Supply chain shock
Carreras outlines strategy to navigate lockdownsWednesday, October 13, 2021
EVEN as the world continues to reopen as global vaccination rates rise, the disruption in the global supply chain has caused ripple effects in the ability of companies to source core goods used in their operations. As a result, some companies locally have been unable to source goods due to cost or delay in transport while others have found creative ways to maintain their route to consumers.
Locally, consumers have been facing the brunt of numerous price increases due to the external pressure associated with various global events. The most prominent event has been the acceleration of shipping costs from Asia to the West, with the cost of a container moving from US$2,000 to US$15,000 in some cases, and even quotes as high of US$25,000 in the USA .
This has resulted in some companies reducing imports into Jamaica as big items with a low markup are no longer feasible without substantial price increases. Even companies which import key raw materials for their manufacturing processes are facing double whammies as commodity prices increase along with shipping prices.
One company which has been able to navigate the murky waters has been Carreras Limited, which distributes cigarettes and other assorted products across the country at more than 10,000 outlets. Its supply chain has been impacted in various capacities, as seen with the temporary shutdown of its manufacturing partner, the West Indian Tobacco (WITCO) Company in Trinidad and Tobago, and weekly lockdowns in Jamaica.
“Ever since this lockdown happened in 2020 we made a decision to increase our stock holding for up to 5 months. This has an impact on cashflow, but it is a necessary investment to ensure we had adequate stock in case this ongoing pandemic has a negative impact on our distribution system either into Jamaica or within the country. It is for this reason we also work closely with our distribution partners in every region to ensure adequate stock levels to meet consumer demand,” stated Raoul Glynn, managing director of Carreras. Glynn is a Trinidadian national and seasoned executive within the British American Tobacco Company (BATC).
Carreras used to manufacture cigarettes in Jamaica at its former Twickenham Park location up until 2005, when BATC decided to only use WITCO in Trinidad as the main location in the Caribbean to produce the product. WITCO sources its core tobacco components and raw materials from BATC partners and suppliers in the Asia and European regions. It then exports it to the rest of the Caribbean and to other BATC-owned subsidiaries which distribute it in their local markets.
For Carreras, this involves distributing its products to retailers and wholesalers who sell the product to the end consumer. However, WITCO has faced two separate lockdown phases in April 2020 and May 2021, with the first lockdown lasting for 10 weeks and the second one for 4 weeks. Unlike some manufacturing companies in Jamaica which were initially deemed essential, WITCO was unable to operate and export goods during that time. This left Carreras without any imports from WITCO during the period. Despite this issue, there are other partners in the hemisphere which Carreras can utilise to produce cigarettes to their specifications should there be a protracted issue in Trinidad.
“Even though the factory is there, they had the toughest period. Imagine having physical product on any compound and you can't send it out of the country. The second focus came from our sister company in Trinidad ensuring all is in place for the factory to be considered 'essential' and thus be able to give the authorities the comfort that their continued operations will not have any further negative impact on infection rates in that country. The team has been doing an excellent job so far on this,” noted Glynn.
When combined with the recent 3-day lockdown measures in Jamaica, Carreras has had to be more agile in its operations to mitigate any potential bottleneck in the distribution network. Apart from stocking up on 5 months of inventory valued at $479.26 million, the company's leadership took up the charge to become salespeople.
“What you would be seeing on some days is that everybody is a salesperson. The salesman is going to his outlet but we have the marketeers going out and making deliveries on behalf of the salesmen. Even the Head of Trade Andre Pryce and myself make deliveries because everybody has to be on hand, as there's a short window. This is to make sure the market has sufficient stock and [to also ensure that] we don't allow illicit brands to thrive,” said Glynn on the company's necessary moves.
Though many people stocked up on bread and other items during the recent lockdown measures, Carreras noted a consistent pass-through of supply as consumers purchased enough cigarettes to last the extended periods. Its key distribution partners maintained enough stock to act as facilitative connections should there be any isolated lockdowns in parishes similar to what happened in April 2020 when St Catherine was locked down for 2 weeks.
As a result of the company's successful route-to-market strategy, it's been gaining more partnerships to distribute along its network. Its most publicly known one so far is through Procter & Gamble, which has chosen the company to expand its product reach in Jamaica. Carreras will also be distributing lighters and hygienic products, which will be announced shortly in the third quarter.
Carreras' sales in its first quarter was up by 32 per cent to $3.43 billion, and not only surpassed pre-COVID numbers but represents the highest level of sales since 2017. Its Craven A and Matterhorn products are up double digits as consumers utilise its products in these times. Its net profit stood at $862.53 million, with receivables remaining stable at $1.43 billion.
“Our expectations remain extremely high. We are strengthening our distribution footprint and maximising the model to meet the needs of our customers and consumers alike. And most importantly, we continue to invest and give the tools to our dedicated and passionate team members who are the lifeblood of our success and who continue to meet the challenges of the time with unwavering support and belief in 'A Better Tomorrow'.
The consumer is already too stretched and we don't think they could afford a price increase right now, as everyday essentials go up. This is why we've been seriously seeking to be as efficient as we can so that we can prevent the consumer from paying that cost,” observed Glynn.