Current Impact of COVID-19 on the Grocery Industry
When it comes to describing the current state of the world, “unprecedented” is an understatement. Thanks to COVID-19, the economy is in freefall, unemployment is on a rocket to Mars, and people around the globe are adjusting to the new “normal” of life in lockdown.
But what effect is the pandemic having on grocery chains and CPG companies, and where will things go from here? Let’s take a look at some of The Good, The Bad, and The Unknowable factors that will impact the industry this quarter, and potentially for many months to come.
In March, retail sales walked off a cliff and registered their most dramatic decline since the government started keeping track in the early ‘90’s. How is this good news? It isn’t. The good news is that grocery and general merchandise retailers have experienced the exact opposite of this trend, and some stores are reporting record year-over-year growth over 30%.
This surge in sales isn’t just beneficial for grocery stores, and all of the people they are hiring. CPG suppliers and other organizations, including delivery services, are cashing in as well. Social distancing is driving the rapid adoption of grocery shopping apps, and online orders are up 200% over the same time last year.
While the profits are great for the sector, it hasn’t all been a bed of roses. The truth is, the industry has done a phenomenal job of stepping up to help consumers get what they need in a time of uncertainty and fear. Shelves remain mostly stocked across the country, and CPG companies have shown great flexibility in shifting to provide a higher volume of Core generic products for items that are in high demand while optimizing their supply chains.
All of the individuals in grocery stores and across the industry that are making it possible for us to stock up on essentials are heroes. While most of us are stuck at home, they are in harm’s way stocking shelves and making deliveries. There have even been calls to recognize these folks as first responders, so they can get better access to protective equipment and testing.
The bad part about workers being in harm’s way is that sometimes they pay the price. Meatpacking facilities across the country are experiencing COVID-19 outbreaks among their employees, and some are closing their doors. Time will tell what effect this will have on the meat supply chain, and while shortages are a possibility – they are not yet a reality.
Profits are rising for retailers, but so too are costs. Pursuing safer working conditions, limiting traffic during peak hours, hiring more people to keep up with the surge in demand, and implementing new cleaning protocols are not cheap. Once the crisis begins to wane, stores will need to manage these new outlays carefully to match normalizing demand.
As some of us are painfully aware, certain items like toilet paper, hand sanitizer, and cleaning products are still tough to come by. In metro areas, delivery services are overwhelmed by requests, and consumers are waiting a significant amount of time to get orders fulfilled – if they are lucky enough to get assigned a slot.
Unfortunately, we can’t predict the future. But there are some things we will be keeping an eye on as things progress. As some states remain in complete lockdown, others like Georgia are beginning to reopen non-essential businesses. The result of these early relaxations could be a great indicator of what we can expect the next few months to hold.
Every time there is particularly bad news, people head to the stores to stock up on essentials. Issues like meatpacking facility closures could cause additional panic buying in categories that were previously unaffected. The overall supply chain remains a key point of concern.
Once we emerge from this crisis, we will finally be able to determine what is left of the economy. At this point, a deep recession seems likely, but the exact extent of the damage remains to be seen. While the grocery industry is relatively resistant to downturns, high-unemployment combined with stockpiling could ultimately cause a drop-off in sales later in the year.
Finally, all of us are adjusting to a new “normal” that, for many, includes more cooking at home, more online orders, and a greater focus on sanitation. The habits that are being formed right now may become trends that continue well beyond the end of this crisis.
These are dynamic times. The contents of this post may be out of date a week from now. That’s why our team is keeping an eye on the environment and will post more updates as the situation unfolds.
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