The Omicron variant of COVID-19 threatens to disrupt the global retail sector to an extent not seen since the first pandemic outbreak two years ago. Retailers and their suppliers face a string of problems. With sick staff unable to work, suppliers are struggling to maintain output – and even when their products are ready, staff shortages and travel restrictions make shipping them challenging. Retailers, meanwhile, face staff shortages of their own, as well as the growing frustrations of their customers at empty shelves.
It’s not simply that goods are in short supply. The imbalance between demand and supply is also driving up inflation. In the eurozone price rises hit a record high in the final month of last year. It’s a vicious circle: retailers in every market are raising their prices, prompting consumers to look to their employers for pay increases, forcing companies in every industry to raise prices once again.
These are genuinely global issues. Retailers and producers in the U.S. are certainly experiencing problems – Accenture research shows 94% of Fortune 1000 companies have faced supply chain disruption – but every country is experiencing difficulties of its own.
In the U.K., one of the first countries to face a wave of Omicron infections, data from the Office for National Statistics (ONS) suggests that one in six adults have experienced shortages of essential food items in recent months. The Government estimates that the country now has 100,000 fewer lorry drivers to make deliveries than it needs, partly because COVID-19 has prevented new drivers from training and testing.
In the Netherlands, meanwhile, evidence of supply chain disruption is there for all to see, with the crucial container port at Rotterdam struggling to cope. Problems with capacity have been so acute at the port that at times, ships have been waiting up to six days at sea in order to land and unload their cargo. While they wait to get into port, shoppers in the Netherlands and across Europe are left waiting for goods to make it onto retailers’ shelves.
The Asia Pacific region faces similar pressures. In Japan, for example, fast food giant McDonalds said in December that it would only serve small portions of French fries in its restaurants for a period because it was struggling to secure the supplies of potatoes it needed in the country.
Australia, meanwhile, is now facing COVID-19 disruption in a way it has previously avoided given its strict policies on border closures and lockdowns. Up to half of Australia’s transport workers are off sick every day, interrupting the supply to supermarkets, the Transport Workers Union has said. The major supermarkets all report shortages of products including fruit, vegetables, and meat.
Producers selling to retailers, whether domestically or cross-border, need to plan for the difficult impacts of the disruption. One problem looming large is a cash flow squeeze: with producers struggling to fulfill orders at the speed at which they planned for, it may take much longer to get paid than in the past. Meanwhile, costs are only headed in one direction. With inflation accelerating in most regions of the world, raw materials are becoming more expensive. So too are logistics. For example, the average global price of shipping a 40-foot container is now close to $10,000, three times higher than at the start of 2021 and almost 10 times pre-pandemic levels, according to the shipping analyst Freightos.
How to cope
How, then, to cope with these difficulties, particularly if you’re a small product provider trying to build a business through new contracts with retailers worldwide?
Well, the first thing is that many analysts believe both supply chain disruption and inflation should prove to be transitory issues. The White House even blogged to that effect last year. In which case, there is at least some light at the end of the tunnel for beleaguered producers and retailers.
Still, that does not reduce the pressures businesses are feeling right now. Focus on three priorities to get through the weeks ahead:
- Visibility – do you have the full picture of the problems you are likely to face, whether on staff shortages, logistics issues, or pricing? By investing some time to establish a clear and realistic view of your business’s problems – even if some of this will be educated guesswork – you’ll at least reduce the possibility of last-minute shocks and unpleasant surprises.
- Analysis – armed with this visibility, have you mapped out the potential impacts on your business well in advance of them occurring? Where will your most pressing pain points occur, and what might that mean for key contracts, relationships with suppliers and so on?
- Planning – have you made clear plans for alleviating the worst of the disruption? Clearly, many problems will be unresolvable, given the global nature of this crisis, but you can take measures to mitigate the disruption. In particular, your business must be able to communicate clearly with customers, keeping them informed about delays and costs, with as much notice as possible.
While COVID-19 disrupts the retail world once again, many businesses around the globe will have to adjust, as we have learned that the world keeps turning even in a crisis. While the process of recovery won’t be easy, our supply chains and in-case-of-emergency instincts will be more resilient than ever and hopefully prepared to fight any incoming battles.