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Shelf Talk: Hindsight is 2019
This is the first issue of Shelf Talk in 2020. Both my home and work lives have been busy this year, so I paused this newsletter.
Then Covid hit, and the world is upside down. I’m incredibly saddened by the thousands of deaths. Many of the illnesses are severe enough, too, to be life changing.
Personally, I’m now spending half the week watching my kids (6 and 2) while still managing my projects. While I have work to keep me busy right now, I wonder what will happen when the crisis settles down. Though 2019 was a hard year in many ways for me and many people I know, 2020 is shaping up to bring its own set of challenges no one has ever faced before.
The food/grocery/CPG industry is upside down in ways that are different from much of the rest of the world, and it’s impacting people everywhere.
I’ve paused consumer survey research for the past month, as I just don’t know that if I ask consumers about anything right now that it will hold true for very long. I’m not sure when to make the call to start up again. So, for now, I'm focused on looking at survey data collected before mid-March and analyzing new scanner data as it becomes available.
Along those lines, if I can help you with modeling numbers that align with any of the thinking below -- or start studying how consumers might react to ideas -- get in touch by replying to this email.
What has kept a lot of my attention this past month is reading all the news about happenings in the food business and world in general, and I’ve summarized a lot of what I’ve found interesting and useful here. I hope you agree. I’ve been reading dozens of articles and stories. This issue summarizes news from over 50 stories. This is the first of several Covid-related emails I'll send, as there’s just too much to fit into a single issue, and even this issue is incredibly long.
I hope you and your families are doing as well as you can and staying safe and healthy.
Scott Sanders
Since late February, we’ve seen massive growth in grocery sales compared to the typical growth that maps with inflation rates (~2%). IRI reported that on March 13, “CPG retail sales were 53% higher than the highest day in 2019.” March 13 seems to have been the peak of recent growth, though it’s been sustained at lower levels. I’ve heard reports of some individual stores seeing weekly spikes of 80-150% compared to the prior year. Ahold Delhaize saw increased comps of 34% in March for its U.S. stores, and other sources are showing overall grocery gains of around 25%.
These are unusually big gains and they’re related to the scenes of empty shelves and disappearing toilet paper we’ve all seen. So, why is there so much mayhem? In this issue:
Most foodservice has gone dark or been severely curtailed
There’s some stockpiling, but households are just buying more -- and making fewer trips
Supply chain caught off guard and trucking shortages but no real product shortages
Many are trying grocery e-commerce
Resources for industry data
Upcoming emails will cover:
What’s next for the industry and economy at-large
Other random items, from the fun to the practical, to help with the new working world
1. Most foodservice has gone dark or been severely curtailed
In most cases where people used to eat out or order in, they’re now needing to buy more food from supermarkets to eat at home.
When times are good, people spend more money on food “away from home” instead of “at home,” as it’s measured. It generally hovers around a 50/50 split. Usually a small shift to say, 52/48, is a big deal. Shifts like this tend to happen during recessions and economic booms.
But right now, Credit Suisse estimates it’s 80% at home vs. 20% away from home. And this will lead to 15-30% CPG growth from March to May 2020. (Food Dive)
Despite the revenue growth, supermarket foot traffic is down ~25% in recent weeks, after big upticks in mid-March. People are heeding the advice to stay at home and stocking up on the trips they do make. (Placer)
In food volume, it’s usually about a 75/25 split in at-home vs. away-from-home. This suggests that the remaining 20% of away-from-home food spending actually represents only 10% of food volume.
“What happens when everyone stays home to eat?” “Covid-19 has shocked our food-supply system like nothing in modern history. We examine the winners, the losers, the unintended consequences — and just how much toilet paper one household really needs.” (Freakonomics Radio)
Distributors that serve restaurants are seeing declines of 70% and are trying to adapt. Beyond restaurants and bars, foodservice encompasses schools, corporate cafeterias, and more.
A small saving grace is that they also serve hospitals, nursing homes, prisons, and other institutions that must continue serving meals. (Binghamton Press)
Foodservice distributor stats on restaurant sales in London in 4 product categories (@rekkiapp)
Seafood: Revenue is down 70-85% because so much is consumed in foodservice. (The Counter)
Foodservice distributor Baldor has started delivering to consumers ($250 minimum order), after seeing business drop 85% (NYT)
Like Baldor, restaurants are also adapting, with results TBD.
Some restaurants are selling groceries and household supplies, including Panera Bread, which is selling items like fruit and milk at 1,800 locations. Subway, Potbelly, Denny’s and California Pizza Kitchen have similar programs (WaPo, AP, Panera)
Despite all this, some industry execs I know believe that a third of non-chain restaurants may close and not reopen. The National Restaurant Association estimates 11% of restaurants overall will close by the end of April. Starbucks’ founder Howard Schultz believes 30% of small businesses overall will close. (Restaurant Biz, CNBC)
Delivery isn’t working for many restaurants. “As dining rooms around the country shuttered in response to the pandemic, restaurants turned to delivery and takeout — but now, some chefs are saying it’s not worth it.” (Eater)
OpenTable used its reservation data to chart the restaurant decline globally. The drop-off happened rather suddenly and dramatically. (OpenTable)
Texas grocer HEB is selling meals from 5 local restaurants in 29 San Antonio area stores; all proceeds go to the restaurants. (Supermarket News)
Alinea, Chicago’s 3 Michelin star restaurant, selling $35 to-go meals (vs the usual $300). (Eater)
Eleven Madison Park, a NYC restaurant also with 3 Michelin stars, has become a soup kitchen. (NYT)
Some other restaurants are following suit. And in Cambridge, Mass., where I used to live, the city is paying 14 restaurants to provide meals for the homeless. (Civil Eats, WBUR)
2. There’s some stockpiling, but households are just buying more -- and making fewer trips
And this sudden shift is having a huge impact on the ability for supermarkets and their suppliers to keep up.
