Three reasonable assertions

By Phil Plourd, president, Blimling and Associates

Remember the good old days in February? That’s not something we say much in the Midwest. But, wow, February was a lot more fun than March and April have turned out to be.

In the current swirl, it’s hard to make confident predictions about what is going to happen this afternoon, let alone later this week or next month. Headlines change with astounding velocity. Even so, we are comfortable with at least three assertions.

1. People are going to eat…but not necessarily where they ate yesterday. Over the past two years or so, Americans have been spending about as much at restaurants as in grocery stores — sometimes more in any given month. In the fourth quarter of 2019, for example, data from the U.S. Census Bureau showed restaurant sales averaging $65.3 billion per month, with grocery store sales at $65.4 billion (Figure 1).

Figure 1.

Now, of course, Americans are flocking to grocery stores, piling carts full, while restaurant dining rooms go dark (Figure 2). It’s a massive rotation with dizzying effects on supply chains. With that, dairy demand at retail is surging. For the week ending March 14, Nielsen data showed fluid milk sales up 34 percent year-over-year. Ice cream sales were up 32 percent. Anecdotal reports cite strong cheese sales, too, even for products that had fallen on hard times in recent years such as pasteurized process cheese slices. Butter is also moving at an incredible clip.

Figure 2.

We know that the stock-up-to-stay-in rush featured some panicky stockpiling. Nielsen data showed toilet paper sales up 213 percent year-over-year for the week ending March 14. In the food aisles, dried bean sales were up 230 percent. People won’t have to go back to get more of those items for a while. But we suspect there’s a much smaller bubble under perishable sales. Going into this situation, a lot of people simply did not have much food in the house. They ate on the run, with different people going in different directions. Now everyone is at home. Eating three meals per day.

Consider a family of four. Grilled cheese is popular, easy and relatively inexpensive. Who doesn’t like grilled cheese? A typical pack of American singles contains 16 slices. In our house, like any great American family, we use two slices per sandwich. That’s probably the norm. That means a 16-pack carries the family for two grilled cheese lunches. People will have to go back for more cheese before long.

On the food service side, multiple anecdotal reports suggest pizza sales are going strong. Domino’s is pushing to hire as many as 10,000 new delivery drivers. Fast food drive-thru business will thrive for some operators. Other carryout options will also fill some of the void. How much food service demand can we preserve? Keep in mind, the typical fast food restaurant was already doing 60 to 70 percent of its business through the drive up window.

2. At some point, most or all the bad news is in the market. We exhaust capacity for surprise. We maximize fear. We get to a place where the market already anticipated the next few bad headlines. Potential grows for the news to surprise to the upside. Consider… we are already at no sports, no school, no travel, no church, no gatherings, no eating out, no playdates…  We may not entirely be out of “no” moments or other bad news, but we’ve checked a lot off the list. Where will the good news headlines come from? Daily COVID-19 case-count growth begins to slide as harsh restrictions take hold? We see recoveries start to top existing cases? The economic benefits of sub-$2 gasoline? Stock market stabilization? The headline flip will happen.

3. It’s possible we will underestimate economic resilience and human/American ingenuity. We already know that service-sector industries are immediately suffering a big hit. Layoffs are going to leap higher over the next two-to-four weeks. And, the pain will likely last through the second quarter. Just like after 9/11, it will take some time for planes, hotels and restaurants to fill. But, our hunch is that, when we get the bounce, it goes faster and further than anticipated. Pent-up demand for living will be bubbling over. Plus, we will see massive stimulus measures along the way. Congress is passing stimulus packages. Cheap gasoline will also play a role in restoring vitality. In the meantime, we are going to see massive brainpower applied to finding therapies that work against the virus in one way or another. We will see industries pitch in to make more protective gear for medical care providers. And, we will see business owners seek new avenues to preserve sales.

Indeed, in a sea of bad headlines over the past few weeks, this one offered a great reminder that people are creative and committed to winning: “Suburban Chicago Restaurant Offers Free Roll of Toilet Paper With Orders.”

Phil Plourd is president of Blimling and Associates, Inc., a Madison, Wis.-based dairy consulting, research and risk management firm that is a division of Dairy.com. Futures, options and OTC swaps trading involve substantial risk of loss and are not necessarily appropriate for all persons. Past results are not necessarily indicative of future results.