Is America’s food supply chain nearing its breaking point?

Discussion
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Apr 20, 2020
Tom Ryan

The massive strain placed on the nation’s grocery supply chain as a result of the coronavirus pandemic may be revealing some shortcomings in the system.

The challenges include:

Escalating demand at food retail: The shortages at retail of staples such as eggs, flour, soup and pasta are partly due to stockpiling. Grocers are limiting purchase quantities and even reducing discounts to shore up supplies, but consumers continue to hoard due to fear of product shortages. Less talked about is how out-of-stocks reflect a significant increase in home cooking with restaurants closed and shelter-at-home mandates. Supply is expected to eventually meet demand. Mike Duffy, CEO of C&S Wholesale Grocers, told USA Today, “It just takes a while for the system to catch up. Some of these categories may take six, eight, 10 weeks to fully republish at the shelf.”

Sick workers: Factories are operating at or near full capacity to keep up with excessive demand, but output is slowed by social distancing and worker health concerns. A number of beef, pork and chicken plants have closed as a rash of workers have tested positive. Infection risks at meat plants are high. The work is labor-intensive and employees often work side-by-side, raising infection risks at meat plants where COVID-19 testing has been so far limited. Companies are slowly improving the distribution of masks and other personal protection materials to workers, but absence rates remain high. Some plants are exploring alternatives in case large numbers of workers become sick.

Retailer versus foodservice supply mismatches: Despite significantly less food being donated to food banks due to out-of-stocks at retail, food is being dumped by farmers as a result of a surplus caused by the massive drop-off in demand from restaurants, hotels and schools. Stock from foodservice channels is hard to shift to retail in part because of labeling. A bigger issue is that units heading to foodservice customers are significantly larger than even those heading to warehouse clubs. Companies are transitioning from processing and packaging items for foodservice clients to retailers, but it’s taking time. Mark Allen, CEO of The International Foodservice Distributors Association (IFDA), told Marketwatch, “I think supply chain will look fundamentally different coming out of this.”

DISCUSSION  QUESTIONS: Which current supply chain challenges facing the grocery channel appear temporary and which need longer term attention? In what ways do you see the coronavirus pandemic changing the food supply chain?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I have no doubt it will catch up to what is the current demand, but I do expect we will have more bumps in the road for some time."
"The continued challenge is solving for items that have seen recent demand spikes and likely to stay there for the time being."
"For now, the biggest issue is the mismatch between the retail and wholesale supply chains for food service."

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20 Comments on "Is America’s food supply chain nearing its breaking point?"


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Richard Hernandez
BrainTrust

Companies cannot make the entire assortments they normally have in their supply chain, so they are making or producing only one or two flavors, sizes, etc. to at least get supply to the stores that have empty warehouses and in turn empty stores. I see this going on for a while until things get back to a semi-normal state and people get back to work or slots are filled to compensate for the demand.

Oliver Guy
BrainTrust

Some media outlets would have us believe that the key reason for grocery shortages is consumers stockpiling food. Completely forgetting the factor of meal count – the fact that the home kitchen, and hence grocer, needs to fulfill more meals. I wrote about this a couple of weeks ago.
The grocery supply chain was simply not built for this kind of extra load. We are seeing some creative solutions appearing including the use of ecosystem platforms but also grocers using the food supply chain to supplement capacity – one example being Marks & Spencer in the U.K. who are shipping food boxes using the channels and partners that they normally use to deliver clothing.
But that is only part of the answer – in the U.K. wholesalers who distribute to schools, restaurants and caterers are opening stores selling product directly to consumers. There are issues here still – such as pack sizes – but as ever the winners in this area will be the ones who can exploit issues, adapt and create new business models.

Neil Saunders
BrainTrust

There is enormous pressure on the grocery supply chain. Although demand has eased from a few weeks ago, it is still elevated. On the flip side, there are some supply problems in certain categories thanks to workers falling ill. Despite this imbalance, America won’t starve. There is plenty to go around. What it does mean is poor availability of certain products, limited supplies of some brands, and possibly moderately higher prices. Consumers will have to live with this inconvenience as the crisis rumbles on.

Peter Charness
BrainTrust

It’s hard to tell how much of the consumer supply chain is going into “pantry filling” vs consumption. Certainly more meals are happening at home vs. outside the home. There is an opportunity for some restaurants to keep going by of course providing take out, but also by redistributing commercial-sized quantities of staples like flour into consumer packaged sizing. They would probably not quite meet all standards and labeling requirements, but it would help them with revenue and take some of the pressure off the supply chain…(Shhh…)

Brandon Rael
BrainTrust

The grocery supply chains have been strained beyond comprehension, and the existing wholesale distributor/retailer operating model has been disrupted with the unprecedented consumer demand. In the pre-COVID-19 days, the wholesale distributors and retailers had essentially operated in their own silos and the model worked fine, especially when the demand was consistent, steady and predictable.

