By Emma Nitzsche
If you can’t find a particular product at your favorite grocery store this month, there is a good chance it’s in the back storeroom.
Supermarkets are stocking up in preparation for potential price increases driven by supply shortages forecasted to occur in the next year. If a grocery store has advanced notice about future price hikes, they will often purchase more inventory when prices are low.
The chief executive officer of SpartanNash, Tony Sarsam, is stockpiling around 20% to 25% more groceries than last year. The decision to increase orders came after more than 100 suppliers notified him that they would raise prices on everything from frozen meat to boxed foods. Associated Wholesale Grocers Inc. also recently purchased 15% to 20% more inventory, mainly packaged, nonperishable foods.
“We’re buying a lot of everything. Our inventories are up significantly over the same period last year,” said David Smith, Wholesale Grocer’s CEO.
At the beginning of the pandemic, consumers were anxiously stockpiling food items from grocery stores. The supermarket industry has since bounced back from the panic buying shortages, but now the trend is reversed. Instead, retailers themselves are stockpiling to keep costs down and protect margins.
From meat to coffee, it has been hard for many Americans to get certain goods post-pandemic. The U.S. food supply chain is already pressed by transportation costs, labor pressure, and ingredient constraints. Unfortunately, stockpiling by food retailers is driving even more shortages of grocery staples. Retailers said they are running low on some items, with many receiving 80% of their orders from suppliers, compared with more than 90% before the pandemic.
Some of the food makers raising prices to compensate for higher costs include General Mills Inc., Campbell Soup Co., and J.M. Smucker Co. If suppliers increase their prices significantly, supermarkets have no choice but to pass those price increases to consumers. However, if they can purchase enough supply to satisfy their customers while the food supply line catches up, the price increases will not be noticeable.
Ahold Delhaize, the Food Lion and Stop & Shop owner, noted that total inventory is higher than it was two years ago, including 20% more paper and cleaning products. However, despite currently having a surplus of products, the supply-chain company said it would continue to expand the capacity of its warehouse.
But buying more products presents a greater risk for grocery stores. Stockpiling is a complicated science that requires intensive sales figures to determine what to purchase, when, and how much. As a result, grocers face the possibility of losing money if prices drop immediately after the inventory purchase or if the inventory expires before it is sold. However, if the store can ration out its stock until prices begin to drop, everyone wins.
