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COVID-19 is forcing the supply chain to change course

As restaurants scale back or stop operations, the demand for supplies continues to rise in retail.
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Photograph: Shutterstock

As the coronavirus crisis continues to unfold, foodservice distributors have had to shift their models. Fewer supplies are needed by restaurants as they pivot to takeout and delivery or close entirely. Meanwhile, shoppers are emptying grocery store shelves and waiting on long lines to get a loaf of bread or a few rolls of toilet paper. Should consumers be worried about shortages of food and other essentials?

Not yet. The supply chain is flowing, although it may be taking a little time to redirect that flow, according to industry experts.

US Foods, a major foodservice distributor, reported that it is readjusting its business to match the slowdown in restaurant, hospitality and education case volume. “We are leveraging our supply chain resources to support the retail industry as they experience unprecedented increases in consumer demand,” Pietro Satriano, chairman and CEO of US Foods, said in a statement. The broadliner also said it has secured new opportunities to sell to grocery stores and to contract its distribution workforce to companies experiencing increased demand. Meanwhile, foodservice in some noncommercial segments, especially healthcare and senior living, is still going strong.

“The supply chain in foodservice was mostly overstocked, as restaurants limited service or closed,” said David Maloni, executive vice president of analytics for ArrowStream, a supply chain technology company focused on foodservice. “However, it appears to have come into better balance of late as restaurants get creative around takeout, delivery and even selling groceries.” During the next few weeks, however, most of the food products will continue to be directed at retail, he added.

That said, “there are food manufacturers that have most, if not all of their sales in foodservice,” noted Maloni. “There is a production risk with these companies.”

Producers and shippers of commodities such as fresh produce, dairy products and eggs are finding the pivot to retail a little less challenging. “Our shippers have significantly more orders from their retail customers and are offering them both the [5- and 10-pound] retail bags and [50-pound] foodservice cartons to meet demand,” said a spokesperson for the Idaho Potato Commission. The retailers are adjusting and selling potatoes in a bulk fashion.”

However, the frozen french fry industry may suffer a bit, the spokesperson said, as about 90% of that product is sold to foodservice.

Dairy products are also in good supply and the industry is experiencing no interruptions in production, said Michael Dykes, president and CEO of the International Dairy Foods Association. So far, there have been no transportation issues for getting milk and other dairy to retail outlets and even displaced school children. “We are working closely with the USDA to remain flexible in how dairy processors get milk to schools and school districts who are continuing to provide meals … despite closures, through distribution at schools, churches, parks and other community sites,” Dykes said.

On the fresh produce side, there may be some challenges around harvesting future crops. Travel bans are preventing migrant workers from getting temporary visas to come over the border and pick fruits and vegetables—a hurdle that can cause major supply issues and price increases. Additionally, commodity prices have been volatile as a result of consumers stockpiling goods. “Wholesale beef prices reached record highs for this time of year,” said Maloni of ArrowStream. Egg and chicken prices are also higher than normal.

There is also universal uncertainty about when restaurants and other foodservice channels will be fully operational again. “The foodservice supply chain will eventually need to be refilled,” said Maloni. “This could bring a second demand shock to some food products potentially carrying higher prices than the industry is used to.”

 

 

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