Supermarkets Are Stockpiling Inventory as Food Costs Rise - WSJ

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Some supermarkets said they are buying and storing supplies to keep their shelves full amid stronger demand. Grocery sales in the U.S. for the week ended June 19 rose about 15% from two years earlier and increased 0.5% from a year earlier, according to Jefferies and NielsenIQ data.

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Stockpiling by food retailers is driving shortages of some staples, grocery industry executives said, and is challenging a U.S. food supply chain already squeezed by transportation costs, labor pressure and ingredient constraints.

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The move is a reversal from last year when consumers hoarded groceries because of concerns about food availability, disrupting the food industry. Now, retailers themselves are stockpiling to keep costs down and protect margins.

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“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.

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When prices start rising, food sellers often purchase more inventory than they need to protect their profit. Price changes have been minor in recent years, executives said, generally involving a pool of specific products. The current price increases are bigger and are playing out more broadly across supermarket aisles, executives said.

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General Mills Inc., Campbell Soup Co. , and J.M. Smucker Co. are among food makers raising prices to compensate for higher costs. Meat and produce prices have been climbing, too, with retailers anticipating more increases through the rest of the year.

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For food sellers, stockpiling can require complicated math to determine what to purchase, when and how much. For instance, perishable foods can’t be stored for a long time, while bulky products take up more space. Grocers face the possibility of losing money if prices drop after they purchase inventory, though that isn’t expected to happen this year, executives say.

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Stockpiling can also worsen shortages as food makers and sellers look toward recovery. The supermarket industry has bounced back from last year’s widespread shortages driven by consumers’ panic buying early in the pandemic. But retailers said they are now running low on some items, with many receiving about 80% of their orders from suppliers, compared with more than 90% before the pandemic.

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