Australia's food supply chain is robust

It is good to see that over the past few days, Australian grocery stores and major supermarkets appear to be slowly moving back to ‘normal’ with availability of many items previously out of stock. Retail supply chain and store teams have worked tirelessly across the nation to support their communities. Over the past week, there has been lots of commentary however on what is causing the shortages on supermarket shelves: Is there limited supply? Is store labour constrained? Or is transport capacity scarce?

I have been asked for my thoughts by several people recently. I thought I would share my views more broadly here:

• If any country is able to feed itself in time of crisis, it is Australia. The vast majority of fruit, vegetables, meat and dairy items sold in this country are produced in Australia. Australia is a major exporter in these categories too. Our ability to supply fresh food is arguably unmatched anywhere.

• The air freight industry is under enormous strain, with many international passenger flights cancelled in and out of Australia. The vast majority of air freight travels in the belly of passenger aircraft. With Australia a large exporter of fresh meat, fruit, vegetable and dairy via airfreight, it is most likely that (unfortunately) exports will stall in these categories in the short term. This will add to the available supply of such produce in the domestic market and could actually result in a short-term oversupply of food in Australia.

• We will still eat (roughly) the same amount of food. Yes I know, there will be some who argue that we may consume more or less if we are at home; more, due to stress or worry or less due to doing less activity. Putting that aside, the amount of food required to feed the nation will not substantially change (or the amount of toilet paper used for that matter). What is changing is the channel we use for consumption. What we previously consumed out in cafes and restaurants, we will now mostly consume in the home. This has the potential to add to demand on supermarkets or local grocery stores (I would estimate this to be potentially up to a 30% increase).

• This channel shift will require re-balancing along the end-to-end supply chain. Manufacturers and distributors have produced and are holding commercial size bulk packs for supply to restaurants, cafes, etc. These are not usually suitable for individual consumer purchase (ironically, I would think many consumers would have happily purchased flour in 20kg bags, oil in large drums etc. if they could over the past month!) It will take some time to get a shift in balance of production and distribution away from large, bulk commercial packs to consumer appropriate packs.

• I have been taking photos of store out of stocks each day for the past month. I have noticed that small independent stores seem to be coping better over the past few weeks, in terms of having essential items available. Almost all high street butchers, fishmongers, delis and convenience stores have been well stocked. I am not sure if the spike in demand has not been targeted towards smaller stores (i.e. people think of going to one of the major supermarkets if they are in a mindset to stockpile) or whether small operators are more innovative and flexible in their approach. I sense it is a bit of both. I also sense that innovative small operators are helping shift some of the excess merchandise from the commercial/restaurant/café channel to the consumer retail channel. For example, a convenience store near my house has acquired office style jumbo toilet rolls, previously destined for offices that had now shut their doors, and is selling them to consumers.

• So, if all this is true, why were (are) the supermarket shelves empty. Well, we do not have to look far to help us answer that question. The concept of flattening the curve for our hospitals is no different to the challenges faced by our retailers when store supply chains are overwhelmed. You can see the image below (source: healthwise.org). The diagram shows how taking measures against the spread of COVID – 19 may help stop our hospitals from being overwhelmed.

• If we simply change the words in the diagram, the picture is no different for a food supply chain. Retail grocery stores have the capacity to ramp up substantially for planned seasonal peaks such as Christmas. They do not have the capability however to increase throughput by an order of magnitude in the space of a week to support panic buying.

• At a very high level, I would estimate that on average, households have added two to four weeks of safety stock inventory in their homes. Coles and Woolworths annual reports show each may have roughly $2b in inventory (at cost) for supermarkets. This translates to about 15 inventory turns per annum on average or around 25 days stock across stores and distribution centres. If customers have emptied the stores, maybe several times over in the past few weeks, it would imply consumers have stockpiled around 2-4 weeks of usual shopping volumes in their home. At this point, I think this would be reaching the capacity of most household fridge, freezers, pantries etc.

Hopefully we have seen an end to household safety stock accumulation and we will now see more stable demand on our end-to-end retail supply chains. There is no shortage of fresh food in Australia, so supply variability should not be an issue. Demand variability is not likely to be a significant issue either. Shopping behaviour should now be more in line with consumer cycle stock requirements.

George Panas is a PhD Candidate in the Department of Management at Monash University. His PhD explores how consumers consider convenience and waste in online grocery decisions. Prior to commencing his PhD, George held senior industry supply chain roles, including Head of Supply Chain at Coles Group Asia and Head of Finance for Coles Online.