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Are Supermarkets Stockpiling Inventory for Bigger Profit?

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EDITOR NOTE: Wall Street opinion may be split on the Fed’s narrative of “transitory” inflation, but the more interesting developments are happening on Main Street--namely, your grocery stores and supermarkets. Whether they believe that inflation is going to be a short-term blip or long-term burden, either way, they’re not taking chances. They’re stocking up--some, up to 25%--on supplies while prices are still cheap. Like farmers and manufacturers who hedge their costs in the futures market, grocery stores can only hedge by stockpiling their products--anything from cereal to snacks to meats and produce. If you have the capacity to buy and store your goods, why not buy now while the products are cheaper than they will be tomorrow (that kind of thinking happens to be characteristic of hyperinflation, by the way)? There’s a problem with this. Stockpiling tightens supplies, and tight supplies drive up costs. The very means by which supermarkets are mitigating inflation can only accelerate the inflation they’re trying to beat. And in the end, you--the consumer--will end up absorbing a good portion of these costs. Hopefully, you’ve been hedging your purchasing power, for your dollars are only going to decline faster and deeper from this point on. Transitory? We think not.

Supermarkets are stocking up on everything from sugar to frozen meat before they get more pricey, girding for what some executives anticipate will be some of the highest price increases in recent memory.

Some supermarkets said they are buying and storing supplies to keep their shelves full amid stronger demand. Grocery sales in the U.S. for the week ended June 19 rose about 15% from two years earlier and increased 0.5% from a year earlier, according to Jefferies and NielsenIQ data.

Stockpiling by food retailers is driving shortages of some staples, grocery industry executives said, and is challenging a U.S. food supply chain already squeezed by transportation costs, labor pressure and ingredient constraints.

The move is a reversal from last year when consumers hoarded groceries because of concerns about food availability, disrupting the food industry. Now, retailers themselves are stockpiling to keep costs down and protect margins.

“We’re buying a lot of everything. Our inventories are up significantly over the same period last year,” said David Smith, chief executive officer of Associated Wholesale Grocers Inc. The nation’s largest wholesaler for more than 3,000 grocery stores recently purchased 15% to 20% more inventory, mainly of packaged foods with longer shelf life, he said.

Read more on WSJ

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