If you have ever watched History Channel’s reality television show called “Alone,” you have some idea how difficult living a hunter-gatherer existence can be. Most humans rarely face the challenges of a hunter-gatherer society. In fact, people in developed nations generally take the food supply chain for granted. They expect to find a robust array of foodstuffs whenever they drop into their local grocery store or supermarket. When the novel coronavirus started spreading around the world, people started worrying about how it would affect their ability to obtain food. Market researcher Pamela N. Danziger (@PamDanziger) goes so far as to state, “Groceries and household essentials are the only port in this storm.”[1] As workers in the food supply chain soon learned, however, this port in the storm was not necessarily a safe harbor. Deemed essential workers by most governments, employees in the food supply chain found themselves on the front line of the battle against the spread of coronavirus — and too many of them fell victim to COVID-19. As a result of the pandemic, the food supply chain has adapted to changes in both working conditions and consumer behavior.
Perhaps the most dramatic change in the grocery business was the rise in online grocery shopping. Prior to the pandemic, online sales were growing, but still represented a small percentage of consumer shopping. Danziger explains, “While e-commerce grocery sales have risen far faster than in-store sales, rising 15% year-over-year according to Bricks Meets Clicks, it is a mere rounding error in most company’s financial statements. Statista estimated online grocery sales reached $29 billion in 2019, which is less than 4% of total food and beverage store sales of $777.2 billion.” Lockdown orders turned this blip into a spike. According to Katie Evans, “Grocery cart sizes increased abruptly by 33% month over month in mid-February but have since trended down as consumers settle into sheltering in place, online grocery prices rise, and physical stores begin to reopen, Adobe says. Online grocery prices increased 4.2% over the past 6 months, Adobe says. In June, web grocery prices crept up slightly from May levels, rising .05%.”[2]
Pandemic impacts on the food supply chain
The impacts of the pandemic on the food supply chain have been significant. As noted above, supply chain workers suffered exposure to the coronavirus forcing many businesses to shut down. The problem was particularly severe in the meat-packing industry. Jacob Bunge (@jacobbunge) and Jesse Newman (@jessenewman13) report, “In April and May, more than 17,300 meat and poultry processing workers in 29 states were infected and 91 died, according to the U.S. Centers for Disease Control and Prevention.”[3] As a result, they report, some meat processing plants are turning to robots do accomplish work traditionally done by low-paid employees. Another reason they are turning to automation is a labor shortage. Bunge and Newman report, “Problems keeping plants staffed predate the pandemic. Plants struggle to draw enough workers to small towns in the South and Midwest that house most of the industry’s plants. Refugees, who can legally work in the U.S., and immigrants, including those who can’t, make up a significant portion of the workforce.”
The pandemic has also had a significant impact on the grocery industry. Operational adaptations to counter the pandemic make the grocery business more complex. Online systems have had to be beefed up. Curbside pickup and rigorous sanitizing procedures have increased labor and operating costs. Out of stocks have required product substitution strategies. And consumer purchasing patterns are changing rapidly. Panic buying and stockpiling created an initial run on many products. Evans notes, however, “Grocery cart sizes [are] shrinking as consumers slow stockpiling.” Another significant impact has been reduction in demand in the commercial food sector.
Hunter Williams, a partner in Oliver Wyman’s Retail and Consumer Goods and Pricing, Sales and Marketing practices, explains, “Widespread stay at home orders have curtailed spending on food away from home. Bars and restaurants, for example, are closed for dine-in across most of the country. OpenTable reported bookings were down 100 percent YOY by mid-March in every country where the company does business, as consumers chose to stay away. Other sources of shifted meal occasions include company cafeterias, college/K12 cafeterias, airline meals, and even hotel room service. While some food service industry volume has been retained through shifts to drive-in, takeout, and delivery, much of it has in fact moved over to grocery. Increased time at home has made cooking more feasible. Eating at home is also more attractive to consumers looking to tighten their purse strings, given it usually presents a more affordable option than eating out. According to Investment Zen, the average cost of a meal is $4 at home versus $13 at a restaurant. To put this in perspective, if the entire US restaurant industry volume shifted over, this would result in around $185 billion of uplift to grocery.”[4]
Are changes in consumer behavior permanent?
As Evans noted, the spike in online grocery sales dipped once grocery stores began to reopen. She reports, “Daily online grocery sales fell 18% in June compared with May as consumers returned to bricks-and-mortar stores in reopened states, Adobe says.” With each new wave of COVID-19, consumer behavior changes. As Williams notes, “The COVID impacts on grocery topline has been (and will continue to be) an ever-evolving, month-by-month story. In March, the dominant effect was pantry loading, while in April it was the channel shift.” He continues, “We find that the US grocery industry will continue to see a sales tailwind from COVID-19 over the coming months, though not nearly at the same levels of early surge. … Some effects will persist long into the ‘new normal.’ In a post COVID-19 world, consumers are likely to continue eating more at home, especially if they are cash-strapped and spending less on eating out. Consumers may also maintain elevated pantry levels for some time due to lingering fears of a secondary outbreak.” In an effort to determine how behavior is changing, “Shopkick surveyed more than 20,000 consumers across the country … as the COVID-19 situation evolves.”[5] Key findings include: Growing concerns are changing shopping behavior; shoppers are making fewer visits to stores; shelf-stable and other essential products will remain in demand.
Concluding thoughts
David Patterson, a Client Solutions Executive at Clarkston Consulting, writes, “Essential items are quickly becoming the sole reason why the general population is permitted to leave their homes. As the coronavirus pandemic further digs its claws into the fabric of society, it is clear that its impacts will be long-lasting. Few industries seem to be immune to the pandemic’s economic toll with the exception of one — grocery. Deemed as essential items by virtually all modern societies, retailers of food and staple products are seeing unprecedented consumer demand. The coronavirus impact on grocery is driving rapid change, and grocers today are quickly taking stock of their capabilities to serve consumers in unexpected ways.”[6] No one can accurately predict how permanent changes in consumer behavior are going to be once the pandemic ends. The likely outcome, however, is that consumers will look more positively at shopping online and will gain a new appreciation for shelf-stable products and essentials.
Footnotes
[1] Pamela N. Danziger, “Grocery Retail Is Going To Be Permanently Disrupted By Coronavirus,” Forbes, 24 March 2020.
[2] Katie Evans, “As pandemic pushes on, online sales grow 76% in June,” Digital Commerce 360, 13 July 2020.
[3] Jacob Bunge and Jesse Newman, “Tyson Turns to Robot Butchers, Spurred by Coronavirus Outbreaks,” The Wall Street Journal, 9 July 2020.
[4] Hunter Williams, “Is the Surge in US Grocery Sales Here to Stay?” Oliver Wyman, 8 May 2020.
[5] Dan Berthiaume, “ShopKick: Consumers trying new retailers more often; spending less on non-essentials,” Chain Store Age, 1 May 2020.
[6] David Patterson, “Protecting Essential Items: Coronavirus Impact on Grocery,” Clarkston Insights, 7 April 2020.
