Thank you Greg Abbott. This is the first smart move by a state leader recognizing the realities of the system at hand. Texas Governor Greg Abbott has signed a waiver allowing restaurants to sell their bulk food directly to retail customers.
Amid all of the reactionary decisions by elected officials, this is a smart, and temporary move that can take pressure off the retail supply chain. Hopefully others will follow.
Leadership is often about recognizing the unique landscape and taking ‘outside the box’ action in response to current conditions. Greg Abbott recognizes there are two distinctly different supply-chains, and this modification can open one distribution valve.
Most consumers are not aware food consumption in the U.S. is now a 50/50 proposition. Approximately 50% of all food was consumed “outside the home” (or food away from home), and 50% of all food consumed was food “inside the home” (grocery shoppers).
Food ‘outside the home’ includes: restaurants, fast-food locales, schools, corporate cafeterias, university lunchrooms, manufacturing cafeterias, hotels, food trucks, park and amusement food sellers and many more. Many of those venues are not thought about when people evaluate the overall U.S. food delivery system; however, this network was approximately 50 percent of all food consumption on a daily basis.
The ‘food away from home‘ sector has its own supply chain. Very few restaurants and venues (cited above) purchase food products from retail grocery outlets. As a result of the coronavirus mitigation effort the ‘food away from home’ sector has been reduced by half of daily food delivery operations, possibly more. However, people still need to eat.
That means retail food outlets, grocers, are seeing sales increases of 25 to 50 percent, depending on the area. This, along with some panic shopping, is the reason why supermarkets are overwhelmed and their supply chain is out of stock on many items.
(Link)
The aspect that most models are missing, is the pressure on the supply-chain will not soon end. The restaurant sector (‘food away from home’) appears to be operating at far less than half capacity (perhaps as low as 25%) due to coronavirus restrictions. As long as those food consumers remain shifted into the retail supply chain (food at home), there are going to be long-term shortages due to capacity constraints and distribution limits.
There is enough food capacity in the overall food supply chain, and no-one should worry about the U.S. ever running out of the ability to feed itself. However, the total food supply chain is based on two segments: food at home and food away from home.
The seismic shift toward ‘food at home‘ is what has caused the shortages, and that supply chain is not likely to recover full service of products again until the ‘food away from home’ sector gets back to normal. No need to panic, but there will be long-term shortages.
At the top of the food supply there is ample product and capacity. Its the diversion of customers to the retail grocery sector causing the shortages.
Large chain-stores were impacted first and worst as their proprietary supply chain, and their automated replenishment systems, are more vulnerable to such wide-scale disruption. Their resupply is based on eight week averages; all of the technology that builds the technological framework of that resupply-chain is useless now. However, smaller regional markets, less than 25 stores or mom-and-pops, are/were impacted less due to their use of wholesalers for distribution and a faster response time.
However, in this phase-3 those wholesalers will now enter a period where they are in competition for resupply with the large retail outlets…. so we are entering the phase were smaller stores, and independents, are going to have more trouble getting product.
In addition to the shortages in frozen foods, processed lunch-meat and dairy items, the non-perishable goods will also have wide-spread outages. Again, this is a store issue (phase-1), distribution capacity issue (phase-2), and will now become an upstream production capacity issue in phase-3.
Bread, canned goods, rice, cereals, pasta, flour, sugar, bottled water, etc. are selling beyond the capacity of the traditional supply chain to keep up with demand.
Traditional emergency food recovery and distribution models (think hurricanes) are designed for short-term disruptions to the restaurant sector that provides 50% of food outside the home; and, as a result, short-term increases to at home food needs. Those emergency and recovery models have contingency plans for short-term regional bursts of specific non perishable products into specific areas. This ain’t that.
The current supply chain disruption is a severe reduction in the availability of ‘food outside the home‘ for a sustained period. Losing the entire sector is very unusual, unprecedented, unforeseen in scale; and there is no national contingency plan for a nationwide demand on all retail supermarket food products simultaneously.
Check out how fast things increased. This scale of increase is why the system is overwhelmed (note this is also weeks behind):
USA RICE – Social media platforms are full of pictures of empty store shelves, fueling rumors of shortages, and potentially fueling additional panic and hoarding.
USA Rice President & CEO Betsy Ward issued the following statement:
“U.S. consumers need not be concerned about a shortage of U.S.-grown rice. There is no shortage. Rice is a nutritious and inexpensive staple that when kept under the right conditions can last almost indefinitely, so it makes sense consumers would want an ample supply on hand during this crisis.
“If you see depleted rice shelves in your local grocery store, it is not a supply problem, it is a signifier of changing logistics in the retail market. For a few years now, stores that used to keep one month or more of products on hand have largely shifted to a ‘just-in-time’ model to improve their efficiency. When there is a surge in consumer interest for a particular product, supplies on hand may be depleted, but will be quickly replenished. This is the case for U.S.-grown rice. (link)
To gain an idea of the scale of the challenge here’s some big picture analytics. There are approximately 50,000 retail outlets for grocery sales nationwide with about 250 large scale distribution centers (warehouses) regionally placed.
A conservative average across all brands (and varieties) would be 40 cases per outlet of pasta, soup or rice. That’s a need of 2 million cases (50,000 x 40) at retail.
However, the 250 distribution centers would also need 2 million cases, for a replenishment average of 7 to 14 days later. Additionally, within 14 days (from the original delivery date) another 2 million cases would have to arrive from the manufacturer(s) to resupply the distribution centers. That’s a total of 6 million cases to return to normal operations; and then maintain the demand.
• It seems impossible for the current retail supply chain (all outlets) to start from near ZERO and generate 6,000,000 cases of rice, soup or pasta (all brands), delivered by 2,400 tractor trailers nationwide in 14 days (2,500 cases per trailer, equals 2,400 trailers – total supply chain). The inability of the supply chain to support this is what has led to the current situation.
Bottom Line – Without something changing there are going to be long term retail supermarket shortages until restaurants re-open. Yes, the total food supply chain is ok, but the retail sector of the supply chain is grossly overwhelmed. Math is math and too few are doing it. Action like this will help…
Centinel2012 