The word that best describes the current foodscape is chaotic. The stay home orders caused by the coronavirus pandemic has locked down over 2/3 of the population and closed a similar number of restaurants and foodservice operations. Before the pandemic about 40% of all food was consumed on site in restaurants. Most of this 40% is now, almost overnight, being reallocated to grocery, home delivery, and increased restaurant take out from those remaining open.
So, on one hand the restaurant and hospitality industry are suffering job losses in the millions, while grocery brands and their manufacturers have seen 50% + surges in demand. They have had to increase production while keeping their workforce healthy, in a poorly defined, regulatory environment.
There has been a constant drumbeat of daily stories on the coronavirus. People in the food industry are almost exclusively focused on day-to-day operations, with demand changing constantly. I thought it may be helpful at this time, to speculate on the longer-range effect of the coronavirus on the food industry. This can help all of us to begin to think about the next growth strategy for our firms and investments.
The following are some longer-term trends based on my own observations and articles I have read recently.
- E-commerce food sales have increased about 5-fold to 25% of total grocery sales. This number will not go all the way back to 5% but should fall to 15% to 20% post COVID-19. Older customers who were not comfortable with e-commerce were forced to learn, and are becoming increasingly reliant on it.
- The biggest data players in the market; Amazon, Wal-Mart and Instacart, will become more dominant as the shoppers increase and the amount of data these players gather increases. Their knowledge of shopping behavior will give them a much larger competitive advantage than ever.
- Food retailers that do not have access to that level of data will have to shift their point of difference to store experience, to the individual shopper. The competitive battle will be between analytics versus positive emotions. Any retailer that is not good at either may find themselves acquired, or out of business.
- Specialty, and better-for-you food will continue to grow as the underlying trends are very strong. However, you will see a shift to “frugal-better-for-you” retailers such as Sprouts, Trader Joe’s and even Aldi, as consumers will be more stretched financially than before the pandemic.
- Status food and beverages such as wine, gourmet brands, and unique restaurants should have solid sales trends. People are status seekers in general, when financially strapped they cannot afford new houses or fancy cars, but food and beverage is an affordable way to differentiate yourself from the crowd.
- Independent restaurants will take the biggest hit from the pandemic. Some estimates are as much as 30% of restaurants will never reopen. Many are owned by families where the younger generation has moved on to other occupations and the founders are near retirement. These restaurants will not survive.
- Food supply chains will diversify and become much more local. Having a significant reliance of ingredients and packaging from China and other far-away countries will be reconsidered. Most food consumed in the US can be easily supplied by Canada, the US. and Mexico.
- Food security and future pandemic response planning will significantly affect food safety regulations for a number of years to come.
Whenever there is a massive short-term change, new opportunities quickly emerge as the new normal becomes clearer. Those of us struggling with managing the day to day in this environment may be well served by beginning to think about what is next, and how you can adjust, and perhaps thrive under the new normal.
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