Grocery Shortages: The Worm in the Apple

Grocery Shortages: The Worm in the Apple

It started with toilet paper. Spurred by the onset of the pandemic, consumers bought toilet paper rolls in droves.

Sales of the product rose 60% annually in March 2020, according to the Statista Consumer Market Outlook. On April 19, 2020, toilet paper was out of stock in nearly half of U.S. grocery stores, estimated NCSolutions, the North Carolina state consumer products data tracker.

At the time, empty store shelves were a symptom of changes in consumer behavior and drastic new demands on the food supply chain, explains Troy Prothero, senior vice president of product management, supply chain solutions at Symphony RetailAI. But in 2022, food products are once again harder to procure, and financial conditions and world events are to blame.

“In terms of supply shortages, the overall picture is pretty grim,” says Joan Driggs, vice president of thought leadership at IRI, a market research firm based in Chicago. “A 95% to 97% in-stock rate is typical. But the edibles category is below 90%.”

Product shortages have been a near constant throughout 2022, according to IRI’s CPG Supply Index, which tracks the availability of items throughout the United States. In April, food products averaged an 87% in-stock rate. The in-stock rate for items like refrigerated baked goods and energy drinks dipped into the low 80s, but no products were stocked at a rate higher than 92%.Product shortages have been a worm in the apple for shippers who are trying to avert empty shelves.

A Smorgasbord of Shortages

Shippers working to get products onto grocery store shelves have had to wrestle with an array of challenges in 2022. Shortages ranged from truck drivers to raw materials to shipping containers to plastics. Most of the imbalances aren’t new, but they have converged to create ongoing headaches for anyone who works in food logistics.

One example is labor. The Great Resignation made headlines in 2021, but since then, many food manufacturers still haven’t been able to retain enough manpower.

“Labor turnover is still high at the distribution and manufacturing levels, and that’s driving a lack of productivity,” says George Eversman, executive vice president of business development at Dot Foods, a foodservice redistribution company based in Mt. Sterling, Illinois. “Processing plants can’t keep up with demand, especially in protein categories.”

Even if companies are able to maintain an appropriate headcount, they may have to contend with a paucity of plastics and aluminum. Plastic resins, for example, were in short supply for 10 months straight in 2021, according to the Institute for Supply Management. The shortages are undermining companies’ ability to put products on store shelves.

“Constraining some of the manufacturing throughputs within that supply chain does not help,” says Alex Hempel, senior director of the retail supply chain at Orbis Corporation, a reusable plastics and metals provider based in Oconomowoc, Wisconsin.

For instance, some shippers don’t have adequate packaging to furnish sports drinks and bottled water products.

“The latest data says that shortages are trending up in water and sports drinks, largely driven by packaging,” says Scott Shaw, consumer products supply chain lead at Durham, North Carolina-based Clarkston Consulting. “While the plastic is secondary to the product, it’s driving the shortage right now.”

Geopolitics Takes a Bite Out of Agricultural Supply

Even shortages elsewhere in the world are impacting the domestic food supply. Take grains and oils, for example.

In a normal year, Russian and Ukrainian exports account for roughly one-quarter of the global wheat supply, and nearly three-quarters of the world’s sunflower oil, according to the U.S. Department of Agriculture.

Wheat prices spiked by 40% following the conflict between Russia and Ukraine, shows data from the CME Group. From February to May 2022, the price of Hard Winter wheat rose from $8 to $11 per bushel.

Most U.S.-based companies don’t source these commodities from Eastern Europe, but they still feel the effects of scarcity wrought by regional turmoil.

“More markets are competing for the same supply sources, which leads to a rise in costs,” explains Dr. Madhav Durbha, vice president of supply chain strategy at Coupa, a business spend management platform based in San Mateo, California. “Companies are feeling an impact, whether they are sourcing specifically from a war-torn region or not.”

The Pain of Grain

On top of limiting the current supply, geopolitical tensions have even compromised the ability to produce grains. Russia typically supplies 23% of the world’s ammonia and one-third of the world’s natural gas, two of the primary ingredients in fertilizer, according to data from the Fertilizer Institute.

Regional hostility is reducing fertilizer exports, which could jeopardize crop yields and even trigger export bans.

“Russia has stopped most of its fertilizer exports, and Ukraine can’t get many exports out,” says Dr. Elliot Rabinovich, AVNET Professor of Supply Chain Management at Arizona State University Carey School of Business. “That could ripple throughout the world as more countries impose restrictions on their own agricultural exports.”

