In February 2020, the world was watching China as news spread of the virus that was having a profound impact on the 11 million people in Wuhan, the capital of Hubei Province. Originally it was ‘over there’ but that changed quickly.

We live in a world where people and goods move from country to country or continent to continent every day. In the west we were surprised to see an entire city and then a province on lock down. Some of us probably questioned the civil rights violations. Then, all of a sudden ‘over there’ became ‘over here’. Incredibly quickly our country was staring down the onslaught of coronavirus. Europe felt the impact faster and the news from Italy and Spain seemed to be the wake-up call for Canada and every other country to take action.

Canadian consumers reacted

By Friday March 13thwe experienced panic buying in our grocery stores and stockpiling at home. Consumers were advised to be prepared for 14 days of isolation if they contracted the virus or if they returned from travel abroad to stop the spread. If you were in the stores at that time, it was apparent consumers were preparing for more than 14 days. 

It put an incredible strain on the food supply chain system. Usually this is a slow time of year in retail. Consumers travel south. There are no holidays to celebrate and most people are looking ahead to spring. Inventories are based on historical sales and forecasts. They are managed aggressively to be as low as possible. This is done to reduce cost and deliver the best possible freshness.

This strategy does not stand up well in a situation where consumers are buying three to four times the regular volumes. I talked to employees in store and they said Friday March 13thwas the busiest day they had ever experienced. They did more sales than any day leading into Christmas or Easter. The system struggled to stand up and when that happens, consumers buy even more. When they plan to pick up two English cucumbers but there are only six left and the peppers and tomatoes are gone, they buy four English cucumbers.

It is interesting to learn about consumer reaction in different markets. In Italy where the situation was more severe earlier, consumers did not wipe food stores clean of products. Access was limited and although the average household kitchens and fridges are smaller in that market, the North American response to hoard food was not experienced.

Retailers react to consumers

It is a very different time to be working at a retailer. Food is essential and for most employees there is an underlying sense of responsibility to make food available. When the stores are wiped of inventory there is some in distribution centres but the real response has to come from suppliers. Inventory in distribution centres is limited and depleted quickly.

Merchandising and procurement teams prioritized items and contacted suppliers to assess the situation. Retailers do compete against each other and when supply is restricted, they expect and in some cases demand stock.  It is a challenge for suppliers because every customer wants everything you have.

As a supplier, you need to take a quick breath, assess the situation and allocate the inventory. You also need to look to the short term and determine what your business is capable of and be realistic. In stressful times, your customers want accurate information. Just because they issue a purchase order does not mean you can supply it. You might want to supply it but you can’t, so they need you to be up front and honest.

What is on the horizon?

The honest answer is no one knows. Consumers cannot continue to buy three and four times the normal amounts so demand will level out.  It is also likely the new demand will be different than the old demand.  There are some reasons for this:

1. Consumers will be more conscious of money they are spending. They will trade down within categories to less expensive items. They will also shift buying to items with longer shelf -ife as they will be concerned about buying items that might spoil before they can be consumed.
2. The border will be a challenge. Not because products will be prevented from crossing, but because capacity in U.S. and Mexico could be reduced. If they are not able to produce the regular amounts due to shortages of workers or other inputs, we will not get as much as we used to. Canada will work closely with these countries however if there is less, we will get less. There is an opportunity for some domestic producers to fill some of these gaps if they have product. Local produce season could be very different. If domestic product is available retailers will be looking for dependable supply.
3. Labour will be a challenge, which will impact capacity to produce. Canadian workers will be stressed and in some cases not able to work. Either illness, caring for someone who might be sick or dealing with childcare challenges will all impact productivity. The temporary foreign worker programs have been suspended at time of writing. This will put a huge strain on industry. In the end food will have to be produced but if industry does not have access to these workers it will be challenging to train and manage local workers.
4. Pricing will fluctuate; it just has to with supply and demand. Retailers will push as hard as possible to keep prices in line but if there is greater demand for some storage crops and the amount is limited, price will go up. It is possible there will have to be some regulations implemented in the short term. Social media was full of stories about hand sanitizer and toilet paper, which cannot spread across many commodities. We might even see limits imposed to ensure everyone has a share.
5. Retailers will be stressed and programs that were planned will not be implemented. It is true working in food during a crisis is job security but retailers will also experience the same labour challenges I outlined above for your business.
6. Consumers will be eating at home. All of the statistics about millennials eating out will change in the short term.  Retail sales will increase and food service sales will decrease. The duration will depend on how long public health experts recommend people stay home.

If you have any questions about relationships with your customers during a crisis please give me a call at (902) 489-2900 or send me an email at peter@skufood.com.   

WHAT’S IN STORE?

Empty shelves

Stores across North America experienced a flood of consumers like they had never seen before. Online shopping increased exponentially as consumers stayed close to home. It started with toilet paper and hand sanitizer then spread to the rest of the store. Consumers take our supply of food for granted some times and this was a wake-up call that consistent food supplies are not guaranteed.