It’s been a year and a half since the COVID-19 pandemic changed the day-to-day routines of Americans. Shopping online for groceries and preparing more at-home meals have become ingrained into their lifestyles. The nation’s largest organic distributor, KeHE Distributors LLC, believes significant change will continue and require the food industry to adapt to meet the needs of customers. In his recent open letter, President and CEO Brandon Barnholt outlined a few thoughts of how KeHE is handling this “Next Normal.”
While natural and organic foods continue to outpace conventional products in growth rates, Barnholt warns that supply chain challenges in bringing these products to market still persist in the Next Normal.
“Supply continues to challenge our industry as brands adapt to Next Normal demand,” he wrote. “Our team is working closer than ever with the supplier community to ensure KeHE receives equitable supply based on forward looking growth rates.”
To offer both differentiation and alternatives to constrained supply items, the company’s Innovation Gurus continue to focus on onboarding new brands, 18,000 new items this past year. For example, KeHE revealed the winners of its Trend Finder event in May and On Trend Award Winners during the company’s 2021 Holiday Trade Show in June, both of which enables the organic food distributor to partner with up-and-coming brands.
However, Barnhold is still discouraged to see that the industry has not experienced the inbound supply recovery after 18 months of the pandemic, with performance actually worsening in many instances. “This will require all of us to make assortment decisions based on long term supply viability, and we have replacement options in our vast 70,000 SKU portfolio,” said Barnholt.
Then there’s freight and transportation, one of the biggest hot-button issues right now. “Container ship and port delays have strained overseas shipments for many of our international suppliers,” said Barnhold. “We’re winning in this ultra-competitive freight market – but the challenges have never been greater. Adapting to elevated freight rates and pivoting shipment modes to improve order cycle speed are examples of the investments we’ve made to address the current market constraints.”
Additionally, KeHE is expanding its infrastructure to meet the needs of the marketplace. For instance, the company is unveiling a new distribution center in October in Goodyear, Ariz. With KeHE expanding business in the western region of the United States, this new distribution center will provide faster and more efficient service to its western partners.
The wholesale organic food distributor also boosts an enlarged facility in Denver and will debut a new building in Dallas in the near future.
KeHE’s growing physical infrastructure also aims to address another issue in the Next Normal: the labor shortage.
“The demand for warehouse associates and professional truck drivers has outpaced available supply,” said Barnholt. “This has required significant advancements in recruiting and retention for our organization, including considerable investments in wages, retention programs, and sign on bonuses. Like most businesses, KeHE’s labor costs today are considerably higher and outpacing productivity gains.”
Barnhold points out that all these dynamics have led to the highest level of price changes from suppliers it has ever experienced. “We expect inflation to continue as more of our 4,000 plus suppliers initiate increases to offset rising costs of labor, transportation, raw materials, and packaging,” he said. “At the same time, our cost to serve has far outpaced our best-in-class operating requirements and we are doing everything possible to keep this in check.”
In an effort to support the company’s supplier community, KeHE recently launched a proprietary business intelligence tool, KeHE Connect BI. The suite of tools are designed to enhance current reporting and provide new capabilities nationwide.
“By offering data-driven insights through our platform, we not only give suppliers a transparent view of their performance data at KeHE, but with layered-in insights from our industry experts, we also provide turnkey solutions to support each supplier’s individualized goals and growth,” noted Scott Weber, KeHE’s EVP of commercial and merchandising. “Our goal is to help our suppliers gain an advantage in the marketplace and make data-informed decisions by accessing information in a clear, affordable and accessible program.”
With more than 5,500 employee-owners, KeHE is the largest, pure-play distributor of natural and organic, specialty, and fresh products to natural food stores, chain and independent grocery stores, e-commerce retailers, and other specialty products retailers throughout North America. KeHE is a Certified B Corporation.