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Shelf Talk: 7.5 months to go in 2020
In the last issue of Shelf Talk, I summarized food/CPG/grocery industry news from 50+ articles I inhaled over since the pandemic set in.
This summary covers thoughts on what’s coming next for the industry and the economy at-large.
Food manufacturing issues
Massive U.S. unemployment (forecast at up to 52M or 32%) & related impacts
Pricing impact; pausing trade promotions
News has been changing every day. I’ve been collecting links on these topics for the past several weeks, and it seems that as soon as I internalize some news, it changes, for better or worse. I’ve held off on sending this for a while because the news keeps changing. Here it is, with some info that has probably gone out of date already.
Next issue: I’ve also been collecting other info, from the fun to the practical, to help with the new working world we are all in.
As we head into the third month of Covid's industry and life impacts, I hope you and your family continue to be well. Happy Mother's Day.
1. Food manufacturing issues and related
Food manufacturing issues are widespread, particularly in meat. As a result, we’re starting to see shortages and less selection of cuts, some retailers are imposing purchasing limits on meat, and prices are rising and supply drops. (WSJ $)
Odds are issues like these are going to keep happening in pockets of food manufacturing until the virus recedes. Fortunately, it seems that many plants that have closed have already reopened, indicating that any shortages will be temporary and neither long-term nor widespread.
4,200 workers in 115 meatpacking plants have been infected and 20 have died. This is out of 500K meatpacking workers, but undoubtedly cases have not been identified well enough to count all of them. (And no doubt these numbers have risen since this article was published.) (NYT, then scroll down)
Tyson took out full-page ads in the NYT, WaPo, and other papers warning that “the food supply chain is breaking.” (WaPo [PDF], Time)
Tyson’s hog processing capacity is down 50-74% and the industry’s capacity is down 43%. (WaPo)
Counterpoint: “Tyson Foods helped create the crisis it warns against.” The author argues that meat industry consolidation has been the root issue. “Tyson Foods Inc. and its top two rivals -- JBS SA and Cargill Inc. -- control today about two-thirds of America’s beef, and the large bulk of it gets processed in a few dozen giant plants. Pork and chicken are similarly dominated.” (Bloomberg)
Trump invoked the Defense Production Act to keep meat processing plants open. Gives USDA “flexibility to include other food supply chain operations” as well. (WSJ $)
The administration’s legal moves: “Contrary to misunderstandings, the actions fall short of ordering meatpacking facilities to reopen despite Covid-19 outbreaks among workers.” (NYT)
Meatpacking union: plants responsible for 25% of pork and 10% of beef production were closed (as of late April). (CNBC)
One-third of meat processing plants are in areas where the general rate of Covid infection is 75% higher than in other counties, meaning it’s likely more closures are coming. (USAT)
A Smithfield plant in SD that handles 5% of U.S. pork production closed on April 12 with ~1,000 Covid cases, the biggest overall cluster of infections in the U.S. From BBC, “the untold story of America’s biggest outbreak.” (BBC)
In DE, 2M chickens were killed because there was not enough staff to process them. (WMDT)
This has happened with hogs, too. (Bloomberg)
USDA inspectors: almost 1,000, or 15% of the workforce, were not working in late April. When inspectors aren’t available, meat processing plants cannot operate. (Bloomberg)
Wendy’s is running out of hamburgers. (NYT)
Beyond meat: other food manufacturing affected too. Food Dive is tracking closed food manufacturing plants. Facilities with 20K workers have closed and reopened; another 20K workers are in plants that were closed. There’s likely more beyond this list that haven’t been reported. (Food Dive)
“What consumers are going to find in the next few months is that there’s plenty of food, plenty of consumer packaged products to be had. It may not be the variety you’re used to, every flavor you ever imagined, even the size you ever imagined.” (Star Trib)
Trucking: In the previous issue, I mentioned my thinking that there might be shortages contributing to supply chain issues. But in actuality, “the rapid increase in grocery orders hasn’t offset lost orders from restaurants, schools and sports events,” leading to a five-year low in in trucking costs. (WSJ $)
Retail labor costs are going to increase. Kroger has hired 10K into jobs “dedicated to keeping our stores clean,” which are certainly roles that didn’t previously exist. These new costs have been offset by dollars flowing into the grocery channel during the pandemic, but if these requirements stay in place in the long term, these extra costs could be a drag. Kroger CEO Rodney McMullen talks about the work they are undertaking. (LinkedIn)
