'Lifestyle changes' spur retail upheaval, changes in production

As the pandemic continues to radically alter how Canadians spend their money, experts say a second wave of COVID-19 will likely see consumers plagued by shortages--but this time stemming from "lifestyle changes" rather than panic buying.

The early days of the pandemic saw toilet paper emptied out of store shelves and some retailers are running low once more as cases rise, but experts say shifts in consumer behaviour over the past six months mean lengthy backorders are more likely to arise on discretionary items ranging from upscale stationary bicycles to patio heaters.

The retail upheaval is a sign of the ongoing COVID-induced cultural and economic phenomenon sweeping the country, as people work from home, shop online and rethink how they spend time--and money.

But the disruption to usual shopping patterns has led to widespread inventory issues as the industry scrambles to meet changing consumer demand.

"The bottleneck won't be people buying tons of toilet paper," said Diane J. Brisebois, Retail Council of Canada president and CEO. "It will be the supply chain trying to adjust to changes in lifestyles and discretionary spending habits."

Compounding the problem is a sweeping "channel shift" away from brick-and-mortar stores towards online shopping.

Statistics Canada said in July that retail e-commerce sales had soared to an all-time high, reaching a record $3.9 billion in May--an increase of 110% compared with May 2019.

The spike has left many retailers straining to keep up with the trifecta of traditional home delivery, buy online and pick up in store, and curbside pickup.

For many, the rapid pace of change has exposed an inventory management nightmare: Orders arrive on the doorstep or curbside incomplete, delivery dates are revised into the distant future or orders are simply cancelled.

Deloitte Canada's Jim Kilpatrick said the pandemic had challenged the best practice of using historical sales and consumption data to predict future demand and drive inventory decisions.

"It's been really difficult to pick up an accurate signal about what products people want and in what quantities," said Kilpatrick, the consulting firm's global supply chain and network operations leader.

While retailers and manufacturers are becoming more nimble in responding to shifts in demand, he said the coming months will still be tricky.

"We've seen a tremendous acceleration to online shopping," Kilpatrick said. "That puts a lot of stress on the system."

But, experts say groceries and essential items are in good supply.

"The food industry has been preparing for months for a potential second wave," said Sylvain Charlebois, a professor of food distribution and policy and director of the Agri-Food Analytics Lab at Dalhousie University.

"If there are more lockdowns, the food industry is even better equipped now than during the first wave."

But that doesn't mean shoppers won't notice changes to everyday staples on store shelves.

Anna Petrova, vice-president of supply chain at Kraft Heinz Canada, the largest food company in Canada, said the business had made some temporary tweaks to the range of products it offers to maximize the production of its most popular items.

"Increasing supply to meet pandemic demand sometimes means that we have to limit production of certain varieties,'' she said. "We're concentrating on the top sellers."

Manufacturers of goods ranging from food products to toilet paper have temporarily limited the number of SKUs  they make. The move increases production by limiting changeovers--the process of converting a machine or line from running one item to another.

Grocery store shelves will be well stocked with the original Kraft Dinner, for example, while production of the organic and white cheese varieties have been scaled back.

"We are able to handle spikes in pandemic volume," Petrova said. "We have been working very hard to create additional capacity to produce more products to satisfy Canadians."

Meanwhile, for people still worried about toilet paper--don't be, says Dino Bianco, CEO of Kruger Products LP, Canada's biggest tissue products manufacturer.

"Our assets are running full out and we're continuing to build inventory," said Bianco, noting that the company--maker of the Cashmere and Purex brands of toilet paper--had doubled its inventory of raw materials to maintain a 60-day inventory, up from 30 days.

Still, Kruger is also focusing on key products. While consumers will find plenty of the company's Cashmere brand toilet paper, for example, Bianco said its recycled sub-brand EnviroCare may be harder to come by.

"It's a much slower mover, so we decided to put a halt on that one for now."