Inflation and supply chain issues are accelerating retail transformation

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NutraIngredients-USA Editor-in-Chief Stephen Daniells told attendees of the United Natural Products Alliance annual meeting that the dietary supplement industry hasn’t had to contend with a combination of high inflation and high interest rates in the professional life of almost everyone in the industry. Daniells gave the keynote address which took place last week in Cannon Beach, OR.

Changing the face of retail

Jim Emme, CEO of Now Health Group, said in a presentation on the industry’s retail sector that the global pandemic has accelerated changes in the brick-and-mortar image that will not be resolved. The face of the retail industry is changing irrevocably. Emme said NOW has a unique perspective in that it is both a supplement manufacturer and wholesaler as well as a retailer through the company’s Chicago-based Fruitful Yield chain of 12 stores.

“Twelve years ago, 85% of our business was carried out with independent distribution chains. Last year it was 15%. This year it’s 12%.” he said.

Emme said he foresees tougher times ahead as the industry grapples with ongoing supply chain issues, rising costs and a hangover from the pandemic boom period.

“We have been spoiled for the past two years. We had a huge tragedy with a group of consumers who had never given us a second glance before,” he said.

The pandemic has brought changes to the global movement of goods of a kind not seen since the dark days of World War II. Ships are not sunk by submarines, but they are stranded due to traffic jams in ports, especially in China.

Emme showed a chart locating ships at anchor awaiting space in Shanghai and other ports in eastern China. A vast motionless armada covers the face of the East China Sea. The problem is exacerbated by the strict lockdown in Shanghai (as well as several other Chinese cities) which has complicated the internal movement of goods.

This has caused supply chain issues for all industries, not just supplement manufacturers. The resulting dislocations and shortages – and the influx of government aid to help people cope with job losses and reduced working hours – have driven inflation to unprecedented levels. since the oil shocks of the 1970s.

Out of stock stressing the industry

This is causing industries to face new realities truly never seen before. A few ingredients that have suddenly gained popularity, such as astaxanthin, have temporarily suffered from out-of-stock situations. Now, says Emme, it’s becoming the norm. NOW prided itself on operating at 95% or better for availability of its over 1,400 SKUs.

“We have an occupancy rate of 75% to 82%. Of our stock-outs, 60% come from containment areas in China,”Emma said.

Emme said NOW began with a commitment to independent health food and supplement retailers as the heart of the industry. But it can be a stressful occupation with long hours and a degree of financial risk. Many of them are family farms and suffer from the same generational problems as family farms.

“The biggest threat to independent retailers is the lack of succession planning,” Emma said.


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