2. Massive U.S. unemployment
We’re seeing 33.5M Americans unemployed, a rate of 14.7%. This article has some staggering charts, too. (NPR)
There are many more unemployed than the stats are capturing because many are having trouble applying for benefits or are choosing not to do so. (NYT)
In March, the St. Louis Fed estimated the rate could hit 32.1% with 53M Americans unemployed. When I first read this, I thought it was nuts. I thought the most would be 25M based on industries that are most affected. But it seems these estimates are proving out. This analysis figures that 46% of all jobs (67M) are at risk. The write up is interesting and accessible. (Note that this analysis seems to use a different denominator than most news reports on unemployment, so not all the numbers are apples-to-apples.) (St. Louis Fed)
High contact-intensive industries affected by social distancing = 35% of U.S. workers. (St. Louis Fed)
April 2020: 14.7%
February 2020, a 50-year low: 3.5%
Peak of the last downturn (October 2009): 10.0%
Peak of the Great Depression (1933): 24.9%
Monthly job losses:
April 2020: 22M (est)
2008-2009 Recession: 800K/month at its worst
September 1945: 2M
Wages rose by 7.9% in April, probably reflecting the impact of so many low-wage workers losing their jobs while higher-paid white-collar workers are able to work at home. (WSJ $)
In the restaurant industry, a 50% drop in revenue was forecast to lead to 4.3M job direct losses and 1.5M indirect losses. That total of 6.2M implies 3.7% of the overall workforce or 20% of current unemployment. (St. Louis Fed)
Some people are leaving their jobs, even when a job is available, partly because of fears about getting sick at their workplace. For example, 10% of Walmart’s staff is on leave, making it even harder for them to serve surging demand and managing customers in “one of the few places in the country where a sizable amount of people are gathering,” (WSJ $)
I’m thinking quite a bit about unemployment because it will have a dramatic impact on the economy at-large as personal budgets get cramped. This will have consequences for everyone who sells consumer products.
The grocery business is booming, but will unemployment effects dampen that? (Food Navigator)
In prior less-severe downturns, we’ve seen notable shifts in food and CPG spending, generally with down-market products (like private label items) picking up share. But with a potentially much larger impact than any downturn the world has ever experienced, what consequences will that have?
Observations on consumer trends post-2008 downtown: “The thirst for luxury remained, but rather than turning to designer bags, to satisfy the allure of luxurious distinction, consumers sought out goods and services that came with quiet powers.” (Amer Marketer)
On the coming American frugality: “Eating the ends of a loaf of bread isn’t an innovation, but some people are discovering frugality in quarantine.” (Vox)
At the bottom of the continuum, some of this will lead to hunger. USDA is looking to kill two birds with one stone by spending “$300 million a month to buy fresh produce, dairy and meat products that will be packaged into a box for food banks and other charities to give to hungry Americans...” It will buy “$100 million apiece of fresh fruit and vegetables, dairy products, and meat products monthly.” Part of the idea is to purchase surplus food from farmers who are having a hard time getting it to market with the near-shutdown of the foodservice channel. (Ag Insider)
3. Pricing impact; pausing trade promotions
Prices on shelves have increased for some products where supply has been short. The average price for a dozen eggs had spiked from $0.94 in early March to $3.01 in early April. (WSJ $)
Meat prices will be increasing as supplies tighten. Some are forecasting increases of 20%. (Food Dive)
Overall, food-at-home prices increased by 0.5% in April, the most since 2014. Beer prices are up 2.4% over three months. Other consumer prices are down, though, likely due to drops in demand. (Reuters)
Commodity prices are falling as a result of demand disappearing from restaurants, colleges, schools, and other institutions, paired with high farm production and supply build-ups prior to the crisis. (Quartz)
Supply mismatches, largely foodservice vs. consumer, are driving some prices to rise and some to fall. Milk prices, for example, were down 20%. (WaPo)
Some retailers shelved all trade promotion activity and discounts in March, with pauses running through Memorial Day or longer. Some did this simply because they didn’t have enough staff to hang shelf tags with sale prices. And some retailers couldn’t (or wouldn’t) reprogram their systems to cancel the sale prices, despite them not being advertised on shelf, suggesting that manufacturers would still be responsible for scanbacks, etc.
Generally, manufacturers strategically use trade promotions to have a mix of weekly volume levels so they can hit their annual targets. But given the increased volume many have seen already this year, that strategy might not make sense for many.
