Supermarkets fear supply-chain shortages as coronavirus spreads

March 7, 2020

BRIAN PASCUS | Crain’s New York Business

As the first coronavirus cases surface in the New York area, some local grocery stores and food markets are facing frenzied consumers and potential supply-chain shortages.

Customers are buying more disinfectants and nonperishable food, leading some industry experts to worry that stores that rely on outside wholesalers eventually will encounter supply-chain interruptions because of the uncertainty surrounding the duration and severity of the epidemic.

“You only have a couple of outside wholesalers supplying thousands of small New York City stores, and they have insufficient square footage per store—about one-seventh to one-10th the average U.S. supermarket in the suburbs,” said Burt Flickinger III, managing director of the Strategic Resource Group, a retail consulting firm.

Shortages could be particularly acute in New York because so many of the grocers, including D’Agostino’s, Key Foods and Westside Market, are independent or family-owned and rely on outside wholesalers.

“There is so much competition between grocery stores in the U.S.,” Miguel Gómez, associate professor of applied economics at Cornell University, told Crain’s. “And most supermarket companies are self-distributing—they own their own wholesale operation. But in New York City you have more independent, smaller grocery stores, so they tend to depend more on wholesalers.”

Flickinger told Crain’s that the outsider wholesalers have limited inventory and that most ship their products long distances to supply many stores. The wholesalers are facing “unprecedented pressure in supplying thousands of New York City stores on an emergency basis,” he said.

As the demand for groceries increases, Gomez said, the supply chain could become disrupted because a significant amount of food consumed by New Yorkers comes from other countries, and there might be restrictions on international trade because of the coronavirus.

“If there is any disruption in the supply chain, then supermarkets have to pay more, and they will probably pass that cost on to their customers in higher prices,” he said.  

Other food industry experts disagreed, saying concerns about higher prices and fewer goods are unwarranted. The food industry prepares for such events, they said. 

“Retailers are working with manufacturers, who are looking at ways they can shore up their supply chain, said Doug Baker, vice president of industry relations at the Food Industry Association. 

Even so, Baker told Crain’s that wholesalers are seeing three to four times their normal amount of orders, a figure that could result in both shortages and gluts. 

On the ground at New York supermarkets, owners haven’t seen too much disruption yet. If anything, they’ve seen increased business. 

“I haven’t seen anything particular in food. More people in my store means I’m going to have more sales,” said Nicholas D’Agostino III, president of the New York Food Group and owner of D’Agostino Supermarkets.

“Our sales volume has obviously gone up as customers have stocked up on product, but they are traditionally grocery items that are very low margin,” said Avi Kaner, owner of Morton Williams, who added that he has seen consumers buy primarily water, canned fruits, soups, tuna fish and shelf-stable milk during the past week. 

More than food, disinfectants and other cleaning supplies have been the most sought-after items this week. 

“Right now, the biggest thing is anything that’s a disinfectant,” D’Agostino said. “Gallons of water aren’t going quite as fast as the wipes and disinfectant.” 

“The only real categories where we’ve seen rationing and having orders scrapped and not fulfilled is in the sanitary products,” Kaner said. “We run out of water, but we’re able to get it replenished the next day. But when it comes to the sanitizing products, it might be a month or even longer before these supplies come back in a reliable manner.

“A couple weeks ago we placed massive orders for these items, spread them across our stores, and they sold out in a day or two. People just grab them immediately,” he said. “We’ve had to think outside the box.

“It’s very similar to what we experience prior to an expected snowstorm, the difference here being there’s no end in sight,” he said. “You know the storm is arriving over the next day or two. Here the uncertainty is really creating anxiety with customers. They fear there might be a situation of quarantine or public transit may be disrupted.”  

“There is so much uncertainty,” Gómez said. “Everything is speculative.”

An earlier version of this story incorrectly quoted Avi Kaner about the impact of the coronavirus on sales at Morton Williams.