Conflicting Realities in the Face of COVID-19

COVID-19The future remains uncertain as the country continues to combat COVID-19. A big question facing the nation is when and how to re-open the economy. While some states are pushing to re-open their economy (or beaches, in the case of Florida), others are cautioning that doing so too early would be socially irresponsible and bad for the economy. The ongoing pandemic has put added strain on the global supply chain, with companies exploring new fulfillment models and business operations. And while some have suggested a leap forward in the future of fulfillment, others have seen unsustainable business practices put in place. In the end, we are seeing a lot of conflicting realities in the face of COVID-19.

The Changing Nature of Fulfillment

One of the most common themes I have seen throughout the coronavirus pandemic is that the advancement of fulfillment technology is occurring at a rapid pace. In the face of COVID-19, companies are relying more on automation and micro-fulfillment centers to get goods to people as quick as possible. As my colleague Clint Reiser pointed out last week, many of the fulfillment effects from the Covid-19 pandemic will remain after the spread subsides.

One area that especially jumps out in is the grocery fulfillment space. As Clint mentions, “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.”

I agree with his last statement, and think that once the economy bounces back, the demand for grocery delivery will see a decrease. One reason for this is that many people like to make their own decisions while grocery shopping when it comes to the produce or meat they will buy. Or, if the store is out of a certain product or brand, they want to make the decision on an appropriate substitute. For this reason, I do not see grocery delivery making a dent on the brick and mortar grocery experience, at least not in the immediate re-opening of grocery stores. Plus, with lines 80-100 people deep to get into grocery stores now, the on-premise demand is clearly there.

There is also the very real possibility that as the gig economy rebounds, there will be less capacity for grocery deliveries. With ride sharing services (Uber and Lyft) seeing ridership levels rapidly decline, these drivers can shift gears and move towards grocery delivery. However, when stay home orders are lifted and people are traveling and moving about more, the demand for drivers will increase, possibly at the expense of grocery deliveries.

Looking at retail in general, over the last few years3 warehouse labor has been harder and more expensive to find, train, and retain. Now, however, even with the economy in recession, large companies such as Amazon and Walmart are hiring tens of thousands of warehouse workers. With unemployment rates rising rapidly, there is now adequate supply to meet demand for warehouse workers. With more warehouse personnel, output can increase. For those companies that are thriving in the online environment, this means they can churn out more orders on a daily basis.

However, once the economy does rebound, that could all change. As more employment opportunities open up, it will be harder for companies to keep warehouse employees. And as more brick and mortar retailers re-open, the demand for e-commerce fulfillment may change.

E-Commerce is Booming

E-commerce is growing by leaps and bounds and has been for quite some time. With the coronavirus pandemic’s impact on brick and mortar retail, e-commerce is especially booming right now. Amazon and Walmart have hired over 200,000 employees to help meet growing demand. But even as e-commerce is growing, the supply chain is becoming more difficult to navigate. Companies have begun halting shipments of non-essential items. Fluctuating air freight capacity has resulted in huge shipment timeframe discrepancies. Available delivery windows for customers are shrinking. Many items ordered online are taking three or four times as long as normal to be delivered. Many products are simply not available due to surges in demand. Price gouging is occurring on marketplaces for household essentials. And the list goes on.

Add to all of this the impact on brick and mortar retail, and the story becomes murkier. Plenty of retailers are trying to whether the storm and are turning dark stores into online fulfillment centers, but this will only last so long. The retail industry should be preparing for its busy season – back to school through the holidays. However, the 2020 back to school season is in jeopardy due to plunging imports at American ports. According to a report by the National Retail Federation (NRF) and Hackett Associates, imports at container ports for major American retailers fell to the lowest level in five years in March. Then again, the thought of back to school has taken on a whole new meaning. Yesterday, my home state of Massachusetts ordered all public and private schools to remain closed for the remainder of the school year, joining 34 other states that have either ordered or recommended the same. There is a lot of uncertainty as to whether the school year will start virtually in the fall.

Alcohol Sales are Soaring

Another area where sales are booming is alcohol. Liquor stores were deemed an essential business and allowed to remain open across the country. In the third week of March, alcohol sales shot up 55 percent compared to the same timeframe in 2019. Ready to drink cocktails and spiked seltzers and lemonades saw the largest surge, with sales up 106 percent. This was not surprising, as the timeframe coincides with many stay home orders across the country. It should also be noted that bars and restaurants were closing for sit-down service, so retail alcohol purchases were likely to feel a bump.

But one area that is being overlooked is craft breweries. While beer sales at liquor stores increased during this timeframe as well, the craft beer industry is facing an uphill battle. Many have looked at new ways to fulfill orders, including curbside pickup and home delivery. In Massachusetts, these were two options that I certainly did not consider a possibility a few months ago given our strict alcohol laws. But now, many breweries are hoping that these fulfillment services can keep them afloat. The problem is that the majority of craft breweries rely on their tap rooms for the majority of their sales. With tap rooms closed, the industry is facing a scary time. According to one survey I saw earlier this week, up to 60 percent of craft breweries could close in the next few months. That is a sobering thought.

Final Thought

As COVID-19 keeps a grip on our supply chain and economy, the news alternates from bad to less bad, and most often, somewhere in between. There are conflicting realities for what the future holds. While fulfillment advances are happening, will they remain in place once we move beyond coronavirus? E-commerce is booming and more consumers are turning to the web than ever before. However, this is not entirely a choice, as many businesses considered non-essential have been forced to close. Will they re-open, and if they do, will the customers come back? These questions apply to many industries and only time will give us the answers. Hopefully that time comes sooner rather later.

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