Demand for groceries, Omicron-related labor shortages create new supply chain issues

The high demand for groceries combined with the soaring freight costs and Omicron-related labor shortages is creating a new round of backlogs at processed food and fresh produce companies, leading to empty supermarket shelves at major retailers across the United States.

Growers of perishable produce across the West Coast are paying nearly triple pre-pandemic trucking rates to ship things like lettuce and berries before they spoil. Shay Myers, CEO of Owyhee Produce, which grows onions, watermelons and asparagus along the border of Idaho and Oregon, said he has been holding off shipping onions to retail distributors until freight costs go down.

Myers said transportation disruptions in the last three weeks, caused by a lack of truck drivers and recent highway blockade storms, have resulted in a doubled of freight costs for fruit and vegetable producers, on top of already-elevated pandemic prices. We used to do it on the East Coast to the West Coast for about $7,000, he said. It is somewhere between $18,000 and $22,000. The frozen vegetables maker Conagra Brands CEO Sean Connolly told investors last week that supplies from its U.S. plants could be constrained for at least the next month due to Omicron-related absences.

Over the next four to six weeks, Albertsons CEO Vivek Sankaran said he expects the supermarket chain to confront more supply chain challenges, as Omicron has put a dent in its efforts to plug supply chain gaps.

Shoppers complained of empty pasta and meat aisles at Walmart stores in Indianapolis, a Meijer store in Palm Beach, Florida, out of bath tissue and home hygiene products, while Costco reinstated purchase limits on toilet paper at some stores in Washington state.

Katie Denis, the vice president of communications and research at the Consumer Brands Association, blames the shortage of labor for at least a few more weeks, saying the situation is not expected to be gone for at least a few more weeks.

She said that the consumer-packaged goods industry is missing about 120,000 workers out of which only 1,500 jobs were added last month, while the National Grocer s Association said many of its grocery store members have less than 50% of their workforce capacity.

U.S. retailers are facing 12% out of stock levels on food, beverages, household cleaning and personal hygiene products, compared to 7 -- 10% in regular times.

The Consumer Brands Association said the problem is more acute with food products where half of their stock levels are running at 15%.

SpartanNash, a U.S. grocery distributor, said last week it has become harder to get supplies from food manufacturers, especially processed items like cereal and soup.

Consumers have been stocking up on groceries as they hunker down at home to curb the spread of the Omicron-variant. Demand for the last five months has been as high or higher than in March 2020, as it was at the beginning of the epidemic, according to Denis. Similar issues are seen in other parts of the world.

In Australia, Woolworths Group, a grocery chain, said last week that more than 20% of its distribution centers are off work because of COVID - 19. The virus has put 10% of staff out of action, and it has put at least 10% of staff out of action.

The limit of two packs per customer was reinstated on Thursday by the company, which was both in-store and online to deal with the staff shortage.

Food deliveries bound for grocery stores and distribution hubs were hampered by the recent snow and ice storms in the U.S. that snared traffic for hours along the East Coast. Those delays rippled across the country, delaying shipment of fruit and vegetables with limited shelf life.

Producers like Myers are choosing to wait for backlogs to come to an end, while growers with perishable produce are forced to pay inflated shipping rates to attract limited truck supplies.

He said that the canned goods, the sodas, the chips were sat because they weren't willing to pay double, triple the freight, and their stuff doesn't go bad in four days.