Tales of COVID-19’s impact on small business are everywhere. In a February speech, U.S. President Joe Biden said, “Small businesses are the engines of our economic progress; they’re the glue and the heart and soul of our communities. But they’re getting crushed. Since the beginning of this pandemic, 400,000 small businesses have closed—400,000—and millions more are hanging on by a thread.”
In some ways, the pandemic has been harder on small businesses than on large multinationals. Small businesses often lack the sophistication, resources, and deep visibility across supply chains that their larger counterparts enjoy. They also lack the ability to absorb errors, especially in periods rife with risk and uncertainty.
While the pandemic continues to challenge many firms, some small businesses have seized upon it as an opportunity to get creative. In many cases, the slowdown in business has lightened the pressure of the daily grind on small business leaders. The pandemic has allowed these leaders the bandwidth to explore the strategic side of their business rather than being trapped by day-to-day work. As a result, some motivated and creative business owners are uncovering new opportunities not only with their customers and counterparts but also with their competitors. They are re-evaluating their business strategy, pushing for survival and, in some cases, even growth.
Indeed, many small businesses are seeing their supply chains as an area to create advantage for the first time. While disruption and dislocation are widespread across the supply chain, opportunities are appearing for agile small businesses. On the supply side, they’re pooling orders with other businesses, they’re sharing warehousing space and inventories, they’re looking for and sharing information on alternative suppliers, or they’re simply checking their supplies and learning to plan and forecast. On the demand side, small businesses are finding new customers, figuring out the “last feet” of moving their products across their counters, opening new markets, and, if they’re gutsy enough, expanding their advertising and promotion to fill the gaps left by fearful and risk-averse competitors.
Demand side: reaching new customers
Amidst the pandemic, businesses have had to re-examine the revenue end of their businesses, both from a product and a market perspective. Many are moving away from expensive walk-in retail and are finding new opportunities. They have made big efforts to enter new markets or make their purchase processes COVID-proof.
Roasters Next Door (RND), a small coffee shop in Roanoke, Virginia, has used the pandemic to focus heavily on its online and wholesale business. “We made a really hard push to get into our local grocery stores,” said Quincey Randolph, one of the owners of the shop. This effort to move into that wholesale business has been what has kept the business alive, said Randolph.
RND presents an interesting study in shifting priorities by repurposing existing resources. A little over a year old, RND was just hitting its stride when the pandemic’s first wave hit. In early 2020, the company had begun bottling up its most popular cold brew coffee products and had created a portfolio of small business wholesale clients for the bottled brew. This new effort had led the ownership team to invest in new roasting and bottling equipment and space for production. The intent was to expand the wholesale business alongside the retail business, but the pandemic forced the wholesale initiative to the top of the list.
When the pandemic hit, the ownership team made the decision to scale back their retail business. Like many businesses, they decided to operate with limited hours and no sit-down space and encouraged customers to preorder. In addition, they pivoted their resources, converting some of their retail baristas into coffee roasters and bottling experts. The owners began marketing directly to and making sales calls on their existing wholesale network. They also reached out to major grocery chains and new businesses that were slated to open. Now, RND’s beans are available for purchase around the city, from major chains like the health and wellness supermarket Earth Fare to niche neighborhood shops scattered around town.
While pivoting existing resources into new markets may seem obvious, many firms have spent the pandemic drastically scaling back, laying off valuable employees, and abandoning markets entirely. Small businesses like RND don’t have that luxury. “I think other businesses [that have scaled back] are just hurting,” Randolph said. “How do we minimize our losses so we can weather the storm?” RND knew it had to protect the legacy business by hunkering down. At the same time, the company knew it had to find other sales opportunities to keep its head above water. RND found the best of both worlds, keeping resources running and finding new opportunities for when the economy comes out on the other side of the pandemic.
An evolution
Mas Seafood in Alexandria, Virginia, is another small business that made an effective pivot during the pandemic. Established in 2006 by the family patriarch Manuel Ribadulla, the operation is run today by his son Michael and daughter-in-law Katy. (Sometimes 5-year-old son Henry wanders out front and supervises. That’s a small business.)
Mas began as a wholesale business catering to restaurants in the Washington, D.C., area and by 2020 had established a stable business. Then the pandemic hit. By the end of March 2020, its wholesale business had evaporated. Overnight the company’s sales volume dropped by close to 90%. In desperation, Katy Ribadulla went on Facebook to sell off the stock on hand at cost. Within days, individual consumers had cleaned them out.
A few weeks later, Mas returned to Facebook and did it again, this time not at clearance sale prices but at closer to retail prices. The company bought coolers and labeled them with hand-written tags with the customer’s name. Mas filled the order and put the cooler outside its door, well-iced and under a tent. Customers were trusted to come by, pick up the fish, leave the coolers behind, and pay online. A retail business was born. The new distribution channel worked, and it has become a weekly cycle. In a typical week, Mas handles 60 to 80 orders.
