Perishables: Driving Systemic Changes in Grocery

By Kevin Brooks, Chief Marketing Officer, Procurant

As chief marketing officer at Procurant, I have a front row seat to the retail grocery industry, an industry that was uniquely affected by the pandemic and by the recovery process over these past few years. My company provides procurement and food safety solutions to some of the largest retail grocers and produce suppliers in the world, and we see daily trends in buying and selling and transporting products over our network.

In this space, there are a few trends in the coming year that will have significant impact, including inflation, an increasing regulatory focus on food safety and need for better data and management of the perishables category as a whole.

Perishables is a segment with high variability in supply, price and quality. Unlike center store CPG items or other procurement categories, the average purchase order for produce changes repeatedly after being issued. There is constant collaboration between buyers and sellers, and things can change quickly. For example, when weather or global instability affects crops or transportation, grocery buyers must re-allocate inventory—often times inventory already in transit—or scramble to find new sources of supply. Similarly, when growers or shippers have a hard time finding trucks or drivers, that can impact delivery times, product quality or shipment quantities.

Inflation hits produce more quickly than other categories due to the short cycle time from farm to shelf and in the collaborative way in which grocers bid and buy product (there are no produce “futures”). At one recent conference, a mid-size grocer told me that in recent months prices were rising so fast in some produce categories their store teams simply didn’t have the ability to adjust quickly enough. After sharp increases this past year there is some indication of inflation beginning to stabilize, but grocery retailers will nevertheless proceed with caution. Produce is a category that drives store visits, and it is entwined with brand perception and shopper loyalty.

The traditional ways of managing center store and perishables with the same systems and same data are reaching their limits. Grocers are looking at the ways systems can be re-imagined for a new era fluctuating inflation and increasing food safety concerns.

Food safety is also an area that will see increased focus by grocers in the coming years. As foodservice and deli operations expand, the need for on-site food safety tracking and reporting similarly increases. What once could be handled with a simple paper binder now requires more automation and electronic tracking and reporting. Employees at all levels of the business are being asked to be more productive, and to do more with less.

One of the biggest changes in this area over the next two years will be the Food Safety Modernization Act Rule 204, which went into effect in January 2023 and provides three years for compliance. The rule requires retailers and their produce suppliers (in certain categories) to maintain more rigorous traceability data, and to make it available within 24 hours upon request. This requirement will reshape internal inventory tracking between suppliers, stores and distribution centers, and put stress on outdated supply chain systems.

Finally, the perishables category is in an interesting place as shoppers return to stores. Produce is predominantly an in-store category, although it is also increasingly part of the online shopping basket. That makes it unique when compared with many center store items that don’t require store trips and that can be easily purchased online. When asked about what the store of the future would look like, one major grocery CIO recently mused that stores might transform into mostly perimeter items, with online fulfillment for center store and CPG items.

Aside from the general preference for shopping in stores for fresh items, many point to rising interest in food and health. Kroger and other major retail grocers, for instance, have significant initiatives around “Food as Medicine.” Others note the generational priorities of younger millennial shoppers.

All these shifts are putting pressure on grocery operations like never before. Systems that were designed to do one thing – say, perishables procurement – are now being stretched across multiple internal and external environments to provide more data to more parts of the business. These are all areas where operational efficiencies can deliver strong bottom-line benefits, but the traditional ways of managing center store and perishables with the same systems and same data are reaching their limits. Retail grocers faced with rising costs will be looking at the ways systems can be re-imagined for this new era.

The State of the GROCERY INDUSTRY 2023

FEB 2023