At about 8 a.m. on a recent morning, Stephanie Younker connected a hose to a tank containing two days of milk production at her family’s Berks County dairy farm and pumped more than 800 gallons of perfectly good milk into a manure spreader.
“We spread it on the fields, because we had no place to store it,” said Younker, 18. The Younkers’ milk buyer, Clover Farms, directed them to dump the load. Clover’s biggest commercial customers — restaurants, schools, coffee shops — stopped buying after they closed under the coronavirus lockdown, and the processor already had more milk than it could sell.
While the Younkers dispensed the cocktail of milk and manure on their farm in Bethel, Pa., retail customers 75 miles away in Philadelphia were clamoring for more milk than many grocery stores were able to supply. Refrigerated dairy shelves stood empty, picked clean by panicked customers, while dairy farmers an hour away poured fresh milk into the soil.
The supply chain is broken.
“It’s heartbreaking,” said Stephanie’s mother, Melanie Younker. “You work hard to get those cows to produce good quality milk, and then to just spread it on fields.”
The economic collapse from the coronavirus pandemic has disrupted and stressed the nation’s finely meshed supply system with unsettling speed, exposing weaknesses in networks designed for cost-efficiency — but not designed to adapt to sudden market changes.
Experts agree, though, that in time the crisis may well fundamentally reshape the supply chain, accelerating the move toward a digital marketplace.
Before the pandemic, Americans spent 54% of their food budget on meals prepared away from home, a trend that had been rising steadily for decades as consumers spent less time in the kitchen, according to the U.S. Department of Agriculture.
But in just a few days of lockdown, the market was turned on its head as schools, restaurants, ball parks, and offices where people gathered — and ate — shut down. Carryout sales and meal deliveries have increased, but it’s a fraction of the total and can’t make up for the loss in food service sales, experts say.
Across the nation, sales at food services and drinking places declined 27% in March, according to the U.S. Commerce Department. Consumers bought instead through retail channels, and grocery stores surged by the same percentage as stay-at-home Americans stockpiled goods and returned to the kitchen.
The figure reflecting the shift to grocery-store sales in April will be even more dramatic, reflecting a full month’s impact of stay-at-home orders. “There’s been a significant shift in folks making their purchases at the traditional food retail establishments,” said Alex Baloga, president and chief executive of the Pennsylvania Food Merchants Association.
The result has been a massive disruption in the distribution chain, creating an imbalance between supply and demand, and creating surpluses and shortages in labor and production in affected areas. Farmers in Florida and California are plowing fresh produce into their fields. Commercial fishing fleets are idle at the docks because fresh seafood is sold mostly through restaurants, and retail sales channels are impaired because many grocers have closed seafood counters.
“There are no nationwide shortages of food, although in some cases the inventory of certain foods at your grocery store might be temporarily low before stores can restock,” the U.S. Food and Drug Administration said in a statement last week, in an effort to reassure consumers.
The FDA said that manufacturers and retailers “are working around the clock to replenish shelves and divert product from food service destinations to grocery stores.”
Among grocery items, paper products and cleaning supplies are often sold out (except toilet cleaner, curiously, considering the toilet paper fixation). Demand for baking supplies has surged: Flour sales are up 155%, cookie mixes are up 152%, and chocolate chips are up 139% since February, according to Information Resources, Inc., which tracks such data for its clients.
The impact goes far beyond retail consumers.
Philabundance, the nonprofit that provides food for 350 neighborhood pantries, soup kitchens, and shelters, experienced a 35% surge in donations from restaurants during the first week of the coronavirus lockdown, as owners emptied their shelves of perishables. But donations from food-service businesses have fallen 60% since then, said Samantha Retamar, a spokeswoman for the agency. Donations from grocery stores have also plummeted because at the end of the day, they have less merchandise to give away.
“COVID-19 has pretty much rocked the entire food-banking system across the country,” Retamar said. Philabundance has been forced to buy more food from the open market — dry goods such as beans, pasta, canned goods. But suppliers now take weeks rather than days to deliver the goods, because there is such high demand from the retail sector.
The loss of business might prompt some restaurants and wholesale suppliers to explore retail options, said Marshall L. Fisher, professor of operations, information and decisions at the University of Pennsylvania’s Wharton School. “Why don’t restaurants become food retailers with curbside pickup because they have the upstream supply of everything people want, right?” he asked.
One South Philadelphia produce wholesaler, Giordano Garden Groceries, has moved quickly into the retail space after 80% of its mainstay restaurant supply business disappeared.
Marcello Giordano, the owner, quickly set up an assembly line at his warehouse to package cartons of fresh produce, eggs, and milk that he sells online and to walk-up customers for $35. His trucks also deliver the Fresh Essentials boxes to homes for a fee. Several restaurants are also distributing them, at a slight markup.
“We made over 700 boxes yesterday. If we could, if I have the facility to do 1,500 a day, we would be doing 1,500 boxes a day,” said Giordano. He has retained most of his company’s 60 employees to pack the boxes, which he says do not generate profits, but are generating goodwill.
“It’s not so much about the money right now," he said. "People are going to remember it.”
While distribution systems adapt and consumer anxiety subsides, the bottlenecks are expected to ease. Business owners and executives are evaluating the potential long-term impact on markets, particularly at the retail level.
If there is a prolonged recession, sales of luxury goods might be slow to come back, said Subodha Kumar, a Temple professor of supply chain management. And retailers with well-established online retail systems are withstanding the storm better than brick-and-mortar outlets, he said. With lessons learned, some retailers may invest more now in alternative delivery systems.
Grocers, which had been slower in the past than other retail sectors to adopt online retail channels, are experiencing phenomenal growth of internet ordering, particularly among older customers who had previously been slow to embrace digital systems, Kumar said.
“Around half of the people are buying groceries online for the very first time,” Kumar said. “Not everybody will go back to normal when this is over. A big chunk of people will either permanently use online or will use that for some of their purchases going forward.”
That may have long-term real estate implications for grocers — whether to close some stores or convert some to internet-only facilities that are optimized for employees to assemble online orders for pickup or for delivery.
“A lot of these retailers should be in better shape coming out of the crisis," said Rick Weinberg, an executive vice president for real estate consultant CBRE, which advises several large regional grocery chains. “What they don’t know is what consumer behavior is going to be going forward — that’s the big question, trying to read and prepare for consumer behavior.”
In the dairy industry, the pressure to adapt is intense because milk is so perishable — fluid milk has a shelf life of about two weeks, if it is stored at 35 degrees.
Dairy distribution channels are very specialized, and farmers operate under contracts with specific processors. Some processors are designed to serve the food-service industry. Other producers specialize in bottling milk into containers popular with retail customers.
But a producer that packages mozzarella into 50-pound bags or milk into 5-gallon boxes for restaurants cannot quickly retool for retail packaging. And a dairy sized to serve the retail market has only so much capacity — only so many plastic jugs, trucks and drivers — to meet the upsurge in demand at grocery stores.
“We’ve become so specialized as an industry that it has created kind of a backlog across the supply chain,” said Lolly Lesher, whose family owns Way-Har Farm Market in Bernville, Pa., which sells bulk milk from its 240 cows to a cooperative, and bottles about 10% of its output for retail sale at its farm market. The Berks County farm has not yet been directed to dump any product, Lesher said.
Way-Har farms has tried to meet new demand from grocers who are eager to carry their products, but Lesher said the business needs to evaluate how much to invest — whether the new customers will stay for the long term. Way-Har already wrestled with a temporary shortage of plastic jugs from its supplier. It has also quickly redesigned its labels to include a UPC bar code so that cashiers at grocery stores could scan the bottles at checkout.