Supermarkets are stockpiling inventory before prices rise

Random Rabbit Podcast #16
Aired Live: July 6, 2021
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Are grocery prices rising?
Why are grocers stockpiling inventory?
Is there a supply shortage?
Will my food cost more money?
Is stockpiling a smart idea?
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NOTES:

https://www.wsj.com/articles/supermarkets-are-stockpiling-inventory-as-food-costs-rise-11625572980?mod=business_lead_pos3

Everything from sugar to frozen meat – some executives anticipate we will see some of the highest price increases in recent memory
– Some grocers are trying to keep their shelves stocked during higher demand
– Grocery sales are up 15% in June from 2 years earlier and up 0.5% from last year

This stockpiling by grocers is leading to shortages in staples
– With supply chain, transportation and labor pressures already involved as well
– Increased pay and incentives to get more labor hurts margins as well

Last year it was consumers, now it is the grocers hoarding food – keep costs down and protect margins

We’re buying a lot of everything. Our inventories are up significantly over the same period last year,” said David Smith, chief executive officer of Associated Wholesale Grocers Inc. The nation’s largest wholesaler for more than 3,000 grocery stores recently purchased 15% to 20% more inventory, mainly of packaged foods with longer shelf life, he said. (WSJ)
– Spartan Nash is also stockpiling 25% more inventory than usual – over 100 suppliers notified
Nash they would be raising prices

When prices rise, food sellers often by more inventory then needed to protect profit – newer and larger price increases are happening across many different types of products (not just isolated groups like usual)

Supermarkets try to keep prices lower to compete with discount chains – which is why we aren’t yet seeing the same level of price increases as other industries – but costs are starting to reflect higher prices

If prices drop after loading up inventory, grocers could get hurt (though many don’t see this happening this year)
– Logistics for what to buy is also complicated – bulk takes up alot of room and perishable/fresh does not last too long

Shortages can also be exacerbated by stockpiling, and some grocers are only receiving 80% of their orders (as opposed to 90% pre–pandemic)
– It could make bad situations worse – but they also may have no choice to stay competitive or even afloat

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