Debbie Schubert
Business as usual, that's how I started the week. I hate juggling financial reconciliations and doing business at the end of the year. Layer this with the ongoing Covid bans our friends in Victoria are dealing with to add extra layers of stress at the end of the year. It is surprising that we are not all baskets.
By Poplever director Debbie Schubert.
Source a similar port logistics picture
This year feels different than previous years. At the beginning of the year, suppliers in our industry went through lengthy coordination with “Top to Tops” and “Innovation Sessions”. This year it seemed to take longer than normal. The reason was the complexity with lockdowns, team availability and virtual meetings.
With most funding programs locked six months in advance, late confirmation of the programs has eased pressure on logistics and supply chains. This week my forwarding company again named “port congestion” as the reason for the disruption, and another week extended the lead times, which put pressure on meeting the delivery dates on site. This is happening across the industry.
The tension between signing coordinated joint business plans, agreeing to the advertising dates, combined with the limited availability of advertising space, puts pressure on schedules. In addition, the imported costs have risen sharply. Late changes put pressure on the ability to deliver at an affordable price. Container prices have quadrupled around this time last year. We all thought when we first saw the big climbs in January 2020 it was linked to Chinese New Year, then Covid. Some wanted to wait and see if it went down. It was just going north. Well, if you don't pay, you won't get anything.
The good news with all of this is that we need to rethink local options to overcome timing issues. Years of cutting back and becoming more agile have made us competitive with global options. For the first time in many years, a cost estimate I got back from a local supplier matched a cost assumption from China as soon as freight and handling charges were added. A big surprise. This is good news for local production.
However, we have to keep in mind that the reason it is grown locally is now a valid consideration that margins are being trimmed, less layers and more agility.
I heard from a supplier this week who was called in by a procurement team at a large FMCG company. The task of purchasing was to check the cost calculation along the supply chain in order to squeeze out funds. The aim was to create a pot of money that could be reinvested in the rising costs of supporting the new online channel in the food sector. The supplier was asked to cut their costs by 50% if they wanted to keep the business. The delivery man closed his briefcase and went out. Working below cost to keep a customer is not good business. The procurement team was shocked.
We all know that the online channel in the food sector is in a massive growth phase. Large retailers want to expand their share in this segment. To move this forward, they are redirecting funds into this area. To support this internally, brands are reviewing all of their investments to see how this can be funded. Like trade spending, most areas are tapped.
We've all been trimming and working on tight margins for so long than ever before. Retailers want higher margins on new product launches and additional investments to support growth platforms. At the same time, suppliers are faced with increasing logistical problems, longer lead times and increased costs. This is a difficult dance for both parties.
There is a strong consumer movement made and produced in Australia. If we want our cake and our food, we have to stay profitable across the supply chain. Over the past 18 months we have learned that while we are part of a global community, with local support we are better able to weather the storms that may hit us.
For companies that have weathered GFC, recessions and now Covid by becoming agile and lean, success comes from teamwork. Successful partnerships are relationships, trust, and support. Have we left enough on the table so that our suppliers can invest in growth and new developments? It is a responsibility for each of us in a buying position to think about it every day. From this perspective, diversity and innovation can grow. With that foundation, we can build on our Australian native creative authenticity that will make us stronger. A better future for everyone if we can embrace this as part of our daily mantra.
About Debbie Schubert
Debbie is the director and founder of the shopper marketing agency Poplever, founded in 2016. She is an expert in shopper marketing and retail strategy who works both on the client side and as an agency in the field of FMCG shopper marketing and sales. She has worked with large multinationals and startups including Snack Brands Australia, Lion Dairy, PepsiCo, Nestlé, SC Johnson and RB. She has extensive knowledge of the Australian FMCG retail landscape. She was the chairman of POPAI (Shop!) For four years.