Visibility: A Key Ingredient

Most, if not all, of the recent shocks have been impossible to foresee, explains Shaw. Instead of trying to predict disruptions companies should build resilience into their supply chains by maximizing visibility.

“The key is not so much to know every event that’s going on around the world,” he explains. “One year ago, nobody would have predicted that the Port of Shanghai would be in lockdown or that there would be a land war in Europe. You can’t predict what the next disruption is going to be.”

He recommends instead that companies be familiar enough with their sourcing to know what impact an unforeseen event could have. A food manufacturer, for example, needs to know where their brokers and suppliers source raw materials from and whether a product ships through an impacted area. Even if their sources aren’t directly impacted, shippers need to know how a shortage could reverberate back to them.

“Basically, know your supply chain,” Shaw says.

Fuel Prices Eat Into Pocketbooks

In 2022, shippers have had to contend with rising fuel costs while bringing food to grocery shelves. Diesel prices across the United States surged from $3.61 per gallon in January, to a national average of $5.51 at the beginning of May.

It’s driving up the cost of other food inputs according to Russia-Ukraine Crisis and Its Impact on Food Prices, Food Industry Association report.

As the report explains, gas prices will impact transportation costs in the short term. Further out, the growing cost of fuel could ratchet up the price of feed, fertilizer, and other products, with consumers feeling the impact weeks or months later.

“The food industry is very energy intensive in order to bring food to the shelf,” notes Doug Baker, vice president of industry relations at the Food Industry Association in Arlington, Virginia. “When energy becomes more expensive, that will immediately impact food.”

The key to navigating high gas prices is to focus on maximizing transportation efficiency. Baker suggests backhauling or even sharing space with competitors and trading partners to ensure that trucks are full when they run. By avoiding deadhead miles and half-empty trailers, shippers can ensure an optimal use of fuel.

A second development aimed at improving efficiency is an e-bill of lading. A 2019 American Transportation Research Study showed that 49.5% of drivers spent at least two hours in detention every time they arrived at a facility, while 9.3% reported waiting six hours or more to get loaded or have papers signed.

E-bills of lading could cut down on driver dwell time, and the fuel that gets used up in the process.

“Think of it like being at an airport,” Baker says. “There’s the TSA Precheck line. There’s the Clear line. Then there’s the line where everybody else goes who’s still doing it the old way, and that takes forever. The Precheck line goes a little faster, and the Clear line goes really fast.

“Our goal is to have these express lanes for trucks,” he adds. “We want to minimize the amount of wait time because while drivers wait, they’re burning fuel.”

Rising Prices Eggs-Acerbate Changes in Demand

It doesn’t take an industry insider to see that food prices skyrocketed this year. The consumer price index for food accelerated from 7% annual growth in January 2022, to 8.8% expansion in March, finds The Bureau of Labor Statistics. The Department of Agriculture’s Economic Research Service expects the cost of food consumed at home to grow between 5% and 6% in the full year of 2022.

“One factor that’s driving these shortages is inflation,” says Durbha. “Take eggs, for example. The animal feed cost has gone up by 50% or more, which traces back to grains, in part. Animal feed constitutes 60-70% of the cost to produce an egg.”

Inflation isn’t only raising the cost of inputs, it’s also nudging consumers to make different choices at the grocery store. Under these circumstances, businesses need to prepare for shifts in demand.

Companies can ameliorate these disruptions with robust demand forecasting and artificial intelligence, Prothero says. Traditional forecasting methods rely on historical consumption data, which can be useful—until an external event causes demand to drastically change. Artificial intelligence and machine learning can leverage large, complex data sets compared with statistical methods alone.

These technologies are designed to anticipate demand signals early, and give retailers more opportunity to work with suppliers to adjust procurement or replenishment accordingly.

A Good Substitute

One concept that artificial intelligence can help to decipher is substitution. Inflation put a dent in demand for higher-priced products, leading consumers to seek out lower-priced alternatives.

“The major impact for consumer packaged goods is that rising prices suppress demand and impact revenue,” says Prothero. “Demand for fresh meat and produce is falling, and customers are switching to beans.”

Artificial intelligence can pull from a variety of data sources to glean insights into substitution decisions. Some of the results might not be intuitive, like a connection between the price of meat and demand for canned fruit.

There’s a lot of food for thought on keeping grocery stores stocked.