Category Archives: Thinking Aloud

August 21, 2020 · 12:26 pm

Food Prices

Let’s think about what’s been going on with food prices this Foodie Friday. I do the bulk of the food shopping so I might be more attuned to both the food supply and food prices than many of you, I get that. However, this is something that affects us all (unless you don’t eat, which is another issue altogether).

You’ve probably noticed that your grocery bills have gone up steadily over the last six months. That’s been due to the pandemic. You’ve read about the problems in meat processing plants as well as shortages of many other items due to supply chain disruptions and the shift from many of us working in an office (and eating meals away from home) to working at home (where we’re supplied by grocery stores). You’ve probably also recited the “supply vs. demand” mantra to yourself as prices rose, as the supply of some food items diminished, and the demand grew.

What you might not realize is that many of those issues have gone away. Have prices fallen? Not so much although they are down a little from their peak. As an NBC News article said:

Pandemic grocery prices shot up like a rocket and fell like a feather, even after supplies recovered. While the average price of ground beef was down by over 9 percent last month, shoppers are still paying nearly 13 percent more than they did in January.

Do I think it’s all price gouging or companies taking advantage of a horrible situation? No, not all of it, but you can’t help but wonder why prices for many items that are in abundant supply remain high. An analysis of consumer price index data for February through June, conducted by 24/7 Wall St., is shedding some light on the exact items that are driving up your grocery spending the most. According to the analysis, you’ll find that foods like dried legumes, peanut butter, ham, and potatoes have seen a price increase of 7% or more. However, the five items that top the price-growth list are mostly found in the meat aisle. Hot dogs, chicken, pork chops, and most beef cost quite a bit more than they did pre-pandemic even though, based on what I see in the stores I patronize (and supported by the data I could find), the shortages are pretty much over.

I think we’re all aware of the unemployment situation and the fact that the support system for those folks who’ve been fired or furloughed is shaky at best. Food insecurity has been a problem in this country pre-pandemic and it’s only been exacerbated. I also get that many variables go into establishing the price of foods in grocery stores, including costs to the grower, the processor, the manufacturer, the distributor, and lastly, the retailer. Increases in food prices are driven by dozens – if not hundreds – of different factors. But I also see that the food producer stocks are doing pretty well, and they’re still paying dividends. Maybe now is the time for them and others in the food chain to think about putting the customers ahead of shareholders, at least in the short term? Is taking a short-term hit or foregoing a dividend a fair price for supporting your customers and building goodwill?

Now, ask yourself a similar question.

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August 19, 2020 · 4:09 pm

Silver Linings?

School is starting this week in many places. Here in North Carolina, counties have a few different options with respect to virtual learning versus in-person learning versus a combination of the two. My county has elected virtual learning to start, as have many other counties around here. Many of the local universities have elected to bring the kids back to campus for in-person education and it’s not going well. So badly, in fact, that they’ve had to curtail classroom work completely while they rethink the situation.

Rethinking is what many educators are doing these days, as are many businesspeople. I find that to be a silver lining in the midst of this horrible pandemic. What strikes me is that much of this same rethinking has been going on for quite some time but it’s taken the pandemic to bring about the changes. Online education isn’t new and it’s been possible to get degrees from accredited schools for years. Shifting public school education to the online environment is new, however. I know there are a lot of reasons why it hasn’t happened until now – teacher unions, the need for working parents to have “daycare” for their kids, food insecurity (kids get fed at school), and many other reasons. The pandemic – a situation in which people are losing their lives – has forced those other reasons to the background. I think education and our communities will come out of this stronger and more accessible as the issues that prevented the evolution of education are handled from a new perspective.

Think about the film industry. There has been a major disruption in the business and I think much of the disruption is permanent. Theaters are closing and the major chains are in deep financial trouble. Major studios’ investments are tied up in films that should have been released months ago. Everyone is still watching movies, but they’re streaming them. Is this new? Of course not, but having the powers that be in the film industry take a look at how they do business is directly attributable to the pandemic.

The most significant change in the entire industry occurred late in July when AMC Theaters and Universal agreed to shorten the theatrical ‘window’ (the length of time that a movie has to play in a theater). Previously, it was 90 days. Obviously, studios will keep their biggest blockbusters in theaters as long as they’re attracting customers. But now, Universal can transfer its less-lucrative films to rental platforms, like iTunes or Amazon, after 17 days. Other studios, like Warner Brothers, are moving some of its titles to digital-only exclusives, while Paramount and Sony are selling off a portion of their movies directly to Netflix and Amazon.

Disney is releasing their live-action “Mulan” via Disney+. You’ll pay $30 to watch it but if you’d have been taken the family to the theater to see it, that’s a bargain, especially since you can re-watch it as often as you like. How much money this generates (“Mulan” was projected to bring in more than $1 billion at the box-office) will be fascinating. There isn’t much doubt in my mind, however, that making films more accessible and less expensive is a silver lining.

Those are just two areas where I find silver linings. You?

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July 24, 2020 · 3:26 pm

Yanking The Chain

Earlier today I prepped some chicken thighs for dinner. They’re the last of a 10-pound bag which was part of a 40-pound box we bought at the start of the pandemic. It was more of an opportunistic buy than panic buying. Many of the food distributors were getting rid of the boxes they would ordinarily sell to the restaurants which had been forced to close. We have a freezer and who doesn’t love a great deal? No, I’m not cooking 10-pounds of thighs this evening but I’ll admit that it’s been thigh week (bacon-wrapped thighs, chicken and black bean soup, and chicken enchiladas if you are curious as to where the other 8 pounds went) here.

Why do I bring that up this Foodie Friday? Because my opportunity buying was the result of a disruption in the supply chain. At the same time as I was getting chicken thighs, other folks were buying boxes of burgers and pork chops. What was unusual was that the same items we were getting dirt cheap were often unavailable in the supermarkets. That pesky supply chain again.

You’re probably aware of the toilet paper shortages. With people staying home, the paper made for institutions and offices was in lesser demand while people panic-bought the home version. The same thing happened with food and, in fact, is still happening if my trip to the market yesterday was any indication. There was nary a canned vegetable to be found other than the really large cans that might have otherwise gone to a commercial kitchen.

This from Bloomberg:

As consumers cook more at home, driving up grocery store sales, they’re steering clear of restaurants, which has big implications for how suppliers package and sell their meats and produce — and for demand. Restaurant portions are bigger, and meat, cheese, and butter, in particular, are consumed in higher quantities at restaurants, but so are vegetables.  Before the pandemic, Americans spent more than half their food budgets on dining out. Over the next 12 months, 70% of consumers plan to significantly decrease spending on restaurants, according to a Bank of America survey.

How does this apply to your business? It’s a reminder that every business needs to think hard about and prepare for disruption. It means doing things differently. As an example, I would never have considered a 40-pound box of thighs, even at the wholesale food price prior to the pandemic. The great price coupled with the uncertainty of the food supply chain at the time changed my mind.

The funny thing is that the food supply is quite plentiful. The issue is that the distribution system between the producer and demand is out of whack, which is causing massive headaches for every person involved: farmers, packagers, distributors, retailers, and end-users. While it’s the rare business that can bypass that broken system altogether, every business needs to make alternative plans just in case. Backups for your backups, I guess. Make sense?

 

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