Many families feel more pressure these days as the cost of many products continues to rise. Or, they go to the shops to find that popular items have gone missing from shelves altogether.
The culprit? Supply chain disruption.
It’s a term we’ve continually heard from news outlets, but what is the supermarket supply chain, how does it work, and why does it get disrupted?
In this post, we’ll give you an overview of the major supply chain steps and some tips to keep your store prepared.
The Supermarket Supply Chain: An Overview
The retail supply chain refers to a network of companies, processes, and information that moves a product from supplier to end consumer.
The grocery store supply chain has six key steps.
- Raw materials
- Processors and manufacturers
- Distributors
- Wholesale grocers and suppliers
- Supermarket
- Customer
A disruption at a lower level of the supply chain can cause ripples that affect every other step down the line.
Note: This model primarily applies to food products. Other products in your supermarket, such as clothing or cookware, may have additional design steps.
Let’s go into more detail.
1. Raw Material Suppliers
These are the people and companies that create the core ingredients and materials used to make various products. This includes dairy farmers, meat producers, produce growers, and other people essential for starting the process.
Raw materials suppliers are vital to the supply chain, as many manufacturers require a consistent supply of materials to meet demand. A hiccup at this part of the process can knock entire items off the shelves.
We saw this happen earlier in the year when Huy Fung Foods, maker of the wildly popular Sriracha hot sauce, had to halt production because it couldn’t produce enough high-quality Fresno chilies to meet demand.
2. Food Processors and Manufacturers
Food processors and manufacturers take raw ingredients and turn them into items that are ready to sell. This process includes cooking, slicing, packaging, and more.
Some common examples of organizations in this part of the supply chain are:
- Chip and snack makers that combine ingredients, bake or fry them, then package them.
- Meat processors that slice beef, pork, and chicken into different cuts.
- Canning facilities that prepare canned vegetables, pickles, and other products
- Bottling plants that package sodas, water, and other drinks.
Not every item in the supply chain goes through these steps. Items like produce require minimal processing and packaging and can go right to distribution.
Problems at this stage can take many forms, from equipment malfunctions to required overhauls due to changing legal standards and compliance issues.
Notably, when food safety issues arise, it is usually at the processing and manufacturing stage. For example, a Boar’s Head plant in Virginia was shut down in 2024 after black mold and other unhealthy conditions were linked to a listeria outbreak.
3. Distributors
Distributors and warehouses transport ready-to-sell goods from processors and manufacturers to wholesalers. These include specialized distributors like cold storage warehouses that handle perishable inventory, such as produce, dairy, and meat.
Some specialized logistics services coordinate large-scale or regional distribution and storage of items.
Generally speaking, supermarkets won’t order directly from a distributor, but from a wholesaler. Slowdowns at this supply chain stage can result from staffing shortages, weather, or accidents.
Extreme weather continues to be a significant supply chain risk, and events like the historic bomb cyclone of 2018 caused major disruptions to stores throughout North America.
5. Wholesalers
The wholesale stage of the supply chain is one that supermarkets deal with directly. These organizations buy items in bulk and resell them to smaller stores.
A supermarket typically can’t buy directly from a food manufacturer because they lack the volume to meet manufacturers' minimum order requirements. It’s not a cost-effective option.
Building a relationship with your grocery wholesalers is critical. Knowing what kind of items they carry, their shipment lead times, and how their prices compare to competitors are essential to meeting demand and achieving higher profit margins.
6. Supermarkets and Grocery Stores
If you’re reading this article, you don’t need a definition of this step in the supply chain.
However, as nearly the last step of the process, supermarkets have unique challenges in getting products from their shelves into customers’ hands, such as:
- Avoiding food spoilage: Supermarkets must track inventory and sell perishable goods while they’re still fresh to prevent food waste and incurring losses.
- Overstocking and stockouts: Supermarkets must anticipate demand in a way that doesn’t lead to wasting space in storage or understocking in-demand items.
- Shrinkage: Average supermarkets have a shrinkage rate of about 3%, either from shoplifting, operational errors, return fraud, or employee theft.
Supermarkets are operating on thin profit margins, so it’s important to find pricing strategies that appeal to customers and benefit your bottom line.
Related Read: How To Reduce Shrinkage: 5 Expert Tips for Grocery Stores
7. Customers
The customer is the final and, at least on the surface, the least complicated aspect of the supply chain. A product finishes its journey at the checkout aisle.
However, as many people who work in retail know, the customer is not always easy to understand. Shifts in product preferences and demand determine what types of items you need to stock and ultimately influence the rest of the supply chain.
