COVID-19’s Impact on the Food Industry

The Current COVID-19 Consumer Effects

As a food manufacturer, whether you distribute to grocery stores, food service establishments, or direct to consumer, you’re supplying based on your consumers demands. In a perfect world, you’d be able to predict your consumer’s demand but with a pandemic going on, the world is far from perfect and consumer demand hasn’t exactly been predictable. And, where demand can now be predicted, your supply chain has become less dependable.

Changes in Consumer Behavior/Demand

• With people making more meals at home, the demand for flour, bread, buns, rolls, and pasta has spiked as home baking has increased, consumers are making sandwiches as a daily meal, and consumers choose pasta for its extended shelf-life to stockpile as they stay at home.
• Products formulated to boost immunity are in high demand.
• Consumers are less concerned about taking sustainability issues into account when purchasing food and are more focused on safety and cost.
• Consumers continue shopping at grocery stores but are less brand-loyal as they shop with consumers now more willing to buy from different brands if their preferred is not available.
• Now that consumers’ initial stock-piling has decreased, their ability to pay is more limited due to unemployment on the rise and market uncertainty, which is having a greater impact on high-cost items and meat products that are more difficult to prepare.
• While bakeries have seen an increased demand for fresh items in the retail segment, because fresh bakery items have a shorter shelf life sales of baking ingredients, such as flour and yeast, have surged significantly.
• Initially, there has been a surge in demand for dairy products ranging from fresh milk to canned milk and from processed cheese to ice cream.
• Chicken wings have been challenged by the slowdown in sporting events and foodservice.
• Because about 85% of fresh fruit and 65% of fresh vegetables are normally consumed at home the surge in retail food demand is absorbing the smaller part of the chain that would have gone to foodservice.
• While sales of fresh fruits and vegetables have increased, less perishable products like potatoes and frozen fruits and vegetables have seen larger sales spikes.
• The largest spikes in demand for Specialty Food Association members have been for healthy snacks, gluten-free items, cereal, infused-mineral water, beverages that promote health and wellness, and frozen food.
• Datassential reported the week of April 7^th that foodservice sales were down 65% across all sectors due to the impact of COVID-19. But, focusing on the sectors most important to the seafood industry, which include midscale restaurants, casual dining, fine dining and institutional users outside of healthcare, the average loss of business was close to 80%.
• NCSolutions has defined five stages of consumer buying, related to the COVID-19 pandemic:
  • Pre-COVID-19 Buying (prior to February 24): “Business-as-usual” non-seasonal grocery and OTC buying prior to February 24.
  • Preparedness Buying (February 24 – March 10): As news about the novel coronavirus appears, there is a noticeable uptick in CPG purchasing at the end of February—a 2% increase in average household spending. Hand sanitizer and household cleaner purchases start to take off the last week of February, peaking on February 29, when toilet paper sales start to build.
  • Extreme Buying (March 11 – 21): March 11 becomes the inflection point as consumers spend heavily to stock their pantries: average household spend increased 35% compared to pre-COVID buying levels. During this stage, consumers clear out shelves and CPG retailers experience shortages of some items.
  • Home-Confined Buying (March 22 and onward): “Social distancing” mandates limited visits to stores and average household spend dips 9% the week of March 22 compared to Extreme Buying, but consumers continue to shop and buy at levels 23% higher than pre-COVID levels.
  • New Normal Buying: Yet to be seen in the U.S., the period after the pandemic, when “shelter-in-place” and other emergency measures are lifted and consumers feel more comfortable returning to physical stores.