However we are in unprecedented times, where the demands are higher than ever, with an element of consumer boarding, and the grocery supply chains have struggled to keep up with the demand for key items. There is a call to action for greater collaboration between the wholesale distributors and the small- to medium-sized grocery stores, as they are challenged to keep up with the changing consumer landscape.

The post-pandemic COVID0-19 grocery landscape will call for agile, flexible, and scalable supply chains, that have heightened consumer data and analytical insights. This will happen via the partnership between the distributors and retailers.

Tony Orlando
BrainTrust

America’s food supply is more than capable of doing its job. However with panic buying being out of control, and news networks spewing their scare tactic stories, convincing people that we can not provide for them, you have a perfect storm of stockpiling pantries, and some stores gouging, which is sickening. Patience is needed for the logistics, supply, warehouses, and retail to coordinate their needs, and it will smooth out in time. There are also problems with megastores demanding more and CPG food packers, which cannot fill the orders for the smaller warehouses, leaving large gaps in the center store. Either way, there will still be shortages, but it already is getting way better in perishables, which is my thing. So the answer is it will smooth out, and I hope the farmers make some profit as they desperately need it to survive.

Shep Hyken
BrainTrust

These are not “normal times.” While there are supply chain challenges, it’s mostly because of higher demand than usual — MUCH higher demand. That will ebb back to somewhat normal levels as the economy opens back up. The coronavirus pandemic is pushing the grocery channel’s limits and, as a result, new capabilities and opportunities are being discovered.

Steve Montgomery
BrainTrust

The entire grocery supply chain was built on the just-in-time concept with little to no ability to stretch. With the onslaught of COVID-19 the supply chain was quickly stretched to its limits. As Neil pointed out there has been some recovery but it is still trying to get back to some semblance of normal. There will continue to be issues for some time and the focus of the missing items may change from toilet paper and frozen pizza to fresh meats. I have no doubt it will catch up to what is the current demand, but I do expect we will have more bumps in the road for some time.

Liz Crawford
BrainTrust

Most Americans will have food. However, expect prices to increase, possibly dramatically in the coming months.
This will mean the schism between the haves and the have-nots will deepen. creating more social strife. Politicians (on both sides of the aisle) may see this as an opportunity to assign blame in this election year.

Mohamed Amer
BrainTrust

The challenge is that there isn’t a single supply chain, but multiple ones. While the adjustments to pack size and labeling is a temporary one until foodservice flows resume, the current situation highlights a longer lasting need.

Specifically, to build in real-time monitoring and reporting on product safety and tracing and process integrity along every step of the chain with measures on all human, equipment and transportation “touches” necessary to flow the product to store shelf or door step. It requires a move from a mode of monitoring for exceptions to introducing new end-to-end safety handling processes that minimize contagions. That will increase the per-item delivery cost but the alternative is even more costly and disruptive, both economically and for human lives.

Ken Morris
BrainTrust

Hoarding totally disrupts the supply chain. Production of many products, like toilet paper, have been optimized with the factories running 24/7 to match demand. Hoarding totally disrupts the model and you can’t build another manufacturing facility overnight to cover the spike. Every product is different but toilet paper has unique characteristics. It is sold in bulk and not individual rolls so packaging issues make it hard to limit quantities and it occupies a huge amount of floor space.

Food distribution is totally disrupted when restaurants are closed and that channel’s products aren’t distributed but destroyed. Perhaps the cities, states and the federal government need to subsidize restaurants to open back up to distribute this wasted product to those in need or for them to retail it. We are all being optimistic if we think everything will be back to normal in a few weeks. I believe we need to consider a longer shutdown in metro areas and come up with some creative alternatives.

Cathy Hotka
BrainTrust

America’s food supply is in peril. Between farmers plowing their produce under, prohibitions on guest workers for picking fruit and packing seafood, and the protracted nature of the pandemic, expect widespread shortages and price spikes. It isn’t going to be pretty.

Ron Margulis
BrainTrust

It’s remarkable that the supermarkets, mass merchants and drug stores have as much product in as wide an assortment as they do. Sure, there are out-of-stocks, the produce doesn’t always look the best and some of the service counters are closed, but you can always find a lot of different things to eat. And now the paper supply is coming back so you can buy an extra few months’ stock.

That second question is really the interesting one, though. We’ll definitely see more automation via micro-fulfillment centers. While e-commerce won’t stay at the levels it’s currently at, it’s not going back to 2 to 3 percent. Both of these trends means stores can and probably should be smaller. Last, there will be slightly more safety stock at upstream nodes (DC and manufacturing) of the supply chain.