For example, demand for organic products or eco-friendly packaging may suddenly put a strain on farmers or manufacturers that previously did much less business and can’t keep up. This can lead to product shortages or new competitors springing up.
In other words, customer preferences affect every level of the supply chain, including your supermarket.
An Example of the Supermarket Supply Chain
Sometimes, the supermarket supply chain can be hard to understand on an abstract level, so let’s use an example of a humble loaf of bread.
As different styles of bread (e.g., wholegrain, buttermilk, white, slider buns, etc.) get more or less popular, it will strain the various stages of the supply chain that must constantly react to customer demands.
How To Prepare for Supermarket Supply Chain Challenges
While many things affect the supply chain —like extreme weather or health issues — that you don’t have control over, there are still many ways supermarkets can stay prepared.
1. Use Inventory Management Software
Unfortunately, many grocery stores still rely on disconnected systems, spreadsheets, or other manual processes to track inventory. This makes it nearly impossible to spot customer buying preferences or anticipate surges in demand.
The result: frequent stockouts or reactive overstocking.
When you don’t have a clear and up-to-date inventory view, optimizing your stock levels and maintaining a healthy profit margin is extremely hard. Inventory management software simplifies how stores receive, track, and forecast inventory so they can make smarter decisions.
An inventory system connected to your point of sale (POS) solution updates inventory levels the moment a sale is made. This provides many valuable benefits for supermarkets including:
- Proactive reordering: Setting up low stock alerts helps optimize stock levels by alerting you when stock levels are low on a particular item so you can promptly reorder.
- Sales reports: Get daily sales reports to see how different products are performing, what’s trending, average cart size, and more.
- Understand churn rates: Inventory software will help you understand your inventory churn rate, giving you insights into how quickly products are moving through your store. The higher the churn rate, the better.
- Discover shrinkage sources: Shrinkage reports can help you discover shrinkage sources before they become a major problem.
As we mentioned before, the customers ultimately determine the supply chain. So, the more you understand your customers, the better prepared you’ll be for shifts in demand.
2. Create Local Connections
The further the distance from the supplier to the customer, the less chance things will go wrong.
Forging connections with local farms, craftsmen, and other businesses will help you avoid supply chain hiccups and help your local supermarket stand out from the competition.
Local favorites are popular with customers, so highlight them with eye-catching signage. Monitor the success of different local products with your grocery POS system and consider increasing order volume for local bestsellers.
3. Use POS Data for Demand Forecasting
Some surges in customer demand truly are unexpected. However, many are more predictable than you think.
Demand forecasting combines a store’s sales data with other external factors like weather, events and holidays, seasons, and more, to spot trends and predict demand.
Related Read: Supermarket Inventory Management: 7 Steps to Success
For example, during football season, you may notice spikes in sales of certain types of snacks. Or maybe sales of some types of produce fall off during certain seasons, telling you it’s safe to order less during those months. Even basic demand forecasting can help you prevent recurring stockouts and give you time to negotiate with suppliers well in advance.
4. Strategically Use Discounts and Promotions
Maintaining a high inventory churn rate is one of the key ways to maximize supermarket profits. Strategically using discounts and promotions to sell slow-moving inventory is a great way to do just that.
Use your POS system to figure out how much to discount products and encourage impulse buys without sacrificing profits. You should always lean on demand forecasting to ensure you don’t discount an item and oversell just before a peak in demand.
Last, measure the effectiveness of your different promotional strategies so you know what works and what doesn’t.
5. Periodically Assess Your Suppliers
You won’t have much control over a drought affecting crops or an e-coli outbreak in a processing plant — but you can choose which wholesalers and suppliers to work with.
Periodically assess your various suppliers.
- What are their lead times? Are they consistently reliable?
- What are the profit margins on products sold by each supplier?
- Are their products high quality?
- How do specific supplier’s goods sell compared to others?
Forging relationships with flexible, reliable suppliers is a great way to get ahead of supply issues. In fact, they might know of upcoming disruptions before you do, helping you prepare.
It’s also important to have backups. If one supplier can’t stock you in time, make sure you have others lined up who can help with short-term needs.
Stock Top Products and Master Inventory Management for Long-Term Success
The supermarket supply chain is incredibly complex, especially during high inflation and volatile economic conditions.
However, with the right inventory management strategies and product lists, supermarkets can weather the storm and find long-term success.
IT Retail was designed by grocery and supermarket experts to overcome the unique challenges of managing and optimizing supermarket inventory. Schedule a custom demo today to see how IT Retail can help you boost efficiency, cut costs, and delight customers.
