Retail margins squeezed by COVID-19 related costs may get worse before they get better, FMI warns

October 17, 2020 Off By administrator

“A misconception that we’ve seen in the news and we’ve heard in conversations is this idea that grocery stores must be raking it in during the pandemic,”​ said Ricky Volpe, a professor at Cal Poly and former economist with the US Department of Agriculture.

But this simply isn’t true, even though $23 billion in consumer spending shifted from food service to retail in March and April and product prices are noticeably higher at shelf, he told attendees at FMI’s Food Prices 101 webinar Oct. 15.

“Sure, revenues are way up, but so are costs, and every bit of evidence that I’ve seen using federal data suggests that the percentage increase in costs easily outstrips the percentage increase in food prices, which means margins that were already delicate in the food retail sector have been squeezed even more,”​ he said.

Retailers have had to make very significant investments to pivot their operations to be relatively safe for consumers since March,”​ including increased costs for labor to keep stores stocked, clean and to help the huge influx of consumer traffic, he explained. Likewise, many stores have had to invest heavily in intensive cleaning products, Plexiglas barriers, personal protective equipment and pay more to expedite extra deliveries of in-demand products (such as flour and toilet paper).

At the same time, they’ve had to eliminate high margin items, such as hot bars, to create more space around the perimeter of the store for shopper safety, he said.

“As those costs have increased, retailers have had no choice but to pass those on, at least somewhat, because as many people are aware, operating profit margins for supermarkets historically have hovered right around 1%. That’s not a lot of wiggle room, especially when they’re hit with all these new and unexpected costs,”​ he added.

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