COVID-19 is having a profound effect on the business world. While it is still unclear exactly how lasting and impactful those changes will be, it is certain they will be significant for some industries more than for others. Recent quarantines in many states have forced people to stay home, which has dramatically reshaped the food and beverage sector by surging the demand for retailers and decreasing for food service.
Supply Chain Disruption
Disruption in supply-chain has forced businesses to search for alternative delivery routes and types of products. According to Reuters, a decline in air traffic, as well as world-wide enforced quarantines have reduced the capacity for companies to move fresh produce long distances, which have caused issues for both farmers with product they cannot move and importers needing raw materials.
For example, the above-mentioned article sites how one company’s imports from Brazil have dropped by 80 percent, which has pushed the importer to look for alternative routes from Mexico and Guatemala, where goods can still be shipped by trucks.
The article also mentions how container ship deliveries from China to the U.S. and Canada have decreased by 33 percent due to reduced demand as a result of lockdowns. As a consequence, the exporters of refrigerated products shipped from China are struggling with a shortage of refrigerated containers to supply goods.
It is important for business owners and executives to understand that now is the time to make the right decisions for their company’s future. In a webinar hosted by Rabobank, analysts including representatives from ODDBOX (London’s highest-rated vegetarian boxed food delivery services) and New Crop Capital (a private food venture fund) offered an overview of the current and future impact of COVID-19 on the food and beverage industry. Some changes they have seen so far include:
- Packaged-food businesses, retail services and online sales are on the rise while the restaurants’ revenues have decreased substantially
- Restaurants have been forced to rely solely on takeout and delivery options rather than dine-in customers for revenue, which has changed many of their business models
- Smaller manufacturers are being shutout as large retailers are not placing orders with them and are instead focusing on big orders from larger manufactures to satisfy customer demands
Securing Businesses’ Futures
Some shelves in grocery stores are empty as a result of the shift in consumer behavior. During the past few weeks, consumers have been stockpiling pantry goods. However, experts are noting that over time consumers will relax a bit, which will lead to an increase in purchases of indulgent products such as beer, soft drinks, chocolate and wine.
Some companies that were able to keep up with demands have been doing very well. Startups, which usually can adapt faster to the changes, can have an advantage if they obtain funding. Securing a business post COVID-19 will depend on a company’s ability to shift with the demand for current products needed in the market.
Prior to COVID-19, only four percent of grocery sales were done online. Since COVID-19, downloads of Instacart, Walmart's grocery app and Shipt have increased by 218 percent, 160 percent and 124 percent respectively when compared with the same time period in the prior year.
While online grocery sales are growing rapidly, it cannot take additional demand because of the logistics capacity. The rapid increase in the number of orders and shortage of labor to fulfill these orders, as well as limited delivery options create bottlenecks that supermarkets cannot quickly resolve. Besides, before consumers were purchasing online for smaller packages, they are now buying bigger boxes, which is creating a shortage of products.
In the previously mentioned webinar the panelists suggest that manufacturers have increased the use of co-packer partners, but still, the number of deliveries is limited as their employees are sick or having difficulties traveling due to closures. Moreover, many farms rely on workers who come from Mexico and other countries via temporary agricultural H-2A visas. Thus, this is disrupting both the production and distribution sides. Meanwhile, when the future is unclear, the co-founder of ODDBOX emphasizes the importance for the businesses to retain current customers to ensure they are getting at least some deliveries.
Panelist from the previously mentioned podcast also predict that retailers will play a significant role in what will be available for consumers. Prior to COVID-19, retailers were focusing on one type of product that was in demand by customers and tried to fulfill this demand in big quantities. With the sudden increase in demand and disruption to production and distributions companies, the shelves became empty, and retailers started looking at their older products to try to add variety to fill now empty shelves. Additionally, retailers are looking into increasing online food delivery as customers have shown that they are more willing to shop online and get food delivered instead of spending time cooking on the kitchen. This creates an opportunity for retailers to promote these “new” products as well as for vendors that are producing them.
During times of uncertainty, when it is difficult to predict long-term, the question arises on how companies can prepare for this. As a consequence of the shutdown, the Rabobank panelists, as well as firms such as Goldman Sachs, Deutsche Bank, JPMorgan, Bank of America and more have unveiled forecasts for a continued U.S. recession and predict a significant declined of the U.S. economy in near future.
The looming recession stands to impact everyone, but it will not be equal. This is bad news mostly for smaller businesses, which will likely have a shortage of capital. Although the recently passed stimulus package will certainly help, it will have rather a short-term impact.
As it is unclear how long the recession will last, it will be more difficult for companies to obtain funding. In order for investors to provide funding, they need to justify at least some return on investment, and since it is not known when recession will end, it will create a valuation problem, and it will be difficult for investors to estimate the amount of money they are willing to pay to obtain assets.
It will likely take longer for investors to see returns on their investments and harder for smaller companies to obtain funding as it will be riskier for lenders to lend to small companies that may go out of business quickly. Only, companies that have a clear business plan and consumer market for their product will last in a post-COVID-19 economy.
In order to protect businesses, the panelists suggest that a “direct link to the consumer is essential.” Investing in food delivery directly to homes and offices is a key growth area, as people have adapted to working from home and establishing D2C (Direct to Consumer) delivery instead of producing for restaurants will be likely be prevailing trends even after COVID-19.
Move to Healthier Eating Habits
Another trend that may be seen, as was noted by the Co-Founder of ODDBOX during the webinar, is the move to more plant-based diets. As a result of the origins of this virus, which may have been originated from an animal, people could correlate animal farming with the flu. This may cause consumer demand to move away from animal products to more plant-based alternatives.
Additionally, according to the food and beverage company Kerry 80 percent of Chinese citizens have changed their consumption and shopping habits and started to explore more nutritious meals beyond canned or frozen foods and are spending more time in the kitchen cooking from scratch. This move to more healthy eating is not an entirely new concept but may gain greater traction with COVID-19.
Move to At-Home Meals
Another trend mentioned by the co-founder of ODDBOX during the webinar was the long-term impact on eating out. With COVID-10, people are cooking more at home. As a result, the supply may shift more towards local producers, whose focus was mainly on the grocery stores, rather than more exotic foods that are often ordered by restaurants. This may also find the support from the government to secure the production of the essential product within the county borders as a precaution to secure the supply chain in case of future pandemics.
If you have questions about any of the above topics or other items related to COVID-19, please contact the GHJ Food and Beverage Team to learn more about these trends and how we could assist your business during COVID-19.