For food retailers, be they major supermarket grocery chains or one-location mom-and-pop shops, supply chain disruptions come with the territory. Unexpectedly elevated demand, weak harvests for berries and melons or unreliable wholesalers leave shelves spotty and customers disappointed from time to time. But rarely have so many food retailers encountered supply chain challenges all at once, despite being long removed from the worst of the pandemic. In fact, the problem is getting worse, not better. Indeed, in a poll from the Food Industry Association released in September, 7 in 10 retailers said the inconsistency of their supply chain performance was harming their business. That’s up from 42% when a similar survey was conducted in 2021.
Here are a few reasons why supply chain pain persists for so many food locations:
1. Growth in consumer demand
Depending on the season, certain items tend to be purchased at a higher rate, such as cabbage and corned beef in mid-March and Bell’s seasoning and pumpkin filling in late November. Food retailers are aware of these spikes and adjust accordingly. But customers now have more channels for buying than ever before, and are taking advantage of the conveniences. Be it via curbside pickup or home delivery 6.5% of overall sales for retailers in 2021 were online, the report said. That’s more than double what the figure was in 2019 (2.5%).
With wages up and unemployment at historical lows, Americans are clearly in buying mode, despite paying higher prices because of inflation.
2. Inflation
When beef prices are higher or a gallon of milk is up 20% from a year ago, the knee-jerk reaction is how putting food on the table is affecting families. But food producers feel it as well — up and down the supply chain, including animal and dairy farmers. However, instead of dramatically raising prices on consumers, manufacturers often downsize, produce less or make smaller portions for foods than they did when prices were lower. This phenomenon is known as “shrinkflation.” This winds up making supply even tighter.
3. Not enough people working
Even though the economy is technically in a recession due to two consecutive quarters of negative growth, the vast majority of the country has a job. Indeed, according to the most recent figures available from the Labor Department, less than 4% (3.7%) of Americans are out of work as of August.
However, this figure only takes into account those who are in the labor force, as opposed to Americans who have left it on their own accord or are no longer actively looking for a job. The participation rate has fallen sharply over the past two years. Based on figures compiled by Trading Economics, the current labor force participation rate is below 63%. Its lowest number on record is 58%.
Food retailers are feeling the effects of the labor shortage acutely, in part because the pay is low compared to other industries. The Great Resignation, which led to tens of millions of people opting to leave their present employers, was largely felt by restaurants, grocery stores and food processors among other low-wage employers.