CPG sales will rise as much as 30% from March to May. (Food Dive)
Many CPG manufacturers also produce foodservice products, though, so expect to see the retail gains offset by foodservice declines.
Nielsen shared data showing product sales growth across a range of categories for weeks ending March 14 and 21. Health and safety products had a wealth of items with triple-digit percent increases. Yeast was up 647%; powdered milk by 285%. The growth is staggering and demonstrates why there have been so many bare shelves. What’s more interesting is that shelves have been restocked so quickly and how fast supply chains have reacted. (NPR)
Processed foods are coming back into fashion: “I just need the comfort.” (NYT)
Texas-based HEB has been preparing for a pandemic like this for years, going back to 2005 when they were worried about H5N1 in China. Good long read on how they planned. They had their own internal teams monitoring the pandemic, mirroring what was happening in government agencies. They were watching the impact on supply chains and what would happen in stores. And it sounds like they performed better than average in reacting to the surge in grocery demand. (Texas Monthly)
Supermarkets are hiring hundreds of thousands. “[A]bout a dozen large companies [are] looking to hire nearly 500,000 Americans in coming weeks, a spree that would mark a major shift of the U.S. workforce from smaller businesses and others that have cut staff to survive the coronavirus.” (Grocery Dive, WSJ $)
Some states have declared grocery employees emergency workers. (CNN)
Grocery workers are being hailed as heroes. Many are being infected and at least 41 have died. (Reuters, WaPo)
Walmart has set an example. “Walmart has waived April rent for its in-store tenants, it has speed rushed contactless payment systems into operation, installed plexiglass barriers to protect employees and customers, and this week also began metering traffic flow into its stores.” Workers temperatures will be checked when they start their shifts, too. (Forbes, WSJ $)
3. Supply chain caught off guard and trucking shortages
“There is plenty of food in the country” but it’s in the wrong places. (NYT, NPR, Bloomberg)
“Coronavirus-Era Food Supply: America Has a Lot. Moving It Is Tricky.” (WSJ $)
“I’m a produce trucker. Covid-19 has made my life a logistical nightmare.” (The Counter)
Prior to the Covid crisis, there were concerns about trucking capacity. Now it’s the biggest bottleneck. “Road-freight strain has never been greater, U.S. carrier says.” (Bloomberg)
Some slower-moving items are being discontinued by supermarkets, especially in perishable departments, not because they aren’t selling well but because retailers need more warehouse slots for items that keep running out of stock.
Until demand re-balances between foodservice and consumer, there are some mismatches. One Wisconsin farm was dumping 220K pounds of milk per day. Some farmers are plowing their vegetables back into the ground. (Milwaukee JS, NYT, SF Chron)
Why yeast isn’t available. (Slate)
Toilet paper. “It isn’t really about hoarding. And there isn’t an easy fix.” A lot of it has been about how we are spending so much more time at home. (Marker, Vox)
Georgia-Pacific estimates home TP usage will grow 40%, now that people are using bathrooms at home more than they did. They address a lot other topics, too, including price gouging. (Georgia-Pacific)
4. Many are trying grocery e-commerce
Prior to the crisis, grocery e-commerce has been estimated at under 5% of industry revenue, probably closer to 3%. There’s no doubt it has increased, but there’s also not nearly enough capacity to serve the newfound demand.
31% of households have tried grocery delivery and pickup in March, double the usual number. Of those, 26% were first-time users. Of those who haven’t used these services, 30% plan to do so if the crisis doesn’t subside. (Grocery Dive)
In late March, of those trying to place online grocery orders, 38% couldn’t and 40% succeeded but “it was delayed by days.” That leaves 21% who had a satisfactory experience. Last year, only 8% used and liked these services. It’s now 12%. (Civic Science 1, 2)
“Grocery delivery was supposed to be the ultimate pandemic lifeline. But it’s falling short. Consumers are reporting weeks-long waits on Instacart, Shipt and other leading platforms as demand far outpaces the supply of available workers and groceries.” (WaPo)
“Trying to order groceries online and wondering why you can’t get a delivery slot? The answer is that online grocery delivery wasn’t designed for ecommerce.” Some good math demonstrating the capacity problem. (@pradeep24)
“Major supermarkets are struggling to meet surging demand for home delivery, but the coronavirus crisis will leave their web businesses sharper.” (WSJ $)
Some supermarkets have stores that are going “dark,” or converting to mini-warehouses. Some offer pick-up service only. These have ranged from Kroger and Whole Foods to small independents.(Grocery Dive, CNN, Modern Retail)
“The first store of Amazon’s much-anticipated new grocery chain, which is scheduled to open this year in Woodland Hills, Los Angeles, has been temporarily transitioned into a warehouse for online orders, the company said.” (Reuters)
5. Resources for industry data
CPG Data Tip Sheet has a great round up of data and other resources. (Most of the items below are also listed there.) (CPG Data Tip Sheet)
IRI and BCG published a consumer spending tracker. (IRI PDF)
IRI and Nielsen have set up pages with data downloads. (IRI, Nielsen)
Profitero published a report showing changes in Amazon searches. (Profitero)
More to come soon. Be well,
Scott Sanders