How the Grocery Supply Chain Works

Explore the basics of the grocery supply chain

Why has the issue of how grocery supply chains work captivated the public? Because during the recent global pandemic, consumers have come face-to-face with this issue on a nearly weekly basis. From shortages of toilet paper and meat to shelf stable favorites, consumers have begun to wonder if, indeed, the U.S. food supply chain is broken. Good news everyone, it is not. Tangled and in need of some reconfiguration, perhaps, but certainly not broken.

In part one of our series on the grocery supply chain, we will look at the elements of the traditional food supply chain as it relates to brick and mortar retail grocery stores. Yes, consumers are shopping for groceries online and grocery stores are enabling shopping for online groceries, giving them a competitive advantage. Before we can take a closer look at the new paradigm of online grocery shopping and home delivery however, we first need to understand how groceries reach the store shelves.

What is Food Manufacturing, Food Processing and Food Production?

What is a food processor? A food processing company takes raw goods and turns them into an ingredient, such as cinnamon bark into the cinnamon spice used in desserts. Typically, raw materials that are turned into food products can be eaten with little or no preparation.

A food manufacturing company buys ingredients and combines them to make finished goods such as cinnamon into apple cinnamon muffins. Process manufacturing refers to the use of ingredients and formulas (much like recipes) to make products in batches. Once products are made, they cannot be taken apart or disassembled. The term “processing” generally refers to the first level of manufacturing whereas the term “manufacturing” refers to the second level of manufacturing.

Food production refers to the specific processes that are used to make the food ready to eat, including the transformation of the food products and all the steps of the food chain.

What is a Distribution Center?

A specialized warehouse facility that is designed to process orders and facilitate order fulfillment, a distribution center is designed to handle and store inventory for retailers, wholesalers or goods that are stocked to be transported directly to consumers. Distribution centers are sometimes loosely referred to as a DC or warehouse. Positioned to handle a large number of products in inventory within a single location, distribution centers are critical to the supply chain and usually service multiple retail locations, depending upon the size of the DC. For example, a large distribution center for a big box retailer such as Walmart may service more than 100 retail locations.

What Is a Wholesale Grocer?

To help ensure consistency and ease of operations, supermarkets leverage wholesale grocers to aid them in merchandise distribution. While wholesale grocers bridge the gap between product manufacturers, food producers and retailers, they also may sell goods to other wholesalers or distribution companies. Wholesale grocers purchase products from manufacturers then handle the distribution of the goods to grocery retailers so that they can be accessed by consumers. The goods handled by wholesale grocers may range from perishable goods such as produce, dairy and meat to nonperishable goods such as shelf stable food products, cleaning supplies, health and beauty products, etc.

The most commonly encountered type of wholesale grocer is a wholesale distributor, a company that buys goods from manufacturers and sells them to retailers and other wholesale grocers. At times, a manufacturer may assume the role of a wholesale grocer and build an entire distribution network to eliminate another middleman organization.

Specialty Grocery Distributors and the Grocery Supply Chain

Within the grocery industry, there are also networks of distribution brokers or agents that purchase goods directly from manufacturers or wholesale grocers then sell the products to grocery store retailers. Delivery of fresh produce often is the result of the use of multiple produce distributors. Most grocery stores concentrate on providing produce when it is in season, especially if it is available locally and then this assortment can be supplemented using product offerings from other distributors.

As a fresh item, the assortment of produce items changes seasonally. Americans have become a bit spoiled as global distribution has enabled produce to remain fresh while being transported across the world. Although produce typically is grown in Mexico, Florida and California, grocery stores frequently purchase popular items out of the local growing season from other countries across the world using other distributors to satisfy consumer tastes.

Meat and seafood products often arrive at grocery stores from regional distributors that source commodity meats from enterprises such as Tyson and Cargill. As consumers have become more concerned about animal welfare, sustainability and other factors, local ranchers may be tapped for their branded products to ensure that consumers have the transparency of information and product traceability that they crave.

Direct Store Delivery and the Grocery Supply Chain

In filling grocery stores or supermarkets with inventory, usually a variety of distributors is used. For example, smaller, specialty or regional grocery distributors tend to focus on items such cheese and dairy and alcoholic beverages. Some products, including snack items, carbonated beverages, baked goods and artisanal products are handled via direct store delivery, commonly known in the food industry as DSD. Direct store delivery is a distribution strategy that focuses on delivering products directly from the supplier or distributor to a retailer. These products are not stored in grocery retailer distribution centers. The DSD driver will stock the store shelves, usually recording information on store inventory. DSD products often tend to be fast moving, high consumer demand items.

Conclusion

We live in changing times filled with unexpected consumer demand and dynamic consumer trends due to the COVID-19 global pandemic. Having so many consumers quarantined has upset the balance of forecasted demand, retail sales and the typical norms of supply chain planning for the grocery industry.

In truth, there is plenty of food. Yes, there have been some empty shelves in many grocery markets and product category shortages have been noticeable in areas including meat, toilet paper, disinfectant and some cleaning supplies. COVID-19 directly impacted meat processing plants and meat packers, causing shutdowns across the industry at a time of high sales volume.

The supermarket supply chain model may need to be tweaked a bit to accommodate the reality of schools, restaurants and other commercial and industrial consumers of food products shutting down. Supermarket supply chain issues needed to be re-examined to facilitate the flow of food into the consumer markets but overall, grocery retail supply chains remain strong and agile. Many of the grocery store supply chain issues we have been dealing with during the COVID-19 pandemic were related to the need to redistribute food from the commercial sector to the consumer sector as well as to charitable food pantries for those in need. Other issues included over-purchasing, even hoarding of goods by consumers.

It has been a tough lesson to learn that agility in all supply chains is critical. The good news is that the food supply chain industry is in the process of evolving to meet the changing needs of today and tomorrow and will now be better prepared for the future.