Supply chain redux: Empty grocery store shelves return
Speaker 1: (00:00)
A trip to the grocery store recently is looking a lot like the beginning of the pandemic in early 2020, where some shelves are empty and our favorite products are out of stock. But why are we seeing this happen a second time around nearly two years later and not only are shelves empty, but we are also seeing an increase in some food prices as well. Joining me to talk about the current supply chain shortages and why there's a spike in food prices is SDSU business lecture, Miro KOIC Miro. Welcome.
Speaker 2: (00:30)
Thank you, Jade. So
Speaker 1: (00:31)
Why do you think we're seeing empty shelves at grocery stores a second time around?
Speaker 2: (00:36)
Well, there are a lot of factors, uh, that are contributing to this, especially now. So the supply chain disruptions that kind of started this summer, that carried over through the holiday shopping period are still with us, obviously in the winter, winter weather is not good. Um, and we're seeing a lot of disruptive storms, not just in the United States, but in countries around the world that grow important crops like coffee. Uh, so coffee prices, for example, apple might be increased substantially. The Aron variant of the coronavirus has been devastating, uh, not only for the sheer numbers, but because it requires people to be absent, whether on food production lines or at the grocery store. So it really strains the labor pool and clearly the labor shortages due to the great resign has been a, a factor in hollowing out employees at the supermarket level, in the supermarkets, which used to provide a pretty good standard of living for a lot of, um, individuals as they're unionized, uh, are, are becoming a little more of a challenging place to work and make ends meet in higher cost market. So all of that combined means there's less food and fewer workers in stores and fewer truckers delivering product to the stores. We
Speaker 1: (01:49)
Know meat, poultry, and eggs. They're up by 12.5%. How does the current supply shortage play a role in inflation?
Speaker 2: (01:56)
Well, I think the, the bigger issue is, you know, it's always a question of supply and demand. What we saw is that Amer, uh, for the last two years had been eating at home a lot more, which puts a lot of strain on the supply chain. So for example, you know, the average weekly grocery bill in 2019 was about $114. It was $160 during the first year of the pandemic. And it was over $145 last year, a little bit less than in the first year of the pandemic, where more people just stayed home, but still it's a 27% increase in the amount of groceries people are buying. And if you have supply chain disruptions, that means those shelves become bare much faster. You know, on average, most grocery stores have an out of stock on items that can range from five to 10%, 10%, if they're not well managed 5%, if they're fairly well managed.
Speaker 2: (02:48)
So when consumers walk into a store, most of the shelves look full, but now that outta stock ratio is over 15%, which in some cases it seems like a lot of shelves are empty and, and it's not a good look for the groceries, uh, chain and, and consumers. Then there's a whole issue of psychology around, well, if things are missing, I need to buy more things so I can store them for the future, especially non-perishables. So that becomes a major issue. And so that means also that when there's a less product available, groceries can charge more because, you know, consumers will pay a premium for what is available, uh, whether it's meat or, or poultry or eggs, which, you know, rose faster than the inflation rate. Um, in 2021,
Speaker 1: (03:32)
California Senate bill 7 87, went into effect the first of this year, which requires pigs calves, a and HNS raise for food to have room to move and lay down at farms. They gotta be free range. You know, the law bands, the sale of products from facilities that don't meet the guidelines, has this law played a role in the food supply shortage we're seeing now
Speaker 2: (03:53)
It will play a bit of a role, not a huge role because, you know, depending on the farm, if they can export that product to states that don't require the same constraints, it might create short term constraints in the state of California. I think a lot of farmers have been moving to anticipate the need for the requirements that this bill put on, on farmers. Um, so, you know, are they a hundred percent there? No. Uh, will it impact grocery prices in the short term? Yeah. And, and it's unfortunate because, um, it has a, you know, good intent, uh, the timing with everything else that's going on, uh, just is a bad time. And so we may see in California, some of these prices a little bit higher for probably a few weeks longer than they'll start to calm down in the rest of the country.
