Supermarkets Keep Inventory As Food Costs Rise

Storage by food retailers is causing shortages of some commodities, food industry executives said, and challenges an already squeezed U.S. food supply chain by transportation costs, labor pressure. of work and the constraints related to the ingredients.

The move is a reversal from a year ago, when consumers racked up groceries due to concerns about food availability, disrupting the food industry. Now, retailers themselves stock to reduce costs and protect margins.

“We buy a lot of everything. Our inventory has increased significantly from the same period last year, ”said David Smith, Managing Director of Associated Wholesale Grocers Inc. The nation’s largest wholesaler of more than 3,000 grocery stores recently bought 15-20% more inventory, mainly packaged food. with a longer shelf life, he said.

Keeping larger supplies also helps Associated deliver higher inventory levels as the food industry battles shortages of items like beverages and frozen foods.

When prices start to rise, food vendors often buy more inventory than they need to protect their profits. Price changes have been minor in recent years, executives said, typically involving a specific product pool. The current price increases are larger and are spreading more widely in supermarket aisles, executives said.

General Mills Inc.,

Campbell Soup Co.

, and JM Smucker Co.

are among the food manufacturers who are raising prices to offset higher costs. Prices for meat and fruits and vegetables also climbed, with retailers anticipating further increases for the remainder of the year.

Supermarkets say they are passing some of these increases on to shoppers, who continue to buy more groceries than before the pandemic, as prices also rise for used cars, airline tickets and more. other products. So far, consumers have yet to see the same price increases that supermarket operators face, as grocers have said they are maintaining certain prices to better compete with discount or low-cost chains.

Few retailers expect the price pressure to ease anytime soon. Labor shortages keep labor and transportation expensive, industry executives said, as companies raise wages and offer bonuses to recruit and retain employees.

“When you have a single inflation period like now, it’s a binge eating,” said Tony Sarsam, CEO of SpartanNash Co.

The Grand Rapids, Mich.-Based retailer and distributor stocks about 20% to 25% more groceries like frozen meat and canned food after more than 100 vendors tell SpartanNash they will increase the prices, he said.

Other supermarkets are rethinking the way they store inventory as consumer spending remains strong and drives sales up.

Ahold Delhaize USA has more safety stock, said Chris Lewis, president of the Ahold supply chain company. He said the total inventory is higher than two years ago, including 20% ​​more paper and cleaning products. Ahold Delhaize USA, owner of the Food Lion and Stop & Shop chains, is also increasing the capacity of its warehouses.

For food vendors, storage can require complicated calculations to determine what to buy, when, and how much. For example, perishable foods cannot be stored for a long time, while bulky products take up more space. Grocers stand to lose money if prices fall after buying inventory, although that is not expected this year, executives say.

Storage can also exacerbate shortages as food manufacturers and sellers turn to recovery. The supermarket industry has rebounded from widespread shortages last year caused by panic among consumers shopping at the start of the pandemic. But retailers have said they are now running out of some items, with many receiving around 80% of their orders from suppliers, up from more than 90% before the pandemic.

“It could make a bad situation worse,” said Mark Griffin, president of B&R Stores Inc., which stocks 10% more groceries, including sugar, flour and grains. B&R is trying to negotiate lower prices if manufacturers push back on the volume the chain wants to secure, he said, while watching his competitors.

“If Walmart raises prices, so will we,” Griffin said.

Write to Jaewon Kang at [email protected]