Our Thanksgiving Meal: A Teachable Moment for the Global Supply Chain

Until this year, religion and politics were the two taboo subjects around the Thanksgiving table. A week away from the big day this year, there are a couple of additions: inflation and supply chains. Unfortunately, supply chains may be a bit tricky to avoid stumbling into, especially if you have to ask your host if they’re going to be serving turkey.

As of the second week of November, 60% of grocery store turkeys were already sold, according to Information Resources Inc., the leading firm for tracking supermarket purchasing data. Add to that the fact that inflation is at its highest rate in over three decades and you have the perfect storm for grocers and consumers alike as we enter the holiday season.

For items like meat, poultry, fish, and eggs, prices are up over 10%. Tyson, who produces a fifth of all chicken eaten in America, raised prices by 19%. They also produce a lot of beef and raised prices by a third. Rib eye steaks are 40% more expensive than a year ago, according to IRI. A few weeks back, seafood inflation made headlines when the price for crab and scallops spiked so high that some restaurants took it off their menus.

Supply chains are at the root of both lumps of coal this holiday season: shortages and sudden inflation.

Inflation that builds over time is foreseeable and results from increasing demand, declining supply, or maybe rising incomes, wages, and other costs.

Sometimes, though, it doesn’t build but just suddenly appears. Sudden price spikes come as a result of some unexpected event that disrupts the supply getting to the market or causes a sudden increase in demand. Remember trying to find bleach or toilet paper this time last year?

This holiday season is rife with just these kinds of supply chain disruptions, many driven by the continued efforts to contain COVID. Shipping containers are in short supply. Ships and sailors have been stuck at ports for extended periods of time as delays for inspection and unloading increase. Factories are shutting down due to a positive COVID test. And the great resignation has led to a shortage of truck drivers, warehouse workers, and more.

The COP26 negotiations in Glasgow reminds us that another set of disruptors are becoming more evident in the food sector: the ones linked to climate change. The increase in the frequency of severe weather, drought, and unseasonable temperatures all make the harvest less dependable and harder to predict. That means more volatile prices for those buying for current or future delivery on open markets. An updated weather forecast can move prices (and does) just like news of a port closure or a COVID outbreak at a meat processing plant. The news, and price swings, often comes faster than companies can respond.

Until very recently, American consumers didn’t trade down. With COVID reducing our spending at restaurants earlier this year, we paid higher prices for better cuts of meat, poultry, and fish to eat at home. Now that restaurant dining is back, the past few weeks consumers have started to trade down to cheaper options.

Buying what’s available and low cost is also a more appropriate response than buying what’s out of stock.

This Thanksgiving, for example, my family is having Cornish game hens rather than going on a turkey hunt in grocery store aisles. Some of our better-prepared neighbors are headed to the farmers’ market to pick up the turkey they ordered a few weeks back. And for those who seek a more authentic, historic feast, the menu of that first Thanksgiving included cod and bass, venison, cornmeal, and maybe smoked eels.

The quick adjustments that a lot of us will be making this Thanksgiving mirror some of the new supply chain strategies that smarter food companies are adopting as we move into another year of the unexpected.

1. Serve something else. Blue Star Foods, newly debuted on the Nasdaq, has a long history selling crab. Now, they’re investing to expand salmon farming operations. With products from the global south and north, the odds increase for something going as planned.

Big protein companies like Tyson, Cargill, and JBS are making the same move to diversifying, and are also getting into fish farming in addition to poultry and meat production.

Restaurants do this all the time, often calling something a “special” or “limited time offer” or letting you know they’re out of something.

Amazon is now trying that with groceries as the number two seller of food in the U.S. (The Whole Foods grocery chain they operate is itself the #10 grocery chain.) They’re making substitutions at their discretion with no difference in price for home delivery orders through Amazon Fresh if they run out of something. For example: My household ended up with a bottle of oat milk instead of hemp milk in a recent order, and we’ll see how customers feel if they get a ham or a duck instead of a turkey.

2. Pay ahead to lock in price and supply. Sprouts Farmers Market, the grocery that claims its roots in farmers’ markets, has such a confident handle on its supply chain that they’re offering organic fresh turkeys (not frozen and held in inventory) and also putting them on sale up through Thanksgiving.

Paying farmers ahead of time is one of the practices that used to be considered risky (What if there’s a storm and their crop gets damaged?) and now is a way to manage risk (What if there’s a storm forecast and prices go up when I need to buy?)

Direct sourcing also helped power Chipotle’s stellar rise over the past few years as they work directly with their growers to establish and demand better animal welfare and other farming practices, which also makes their diners more loyal. Their stock is up more than twice as much as McDonalds, Yum Brands, and other peers in the past year.

3. Don’t be stubborn. Back to the turkey. If you’ve got to have one, and inventory is uneven, you may pay more and if you’re in business even outbid your competitors. That’s the story behind the story for companies like Oatly and Beyond Meat, both of which just reported much lower profit margins.

Oatly must buy oats to make its oat milk, a move that modestly is increasing demand but doesn’t fully explain the record price for oats. That is due to drought. Beyond Meat must buy pea protein among a few other essential ingredients. Their supplier — Roquette — is forecasting significant price increases on top of those just passed through as price for raw peas more than double. Why? Again, drought.

Businesses that must be a single ingredient no matter what the cost may have bought into a business model that doesn’t work in the era of climate change. COVID related supply chain disruptions can help watchful investors see the warning signs.

For now, enjoy whatever you find on your Thanksgiving table and let’s hope Santa’s sleigh arrives as planned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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