Taking a bite out of sales

The recession has not only lowered freight volumes, but changed distribution patterns within the supply chain as well

The recession has not only lowered freight volumes, but changed distribution patterns within the supply chain as well. One change that has occurred has been the shift to eating at home. With the recession changing Americans' shopping habits, one of the things that has gone by the wayside is eating out.

That's good news for grocery stores (Chart A), which purchase their items directly from manufacturers, but bad news for wholesalers of grocery items, which count restaurants among their customers.

Because more and more Americans are having family dinners at home, wholesalers' sales of grocery items have declined and that has left them with excessive inventories. With the weak sales environment, wholesalers have worked to bring inventories into equilibrium with sales. The good news is the end of the inventory correction is near, as the downturn in sales has bottomed out and inventories are approaching equilibrium.

An upturn in wholesalers' sales (Chart B) will be gradual as Americans slowly recover financially, so there will not be a large shift to eating out more often in the near term. Nevertheless, increasing sales will spur inventory replenishment, stimulating freight volumes.

The upturn in food output (Chart C) will moderately accelerate in the months ahead as wholesalers replenish inventory. As sales have increased at grocery stores, food output has also started increasing, stimulating freight volumes upstream in the supply chain of intermediate and primary food products.

While food consumption is relatively stable, the recession implies the movement of food products through the supply chain is not as stable due to changes in consumption patterns. The recession is likely changing the types of food consumers buy, as Americans find more ways to stretch their food budgets. Consumer spending at restaurants will remain relatively stable in the short term due to the high unemployment rates. As a result, freight volumes to grocery stores will increase at a faster pace than freight volumes to wholesale grocers.

This phenomenon of changing freight distribution patterns due to changes in spending habits by Americans is not only happening within the food supply chain, but other freight segments as well. The recession has resulted in a consumer spending shift from department stores to discount general merchandisers. Because of this, there has been a greater decrease in freight volume for carriers that haul to department store distribution centers.

This is not a permanent situation because of the dynamic nature of the retail industry. Stores will adjust to combat changing spending habits, and Americans will start spending more as their own economic situations improve with those of the overall economy.

Commercial Motor Vehicle Consulting publishes the monthly newsletter Visibility of the Supply Chain for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.

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