Speaker 1: (04:38)
How have labor shortages affected food supplies at grocery
Speaker 2: (04:42)
Stores? Labor shortages have been interesting. You know, there's three sectors that have really not recovered since the pandemic. Most other sectors are within a couple of percent of where they were from an employment perspective, hospitality, which is the worst sector at the moment, which includes restaurants, bars, hotels, and retail, and trucking are the two other sectors that are behind. So in the retail sector, five to 7% below where we were pre pandemic, which includes grocery stores, truckers, a lot of truckers are kind of baby boomers or gen X. They're a little bit older. There's a lot that have retired early. And that combination has really put a strain on grocery chains. So for example, in some parts of the country, grocery chains are operating with as few as 50% of the workers that they normally have. And because of the coronavirus in particular, you know, the absentee level at a grocery store tends to be somewhere in the two to 3% range on average normally. But right now we're, it's pushing seven to 10% or more depending if there's a, you know, particular outbreak in a specific store. That means that there's fewer people to stock the shelves. So sometimes there may be inventory in the store. It's just not enough people to be able to bring that on the shelves and merchandise it, so it could be sold to consumers. So labor shortages combined with weather combined with the virus have really kind of reached havoc on, on the supermarkets. When do you think
Speaker 1: (06:11)
Stores will go back to being fully stocked or at least more stocked?
Speaker 2: (06:15)
I think as the only coronavirus kind of, uh, plateaus, a couple things are gonna happen, you know, fewer people will be sick. So that means getting the, the employee base in the store becomes important to have fully stock shells. I think manufacturers in some key areas, you know, are ramping up production and they will, you know, meet demand relatively quickly. Most, you know, consumer companies, uh, we sell products in the grocery stores have taken price increases in the last year of anywhere from three to 5%. And, you know, they're eager not to hurt their brands by their brands being outta stock. So I think that fundamentally, what we're gonna see is we're gonna start seeing the market coming back to normal at a national level sometime toward the end of the February is the more harsh winter storms start to decline. And then, uh, we'll see it probably in California, uh, sometime in the late first quarter into second quarter, uh, where we should at least see more full shelves and maybe a, a plant towing of the price increases. All right.
Speaker 1: (07:16)
I've been speaking with the SDSU business lecture, mur COIC mural. Thank you so much.
Speaker 2: (07:22)
Thanks Jade. Have a great day.
Grocery store shelves have been emptier than usual lately, similar to the beginning of the pandemic when many products were out of stock.
Experts say this time around there are multiple factors playing a role in the shortages, including panic-buying, weather, the fast-spreading omicron variant causing labor shortages, shipping delays and more.
San Diego State University marketing and business lecturer Miro Copic joined KPBS Midday Edition on Tuesday to talk about the causes of the current shortages and the rising cost of food.
"The supply chain disruptions that kind of started this summer and carried over through the holiday shopping period are still with us. Obviously in the winter, winter weather is not good, and we're seeing a lot of disruptive storms, not just in the United States but in countries around the world that grow important crops like coffee, so coffee prices for example might be increased substantially," Copic said. "The omicron variant of the coronavirus has been devastating, not only for the sheer numbers but because it requires people to be absent, whether on food production lines or at the grocery stores, so it really strains the labor pool. Clearly, the labor shortages due to the Great Resignation has been a factor in hollowing out employees at the supermarket level."
Copic said lifestyle changes during the pandemic like eating out less led to more supply and demand issues, which play a role in inflation.
"Americans for the last two years have been eating at home a lot more, which puts a lot of strain on the supply chain. For example, the average weekly grocery bill in 2019 was about $114. It was $160 during the first year of the pandemic, and it was over $145 last year," Copic said. "That's a little bit less than the first year of the pandemic where more people just stayed home, but still, it's a 27% increase in the amount of groceries people are buying. If you have supply chain disruptions, that means those shelves become bare much faster. There's a whole issue of psychology around well, if things are missing, 'I need to buy more things so I can store them for the future.'"
He said when there are fewer products available, grocers can charge more because consumers will pay a premium for what is available.
Copic said grocery stores will start to look more stocked as omicron cases start to lessen, and harsh weather starts to decline in March and April.