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.