mostly we're seeing pretty much everything back to normal,” says Kalva. “The world was just not ready, and companies were not ready to handle disruption at that scale where supply was curtailed, and demand stayed consistent.”
Kalva predicts demand will eventually be suppressed by economic conditions and companies will adapt accordingly.
Meanwhile, Core-Mark has “become way more collaborative with our vendor partners than we’ve ever been,” says Curt O’Rourke, vice president of merchandising for the Richmond, Va.-based distributor. Performance Food Group (PFG) recently combined its two convenience brands, Eby-Brown and Core-Mark, into one entity under the Core-Mark brand.
“The ‘new normal’ is that change and curveballs are a constant, so we have to be able to react to them,” says O’Rourke. For example, he says one of Core-Mark’s major manufacturers receives “quite a bit” of its peanuts from Ukraine, forcing multiple layers of the supply chain to adapt quickly to meet demand.
Last year, everything felt like “we were a quarter or two away from recovery,” O’Rourke says, but he says the company is consistently working through the inherent disruption of the day.
Core-Mark has had several “top-to-top” meetings with suppliers and some Core-Mark vendors. “We’ve even had retail partners participate in those, really trying to get a handle on what items they expect to have issues producing in the future,” O’Rourke says. He says integrating and partnering more effectively at every level maximizes the flow of product available.
“We still have a ways to go before we get back to the fill rates that we all would expect,” says O’Rourke. However, overall, he says things are looking up. “Convenience-store products—candy, snacks—can be seen as an affordable indulgence. It’s an easy thing to grab to make yourself feel a little bit better this afternoon, with all that's going on in the world. And demand has just gone up and up for those products.
“Everybody always talks about the labor, the transportation, the production, but what gets lost is that we’re actually past where we were,” says O’Rourke. “Now we’re into uncharted territory, as far as demand.”
O’Rourke doesn’t know if that demand will decrease anytime soon. “We may not know what the very top of the demand curve is, because we’re still not meeting it all. But as production ramps up, we’ll get to that point,” he says.
Related: Resilience and Innovation in Distribution
Working on Labor
Despite the volatility of the world’s supply chains, hiring and retaining both warehouse employees and drivers has become less of a headache during the past year as distributors have adapted to a changing workforce.
Smith of McLane says late summer and early fall of 2021 were when resignations were at their highest, but he’s seen gradual improvement in retention of both drivers and those working in distribution.
“We are very focused on becoming an employer of choice,” says Smith. The goal is to retain staff and keep them happy. “Our average tenure in our warehouses is less than it was pre-COVID-19. We can’t rely on institutional knowledge the way we could in the past,” which heightens the need for standard procedures, Smith says.
However, Smith says the workforce is more stable than it was during the pandemic. He says manufacturers are also doing better and on-time deliveries are increasing, … as long as there’s not a hurricane or some other disaster.
C-StoreMaster’s automated warehouse system means it has different labor challenges than most distributors.
“All you can do to mitigate is plan well and have an efficient supply chain.”
“We had a software development team before we had the first rack in our distribution center,” says Kalva. The company started in 2015 with a 6,000-square-foot strip-mall location. “Even then, we always had the intention of using technology as a catalyst to improve processes and add capability.”
With headquarters in Huntsville, Ala., Kalva says the area’s historically low unemployment means C-StoreMaster has faced issues with frontline staff labor “for years now.” With that in mind, the company improved pay and created an automated warehouse, not to replace workers, but to ensure a safe and efficient working environment for its employees, he says.
“Automation does not mean we’re trying to replace people. It’s an honest effort to create a better atmosphere and be more productive and more efficient. That’s what I think automation’s here for,” says Kalva. “In typical warehouses, people walk 10 or more miles between the shelves picking orders, so there’s a lot of repetitive motion—not ergonomic. So, we built this automated warehouse.”
Kalva clarifies that even an automated warehouse requires a few highly skilled workers. “You still need people, but you can be very efficient,” he says. “You can get four to five times the productivity of an average person without automation.”
“What we’re seeing now is less churn,” says O’Rourke of Core-Mark. “During the pandemic, we were churning a lot of warehouse employees, and they just weren’t experienced enough to get really good at what they’re doing. And so now that that churn is dropping off, we need to recapture that productivity. And we see it coming back.”
O’Rourke says Core-Mark still has its labor issues. “It’s still hard to find workers across the board, especially drivers,” he says. “And we don’t see that easing off.”