One industry survey showed that 31% of manufacturers have changed their long-term promo plans (defined as Q3 and beyond). (P2P)
Meanwhile, Clorox is spending “$50 million more in advertising sales promotion in the back half of our fiscal year,” which I think is referring to TV advertising and the like, not trade promotion. (CNBC)
4. E-commerce shift
April: $5.3B was spent on grocery delivery and pickup orders, up 37% from March ($4B). The number of orders is up by a third and the average order size is up 3%. (This is based on survey responses, though, so take the numbers with a grain of salt.) (Grocery Dive)
Instacart swung to profitability for the first time. (Forbes)
Demand for grocery e-commerce is growing as people don’t want to enter stores, and retailers and their partners are adding capacity as fast as they can. Companies like Takeoff and Fabric that provide automated fulfillment tools are very busy.
Target’s online sales are up 275%, compared with overall comps of 7% for Feb-April. Their Drive Up program’s volume was up 7x during some weeks. (Star Trib)
If you’re one of the 50%+ of American households who use Amazon Prime, you’ve probably noticed that their shipping has been a mess, with some items previously available in 1-2 days now taking weeks to arrive.
To keep up, Amazon has actually throttled demand by removing features like suggested items that nudge consumers to buy more. Discounts for Mother’s Day and Father’s Day were cancelled, and Prime Day has been postponed indefinitely. (WSJ $)
Amazon’s is a victim of its own success. Its domination of e-commerce has led its inability to keep up. Personally, I’ve had more success ordering items online in a timely manner from Amazon’s competitors.
Amazon’s advertising has become an integral part for sellers to be successful there, but using it successfully has become unpredictable. (Modern Retail)
A grandparent of e-commerce, QVC, is thriving. I suspect there are a lot of other traditional sources that are doing well, especially among older shoppers who aren’t as willing to shop Amazon and their ilk. (NYT)
5. General economy
GDP is expected to shrink 3% in 2020 globally and 5.9% in the U.S., based on an IMF forecast. GDP will rebound in 2021, growing by 4.7%, which implies that GDP will net out 1.5% lower than in 2019. (NPR)
Actual Q1 GDP: Down 4.8%. Q2 will be worse. (NPR)
Consumer spending was down 7.5% in March (worst drop since 1980) and personal income fell 2%. This is the start of the impact of unemployment and will likely grow in April and May. (WSJ $)
McKinsey has an excellent briefing that includes possible scenarios for economic impact and recovery. Their scenarios estimate -8 to -13% “economic shock”, ~2-3x as bad as 2008 but only ~30-50% as bad as Great Depression. (McKinsey overview, full PDF)
The difference between a recession and a depression. We’re halfway to a recession (defined as two quarters of GDP declines). Depressions aren’t as well defined but generally consist of years of decline, not just quarters. (CNET)
In a recessionary time, consumer purchasing will shift. Look for items that resonate with the ideas of necessity, comfort, and luxury. (New Hope)
We’ve seen a few large retailers file for bankruptcy already, and there are more coming. “Sarah Wyeth, retail and restaurant sector lead for S&P Global Ratings, said about a quarter of retailers and restaurants tracked by S&P are now rating as having a 50% chance of defaulting on their debts. Failing to pay on time is often a precursor to restructuring or bankruptcy.” (USAT)
In April, half of small businesses didn’t pay rent and one-third of rent payments overall were late. I haven’t seen May numbers yet but expect they will be similar. This will have a cascading effect on the banking industry as payments to banks and mortgage servicers stop coming in. (WSJ $, CNN)
Working from home is going to last for a long time. Amazon is telling its workers who can do so effectively to work from home until October 2. Other companies are issuing similar notices. This will have a variety of impacts, small and large. In the city where I live, for example, water usage is down 14% as a result of businesses being closed. (Reuters)
6. Data roundup
Dual charts showing the growth in grocery versus the decline in restaurants (and other interesting ones, too). (WSJ $)
Restaurants will be depopulated. “Only 1 in 5 restaurant owners in cities that are shutdown are certain that they will be able to sustain their businesses until normal operations resume.” (Indep. Rest. Coalition)
Food manufacturers’ year-over-year growth for the four weeks ending April 4: Up 37% for Mondelez to 68% for Campbell Soup. (WSJ $)
Private label Q1 sales up 14.6% vs. 11.5% for national brands. (Supermarket News)
Last, on a different topic, it’s a tough time for so many people for so many different reasons. If you need it, Crisis Text Line is free, 24/7 crisis support by text message. You aren’t alone. Support is out there.
Text HOME to 741741 to connect with a counselor.
Some stats from the Crisis Text Line on how America is feeling and how those feelings have evolved since the pandemic began. (Link)
Be in touch soon,