The Supply Chain Effects

• Because pasta products have been rapidly depleting at the grocery level, manufacturers are concentrating on the execution of nearby logistics and focusing on increasing production and delivering products quickly and efficiently.
• With new spikes in demand, larger companies can run more shifts to meet demand but for manufacturers that rely on co-packers many are running into issues with not getting the quantities or SKUs they were hoping for from their co-packers as they tend to prioritize their work based on contract size or configuration.
• Then, once the products get to the stores, specialty food manufacturers are facing the added challenge of competition for shelf space as grocery stores are more focused on keeping the shelves full rather than on providing an assortment of products. Therefore, if a specialty product is arriving to grocery stores less often, it may have to wait to get shelf time and lose out on potential sales.
• Across the board, both big and small food manufacturers are facing the issue of plant shutdowns due to employees testing positive for the virus, diminishing production. No one is exempt from this risk as Tyson, Cargill, Maple Leaf, Smithfield Foods have all faced shutdowns, to name a few.
• Some food companies that supply to both food service and retail sectors are pivoting their production to focus more heavily on the retail portion of their demand as it has increased. For example, Campbell Soup announced that it would increase soup production and Tyson Foods has shifted operations at its processing plants to fill grocery supply needs instead of restaurants.
• Online grocery sales have increased.
• Meat companies are reducing specialty and further value-added processing in favor of low-cost commodity items to fulfill retail demand.

Future Predictions of COVID-19’s Effects on the  Food Industry

With new consumer demands, a major switch from foodservice focus to retail, supply chain disruptions and more, you’re likely asking yourself, “What’s next?” or “When will things go back to normal?” While no one can say with 100% certainty, here’s a roundup of the experts’ predictions of what’s to come for the food industry:

• According to analysts at Bernstein:
  • Coronavirus will boost makers of frozen and shelf-stable packaged foods in the short term. Meanwhile, companies that supply the foodservice/QSR channel may “face near-term headwinds in the event of a large-scale outbreak in the U.S.”
• According to a CBRE report:
  • The increase in online grocery shopping due to COVID-19 will result in increased demand for industrial cold storage space in the United States.
  • Public refrigerated warehouse companies will likely consolidate to gain more control of the cold storage footprint.
  • Restaurants may see a significant shift in dining formats with less dine-in options and more delivery or take-out that would require cold storage capacity.
  • Automation will increase, prompting higher-density, greater-height and smaller-footprint buildouts that will be required for around-the-clock operations.
• According to Food Logistics:
  • The dairy sector will face the logistical and economic challenges of excess milk and commodity dairy products. The surge in retail demand is forecast to subside and no longer offset declining foodservice and export demand. Even if adequate warehouse space is found, the sector will be challenged to finance the inventory without government assistance.
  • The increase in retail frozen potato sales will not be enough to offset lost foodservice sales, so hopes are pinned on a lower disruption in QSR restaurants through increased deliveries and takeout. For potato processors, frozen dependence on foodservice is expected to result in negative financial impacts in the short run. In the medium and long terms, the likely economic slowdown should be supportive of strong QSR sales of frozen potatoes, as consumers trade full-service restaurant visits for lower-cost alternatives.
• According to Alaska’s Department of Fish and Game:
  • Predicting a 36% drop from last year’s salmon landings of 207.9 million to 132.7 million salmon.
• According to Specialty Food Association President, Phil Kafarakis:
  • What may take the biggest hit are new product launches. With companies suddenly so focused on survival, innovation is probably taking a back seat. While some new products have likely been in development for months and still might be ready for a launch later this year on the company side, there may be unprecedented challenges with getting those products on shelves. Grocery buyers work months ahead of schedule, and the current consumer buying patterns and uncertainty may make them leery to commit to shelf space for a newly launched product. That could be the type of thing that could upend a company that was counting on sales at the end of the year to level out investments already made into ingredients and R&D.
• According to the USDA:
  • There will be a $19 billion relief package for the U.S. agriculture industry to help food producers who have experienced “unprecedented losses.” The financial support will include $16 billion in direct payments to farmers and ranchers: $9.6 billion to livestock, $3.9 to row crop producers, $2.1 billion to specialty crop producers and $500 million for other crops. Additionally, the USDA will purchase $3 billion in fresh produce, dairy and meat, which will then be distributed through the nation’s food banks. In conjunction with this program, the USDA said it will tap into other funding sources, including $873.3 million in Section 32 funding, which is available to purchase agricultural products for distribution to food banks and $600 million earmarked in the FFCRA and CARES Act for food purchases.

With so much uncertainty in the world and on the horizon for food manufacturers, we want to help the best way we know how: by providing you with software that understands your industry and will help you build the business you’ve always wanted. If you have the resources and are struggling with your current system(s), book a free NorthScope demo today to see how we can help you succeed.