To reach this point, and to improve, Core-Mark is working to centralize the hiring process of its many arms and simplify the application process. “Literally, if it takes more than 15 minutes to fill out an application, people will bounce,” says O’Rourke. “Making it super easy for them to get it through the pipe has been a real focus, and it’s really paid dividends.”
Looking Ahead
Dealing with the effects of the COVID-19 pandemic was tough for any company along the retail supply chain, says Smith of McLane. “I don’t care what kind of category or segment you are in, out-of-stocks [during the pandemic] were just something that were painful to our customers and their customers,” he says.
One of the ways McLane is providing transparency for its customers to avoid out-of-stocks is through the Delivery Tracker capability, giving customers a dashboard with the location of their truck which is updated every 15 minutes. Delivery Tracker also gives load details, delivery information and information on its load and destination. “It gives them quite a bit of feedback at their fingertips as opposed to having to waste time to actually stop and call somebody,” says Smith.
McLane is also expanding McLane Express, an online ordering system for independent retailers offering a variety of products, including single-pack cases and pallets of products. “We’re trying to really up our technology space, as well as our e-commerce platform,” says Smith.
Smith says McLane is working to be more tactical by leveraging assets across the entire McLane enterprise, including Grocery and Foodservice, and help them work better together.
On the foodservice side, McLane is testing an upgraded Fly Guys pizza product with new toppings, including a breakfast pizza with sausage and gravy and a cheese pizza. The new pizzas are due to arrive in 2023.
“Even in this recessionary environment, we are full speed ahead on growth.”
C-StoreMaster continues to test and “fine-tune” its automated warehouse. “When you start off a robotics project, you start testing the processes, which we are, and then operating some. You slowly build up to its next capacity or to a point where you really test it, so that’s coming up. So we’re very excited to see how efficient we can get this, but we already found out that it is going way beyond our expectations.
We’re about five times more efficient than our previous way of operating,” says Kalva.
“We’ll work with tobacco shops, we’ll work with convenience stores or your local bodega,” he adds. “If there’s an opportunity for us to add efficiency and value and get compensated for it, we will absolutely do that.”
As prices rise for everything, including making deliveries, Kalva predicts that the cost of putting trucks on the road will not decrease anytime soon, which will lead many distributors to consolidate deliveries and thus deliver less often.
“We’re going to start seeing more Amazon-esque providers who, depending on where you are and what you do, have different ways of fulfilling,” says Kalva. He describes these Amazon-like providers as a market of “secondary distributors” who can fill smaller, more specific orders in case of out-of-stocks or other issues. “We’re building ourselves up to eventually take the spot of that secondary distributor,” he says.
While C-StoreMaster is working to become the industry’s secondary distributor, Core-Mark has spent the last two years consolidating the offers and capabilities of the PFG, Eby-Brown and Core-Mark brands.“Retailers are so overwhelmed with just keeping the store staffed and open, that much of our innovation that we’ve gone through during the pandemic is new to many people,” says O’Rourke. He says Core-Mark has built a redistribution network to focus on fresh foods from the legacy Eby-Brown company, then introduced those fresh foods to the PFG Foodservice and Core-Mark environments.
Since the pandemic started, Core-Mark has released a new customer analytics dashboard, partnered with Skip for frictionless checkout and worked with PDI Technologies on a loyalty program offer. “Digital is king right now,” says O’Rourke.
Given the importance of a good foodservice offer in the current convenience-retail field, O’Rourke says honing an effective foodservice program for retailers will be another primary focus. “That’s what we have in our crosshairs, is being great at food for our customers and evolving with them all the way from the basic coffee and roller grill to almost a QSR-level execution of food,” he says.
On the beverage side, there’s the “My Daily Crave” dispensed-beverage bar, which handles all Core-Mark’s coffee and beverages. The company is also partnering with Fresh & Ready Foods to offer the Fresh Take brand to all Core-Mark and Eby-Brown and other PFG customers. The Fresh Take assortment includes sandwiches, salads and snacks in grab-and-go packaging.
Core-Mark also recently launched Tru-Q BBQ as barbecue flavors grow in popularity. The food comes fully cooked and frozen before store employees warm it in a convection oven, microwave it or boil it in the bag. Store employees then add one of seven sauces and the food is ready to eat.
Over the next five years or so, O’Rourke says, Core-Mark will focus on leveraging the scale of service from PFG to improve operations within the company.
“Even in this recessionary environment, we are full speed ahead on growth,” says O’Rourke.
Distributors large and small are similarly charging forward, doing everything they can to prepare for hurricanes and any other disruptions that stand in their way.
Click here to view CSP’s 2022 Distributor 15 list of the largest distributors to convenience stores.