Ralph Jacobson
BrainTrust

The “panic” demand we’re seeing is just that, a temporary emotional demand, not related to any true food shortage in the supply chain. This is all about logistics and production to meet the (hopefully) short spike. Having been a supermarket store manager way back in the ’80s, I see the tactical challenges of today’s crisis opening up a longer-term needs to align shelf allocation much better. Why do 99 percent of stores still have the same facings of products within categories that nowhere near match the actual demand? We need to ensure shelf holding power on the top 25 percent of SKUs from delivery to delivery.

Kai Clarke
BrainTrust

No, America’s food supply chain is not even close to its breaking point. Go into any Costco and realize the spend that occurs, or Walmart and you may still see a few out-of-stocks, but this represents a simple demand adjustment in the logistics channel rather than a breaking point for a food supply chain. America far outproduces our needs in dairy, chicken, wheat, corn, etc. This ensures that McDonald’s will always have hamburgers and that KFC has chicken, which they always do, in addition to our local grocer.

Ricardo Belmar
BrainTrust
For now, the biggest issue is the mismatch between the retail and wholesale supply chains for food service. That farmers are having to dump their output due to this imbalance with almost everyone cooking at home vs eating out at restaurants is frankly inexcusable for all of us to accept. Surely our local governments could find some workable solution to help allow those restaurant kitchens to run even if only to supply food for homeless and underprivileged people in depressed areas which are likely to be hardest hit by the coronavirus. That, supplemented by more grocery stores partnering with local restaurants to make their food available in-store, could help alleviate some of that stress in foodservice. It’s true that it is difficult for the foodservice providers to pivot to selling to consumers, but I expect that maybe one of the outcomes we will see more of post-virus. The supply chain will be changed if only to accommodate more agility and flexibility shifting the supply from one direction to another in future crises. A second issue,… Read more »
Ananda Chakravarty
BrainTrust
Food service maintains large amounts of our food consumption and is now at a standstill, plagued with oversupply. We have reduction in supply, lower food costs, and less attention paid to smaller orders. Large chains will continue to carry most processed foods. Fresh food vendors and dairy, meat, etc. will be seeking ways to sell their products, as they slow down their systems. The US processes 9 billion chickens a year; that will take a while to slow down. It’s not demand, but oversupply, waste and the extremely efficient supply chain that’s now been thrown out of sorts, meaning that there will be substantial losses in the meat processing, agriculture and farming sectors. The question is how long this will persist. I suspect we’ll see a slight slowdown, but many food services have turned to curbside pickup and delivery services and this will be the trend. Not sure how it will impact us long term, as it depends on how consumers plan to consume food- Make it at home or take out. In the interim,… Read more »
James Tenser
BrainTrust
While there are a few worrisome developments — like the temporary closure of some meat packing facilities, and irregular demand for produce that has resulted in tragic waste — overall, I believe the nation’s food industry has weathered the present crisis commendably well so far. Most of the worst issues have to do with plentiful products in the wrong package forms or places at critical moments. True, our just-in-time supply chain has proven to be somewhat brittle, but most grocery stores have plenty of product overall. These issues are not easily corrected within the last two steps of the supply chain (D.C. and stores). Safety stock is not a responsible answer. It ties up cash and leads to excess handling, spoilage, and ultimately higher consumer prices. At the growing and packing stages, however, there is now a fresh argument for more built-in flexibility. If restaurant demand for fresh veggies is suspended, producers need to make nimble shifts to alternative packaging so the items can be re-distributed to stores and food banks. Meat-packing facilities need to… Read more »
Scott Norris
Guest

This also underlines the need to maintain vibrant farmers’ markets (retail and wholesale) and community butchers so that supply chains are short and trackable/accountable. I’d expect renewed investment in urban agriculture, too.

Shikha Jain
BrainTrust
The food supply chain will need to continue demonstrating the ability to pivot with agility to meet the fast-evolving consumer behavior that is ever shifting. The more that grocery retailers and food producers can address consumer trends and adjust their manufacturing, the smoother the operations and fewer stockouts. The continued challenge is solving for items that have seen recent demand spikes and likely to stay there for the time being. For example, traditionally slow productivity items like yeast and flour have become scarce within weeks due to a massive shift in the consumer’s behavior for cooking and baking at home. Similarly, packaged fruits and vegetables were being favored over loose produce due to shoppers’ concern over the ability to effectively clean it. Prioritizing these categories should help manage the manufacturing process. Furthermore, many who are not used to cooking at home may not have a clear concept of how much they need to buy in a given week. There are two ways to alleviate this. The first is to consider pack sizes to fit all… Read more »
wpDiscuz
Braintrust
"I have no doubt it will catch up to what is the current demand, but I do expect we will have more bumps in the road for some time."
"The continued challenge is solving for items that have seen recent demand spikes and likely to stay there for the time being."
"For now, the biggest issue is the mismatch between the retail and wholesale supply chains for food service."

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