Well, the word disruption is an incredible understatement of what
we're facing at the moment.
First it was the masks, hand sanitizer and wipes.
Then it was the food aisles.
In the past few days and weeks, we've seen more and more images like
this. This and this one.
You don't have to buy so much.
Take it easy. Just relax.
Stores have seen a double digit increase in sales as people react in
fear to the Coronavirus outbreak.
Products like fresh meat, canned seafood and dried beans have risen
substantially in sales.
Every point in the supply chain is at risk.
We have to see purchasing abate.
The shelves are going to continue to show out of stocks as long as
this demand continues to stay at the levels that it is.
You might not find your favorite brand of imported oatmeal, but you
will find breakfast.
So we are far from any sort of food shortages, famine or anything
like that. With the ever changing response to the coronavirus, can
American grocery stores keep up?
While the food supply chain varies depending on where a person eats,
it always starts with the farmers.
Every year, American farmers produce agricultural products worth
nearly 400 billion dollars from eggs produced in New York to beef
from Kansas to oranges in Florida.
From there, the product moves to ingredient and product
manufacturing, to warehouses and distribution centers, and finally to
grocery stores. All along trucks are key in transporting the products
between the various steps.
All these many years, we've become increasingly efficient and
synchronizing production, transportation and delivery.
Everything hinges on a rational, orderly, predictable and somewhat
accurate ability to forecast demand.
Perfected algorithms calculate the inventory at warehouses and grocery
stores. Retailers typically carry a 26 day inventory of products.
When we're not dealing with a national crisis or a natural disaster.
Then a heavy focus is on trying to make sure that we have inventories
that meet the needs of the consumers, but that we don't get too much
inventory. We create waste.
According to the United States Department of Agriculture, 30 to 40
percent of food is wasted annually.
That corresponds to around 133 billion pounds worth 161 billion
dollars. We're deeply concerned both by the alarming levels of spread
and severity.
On March 11, 2020, less than two months after the first American
tested positive for COVID-19, the World Health Organization declared
the outbreak was a pandemic.
That COVID-19 can be characterized as a pandemic.
At the same time, the Centers for Disease Control and Prevention, the
CDC, recommended people keep a 14 day supply of essentials like food.
That led to panicked consumers rushing to grocery stores, quickly
emptying aisle after aisle.
For the one week period ending March 21st, water sales increased by
nearly 100 percent.
Dried bean sales increased by more than 200 percent.
And fresh meat alternatives by more than 400 percent when compared to
the same time last year.
People are buying much more than they need, and that becomes a
self-fulfilling prophecy if you go by more than what you need.
The next person who comes in also doesn't find that much food in the
store, and then they start panicking, wondering if overall we'll run
out of food. In a post on its website, the Food and Drug
Administration said there are no nationwide shortages of food.
Food production and manufacturing are widely dispersed throughout the
United States, and no widespread disruptions have been reported in
the supply chain. On a micro level, we're not eating more, we're not
producing less and we're not kind of shipping less or have any
bottlenecks along the way. What we are experiencing is at a micro
level, a little bit shift in the patterns of how people buy food.
In cities people are going out past the restaurants and eating more
at home, which means the distribution centers need to target their
supplies more towards more towards grocery store and household
consumption channels than commercial channels.
People might want to go to stores less often, but buy more in one
goal. Still, on March 15th, President Trump held a call with dozens
of grocery, retail and food industry leaders to discuss hoarding and
the safety of the supply chain.
What manufacturers are doing working with their retail partners is
they're looking for ways to create efficiencies within that supply
chain. And what that means is they might be looking at products that
are slower moving like scents and flavors and pack sizes that might
not have the velocity that these core SKUs have.
Some are, choosing to suspend those for a period of time.
We have a number of product manufacturers that have put retailers on
allocation. They want to make sure that they get distribution of
their goods across the country.
Similarly, retailers are putting allocations on customers.
Other measures include shorter store hours to allow workers time to
restock. And Amazon announced its plan to hire 100000 warehouse and
delivery workers. As many experts have consistently stated, running
out of food is unlikely.
The US is a food surplus country with a waste problem rather than a
shortage. Besides, people aren't eating more.
They're just changing habits.
Normally, Americans spend 54 percent of their total food expenditure
away from home during social distancing and restaurant closures.
That has changed, but there are potential challenges ahead.
On March 24th, a group of congressmen and women wrote a letter to the
largest retailers in the country asking that they remain open and not
increase prices for at least 60 days.
This is not a time to take advantage of the consumer.
We encourage consumers to reach out to their state's attorney general
if they see something that they think is price gouging.
Get those products. Darrell Peel is a livestock marketing expert.
He says that while meat sales at the grocery stores have increased by
77 percent, the supply chain will adjust quickly because there's
plenty of meat available.
If we were to have significant labor disruptions as a result of the
disease, that could be a more significant problem in terms of
actually disrupting our ability to to maintain production.
Labor disruptions are a real concern.
Several in store and warehouse employees at Kroger, Amazon and other
companies have tested positive for the Coronavirus.
Additionally, travel limitations could hurt imports of food.
For example, the U.S. imports $26 billion worth of agricultural
products from Mexico.
Canceled flights from other continents could also hurt imports of
food, for example, berries that are often transported at the bottom
of passenger flights.
I think we're going to struggle to accommodate this once in a lifetime
phenomenon that can't be fully understood or forecast.
There is a tremendous amount of suspense in the behavior of not only
this disease but the behavior of consumers in responding to it.
It's not that we've never dealt with a disaster before because this is
a virus, there are some new protocols.
We are rewriting the playbook on a daily basis.
While the grocery aisles adjust, there are some bigger concerns.
If we come out of this later, David there's gonna be three retailers
in this country. There's gonna be Amazon, there's going to be
Wal-Mart, there's going to be Costco.
As a recession becomes a likely reality.
Analysts warn this could hurt smaller grocers.
That would make some larger players even stronger.