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Retailers Build Up Caches And Cut Out Discounts In Bid To Stay Stocked For The Holidays

Retailers, especially grocery stores, are adapting to the new realities of shortages by expanding their sourcing, building inventories when they can and not offering the kind of discounts to consumers that move product quickly.

Containers at the Port of Oakland, California

Overall, U.S. food supplies aren't short, but many popular processed items, such as pasta sauces and potato chips and other packaged snacks and drinks, have been tough for grocery stores to obtain in recent weeks, The Wall Street Journal reports.

Much of the squeeze is because food processors themselves are facing shortages, both of raw materials and the labor needed to put the products together. The snarl in providing packaging materials is also a problem, such as with the Coca-Cola-owned bottled water Topo Chico, which has more than enough water to supply the demand but not nearly enough glass bottles.

In response, grocery industry buyers are seeking alternative vendors and looking for substitutes for short items. Retailers are also buying extra inventory whenever they can, the WSJ reports, with some major supermarket chains reporting as much as 30% more inventory in their warehouses than during a normal year.

As a whole, the retail industry is fully aware that this year's holiday season is going to be problematic in terms of keeping stores stocked. Part of the reason is pent-up demand. This year, holiday spending has the potential to break records, according to the National Retail Federation, which forecasts that holiday sales during November and December will grow between 8.5% and 10.5% over 2020. The numbers, which exclude automobile dealers, gas stations and restaurants, could more than double the average increase in holiday-season sales of 4.4% over the past five years.

Retail executives expect holiday shopping to be affected by supply chain disruptions and inflation, according to a new survey by First Insight and the Baker Retailing Center at the Wharton School of the University of Pennsylvania. All of the respondents said they expect disruption this year, and almost all of them (98%) said they expect that supply chain issues will continue to hamper the retail sector through 2022. A majority of the respondents, some 59%, also expect to pass along price increases to consumers, though about a third of them expect to keep prices consistent.

Like grocery stores, many other retailers are planning fewer sales and promotions this holiday season, according to the Baker Retailing Center report. More than a fifth of retailers say that they will eliminate or reduce promotions because of lower inventories and higher prices.