In October, Mas moved to a new building, with legitimate retail space out front and workspace in the rear. As restaurants have started to reopen, some of the wholesale volume has returned. In dollar terms, sales are split between wholesale and retail, with retail operations running full bore Tuesday through Saturday. They’ve remained true to their brand while opening a new channel.
Necessity is the mother of invention. Smart people like the Ribadulla family reacted to the pandemic by reengineering their supply chain on the fly. They are real-life examples of what is known as the U.S. Marine Corps’ unofficial motto: “improvise, adapt, and overcome.”
Understanding the supply side
Companies have also put in place some creative pivots on the supply side. Many small businesses rely on long-standing trading relationships with other small operations like themselves for their raw material and supplies. Due to the pandemic, however, many of these small suppliers are only hanging on by a thread, and every day more threads break. As the pandemic continues to wreak havoc on enterprise viability, there is a ripple effect up and down the supply chain. Small operators can find themselves in a scramble to find new sources on short notice. The challenge lies in the fact that small operators rushing to replace a supplier often lack the ability to find new sources on short notice.
The answer can be to call a friend, not as a supplier, but as an ally. Ted McKee directs procurement for the Knoxville Community Development Corporation (KCDC), the public housing authority for Knoxville and Knox County in Tennessee. During the pandemic, KCDC has been taking advantage of cooperative purchasing agreements that allow them to jointly bid on goods and services with other local government agencies. According to McKee, partnering with other organizations creates opportunities otherwise unavailable to smaller organizations. “For smaller entities, including mine,” he explained, “one of the major benefits [of cooperative purchasing agreements] is the ability to leverage the volume of a larger agency and thus reduce per-unit costs.”1
Mitigating risks
Alliances can be an effective force multiplier on the supply side not just for government agencies but also for small businesses.
At the beginning of the pandemic, Pastel, a small bakery in Roanoke, Virginia, found itself being squeezed by the pandemic on both the demand side and the supply side. According to owner Brunella Salazar-Gonti, the pandemic drove a decline in the bakery’s retail sales. At the same time, Pastel was dealing with shortages of key ingredients like bread flour, yeast, and vanilla. Pastel was sourcing all these ingredients—which were heavily affected by growing global demand—outside of the local area from large wholesale distributors. As a result of this combination of declining demand and tightening supply, Salazar-Gonti needed to change how her business managed the balance between inventory and cash flow. “We have to be more conservative [about investments in inventory], to make sure we have everything we need but not spend on things we’ll never get to,” said Salazar-Gonti. “But we still need to have inventory to be able to provide our products and be ready for when somebody does need something, so we’re not always losing clients because of not having the ingredients.”
A newfound appreciation of the costs of spoilage and the risks involved in ordering raw materials confronted Pastel throughout the summer of 2020. Wholesale distributors, in many cases, upped their order requirements from $500 minimums to as much as $1500 minimums, as their own costs of delivery increased. While facing increased supplier minimum order requirements for perishable items, Pastel saw declining sales at the onset of the pandemic. Pastel was unable to use all of the perishables required for a minimum purchase order before spoilage set in.
Salazar-Gonti started thinking of ways to keep materials on hand while avoiding crushing blows to the bank account. “We’ve become a little more flexible with [where and how we get] inventory, because we don’t want to overspend and waste,” Salazar-Gonti says. “We have more of a mixture between local stores or grocery stores and wholesale suppliers now.”
She’s achieved this mixture through a combination of the simple and the creative. Salazar-Gonti now gets some of the specialty products she needs through local stores and grocery chains, shortening her supply chain and in effect making it more responsive to her needs.
For bulk items like flour, butter, and eggs, she’s begun pooling orders and supplies with a handful of other businesses. She now makes big buys with other small restaurants and shares storage space with them to spread out the costs and risks of carrying too much inventory. She’s effectively created a co-op warehouse that’s locally operated and managed by the owners of the supplies themselves.
The arrangement has paid off on the bottom line, as Pastel’s food costs have cratered to an impressive 15% of revenue, down from around 30% before the pandemic. Salazar-Gonti is optimistic that she can retain that type of cost control, noting that she sees no reason Pastel’s new arrangements shouldn’t stick around after the pandemic passes.
Lessons to learn
In spite of the dire warnings from the press and politicians, it’s not all bad for American small businesses. Many have demonstrated excellence in supply chain resilience during the pandemic, either by re-evaluating their ordering and procurement, breaking into brand new markets, or simply getting creative with cash flow and with new products. While well short of being a blessing, the pandemic—for many—has proven to be an opportunity to help their businesses innovate and thrive.
These resilient and nimble small businesses can provide some lessons to even the largest companies. For one, not everything has to be a complex orchestration of movements—getting back to the basics works. There is nothing revolutionary about pooling orders, repurposing resources, adopting new channel strategies, or merely reexamining business practices. What matters is executive action, and small businesses often have an advantage in agility that larger competitors lack.
Notes:
1. Michael Keating, "Tennessee purchasing crew fine-tunes its pandemic response," American City and Country (February 2, 2021): https://www.americancityandcounty.com/2021/02/03/tennessee-purchasing-crew-fine-tunes-its-pandemic-response/
