The Covid-19 pandemic is exerting widespread influence on community health, business operations, and personal activities. During this time of disruption, supply chain is front and center in the media, business planning, and in the minds of consumers. Product shortages, production shutdowns, contingency planning and rerouting through alternative distribution channels are activities occurring across global supply chains. Many businesses are caught in the middle of supply disruptions affecting their production capabilities and demand shifts affecting the distribution of their product on hand.
Although the extent and time horizon of the effects is difficult to predict, there are certain supply chain impacts that are visible to us in our daily lives. Most prominent is the massive increase in online ordering of groceries and consumer goods paired with home delivery or pick-up at store, much of which is now curbside pickup. The transition from traditional brick and mortar to e-commerce has been occurring at a rapid pace for several years. However, the social distancing effects from Covid-19 have greatly accelerated this transition, overwhelming the direct-to-consumer channel capacities. Some of the most noteworthy steps being taken include Amazon’s plan to add 100,000 new jobs across the US in its fulfillment centers and delivery network, Instacart’s plan to bring on an additional 300,000 full-service shoppers over the next 3 months, and according to apptopia, record app downloads for Instacart, Walmart Grocery and Shipt in mid-March.
Covid-19 and E-Grocery’s Accelerated Growth
In early March, I spoke with Steve Hornyak, COO of Fabric, a burgeoning provider of micro-fulfillment solutions. At that time, he correctly anticipated the degree to which people would transition to e-grocery. In fact, Fabric recently released a paper titled “The Impact of Covid-19 on Online-Grocery.” The paper provides valuable context on the rate of transition to online grocery. However, I tend to be a little more conservative in my views about the degree to which the surge in online grocery will remain after the crisis subsides. I certainly believe that online grocery is a major growth trend in the US and abroad. In fact, ARC Advisory Group’s research on the WMS and warehouse automation markets shows this transition to be a major factor influencing the investment growth in these fulfillment technologies. And I believe that many of the fulfillment effects from the Covid-19 pandemic will remain after spread subsides. I also believe that new online grocery customers will want to continue with the process. But the current increase in grocery delivery is occurring at the same time that many restaurants are closed, and most residents are confined to their homes. So it is likely that overall grocery demand is currently expanding – not just demand for grocery delivery.
Mitigating Factors
I believe that there will be a reduction in overall grocery demand when the pandemic recedes, as consumers increase dining out (including lunch cafeterias, etc.) I also expect there to be increased competition for labor when the economy rebounds. This will likely lead to human resource constraints (supply side) on the grocery companies’ ability to fulfill e-commerce demand. The subsequent result will be fulfillment capacity shortages (leading to low service quality) or cost increases, or both. And it will take some time for warehouse automation implementations to ramp up enough to meet demand. So ultimately, my view is that things will revert back to something that resembles “normal”, just not all the way back to where they were. Rather, they will revert back to where they would’ve been a bit further in the future.
