What do US meatpacking and global fashion have in common which drove their upheaval during the COVID-19 pandemic? Consolidation in both industries created an underlying fragility where a crisis could affect choke points and quickly reverberate through the entire value chain.

In business, consolidation often leads to greater profits through increased efficiency and economies of scale, but COVID-19 has shown that consolidation also exposes those connected to the industry, including suppliers, consumers and entire countries, to the risk of systemic disruption. In the current pandemic, virtually every industry has been disrupted, but consolidation has magnified the impact of disruption at any one plant or firm across the entire industry in a way that more decentralized industries are more resilient to.

Nowhere is this vulnerability more apparent than in the US meat supply chain. Meatpacking has undergone a dramatic consolidation over the last 50 years with the number of slaughterhouses decreasing by 70% since 1967 according to the US Department of Agriculture. Just four companies control 85% of US beef processing and three companies are responsible for 63% of the US pork processing capacity. When the pandemic struck, outbreaks of COVID-19 forced processing plants to close across the US and Canada. In April, just 12 plants closed, but that reduced output capacity by 25% for pork and 10% for beef. As a result, an estimated five to ten million hogs will be euthanized across the US instead of used to feed people due to a shortage of processing capacity. At the same time consumers are facing shortages and price increases for meat products.

The global garment industry’s consolidation has been among retailers rather than intermediaries, which has resulted in seismic upstream disruption. In 2019, 97% of the industry’s profits were earned by just 20 brands, making them the arbiters of their suppliers’ financial stability. Through consolidation, fashion retailers gained leverage over suppliers and undermined the stability of their own supply chains by getting suppliers to use open account systems instead of backing transactions with letters of credit, as is standard in international trade. Then as order cancellations came in, the delicate system collapsed as global fashion brands refused to pay for orders, passing on their financial problems to their suppliers. Shutdowns and the pandemic devastated the fashion industry with US retail spending on clothing in April falling 78.8% and retailers J. Crew, JC Penney and Neiman Marcus declaring bankruptcy. Some brands unloaded this financial burden on suppliers by cancelling an estimated $24 billion in orders, affecting an estimated 60 million workers and countries like Bangladesh where those suppliers are concentrated. Some brands have opted to pay for orders completed and in production, but this remains a minority of them.

As analysts, we must recognize that instances of consolidation in industry supply chains can magnify the impact of certain risks which could disrupt an entire system. Certainly, both US meat and global apparel would have faced tremendous upheaval due to the pandemic regardless of industry consolidation, but it made both industries dependent on the decisions and strength of a small number of firms, translating individual weaknesses into systemic vulnerability. When the pandemic disrupted these firms it quickly reverberated through the value chain to disrupt whole industries and the countries that depend on them. As business leaders expect “a wave of industry consolidation” to follow in the wake of the pandemic, we should watch for signs of what industries stand to be upturned in the next crisis.