Some sectors of the food and beverage industry have experienced rapid surges or declines in demand due to the coronavirus pandemic. Grocery stores have seen heightened demand, creating pressure to meet the growing needs of consumers confined to their homes. Food and beverage distributors have faced a different reality, with their customers — such as restaurants, hotels and cruise lines — sharply reducing their demands for goods. In California, recent research by the California Institute for Rural Studies showed 100,000 agricultural jobs were lost by June — a 23 percent drop in total farm employment — due to lower demand from restaurants, schools, colleges, hotels and sports arenas. Each shift has created its own challenges and opportunities.
Here, we share insights and look at how food and beverage businesses are responding.
New challenges for food and beverage companies
Grocery stores: Grocery stores have faced unique challenges due to the pandemic, including keeping workers and shoppers safe from a virus as recommendations have evolved. To keep stores clean and safe, managers have increased their use of disinfectants, changed the physical layouts of their stores, increased signage, created and enforced policies around wearing masks and limited the number of people allowed in their stores.
Additionally, grocery stores have adapted to a growing demand for online order fulfillment, as more consumers opt to stay home and have food delivered. This has created new challenges, as some grocers have tried partnering with third party delivery services that have been enmeshed in labor disputes and sometimes unable to make timely deliveries. Some grocers have explored hiring their own shoppers and deliverers, but these services add costs to already slim margins and create new business processes to be managed.
Distributors: Distributors have had a different experience during the pandemic, undergoing a sharp decline in demand for goods as hotels, restaurants and other large-scale venues closed. While some restaurants, notably "big chain” restaurants, are seeing a return to prior-year customer spending, smaller restaurants have seen a 25 percent decline.
Some distributors have evolved their business models to supply retail grocers, but doing so necessitates establishing new processes and changing product packaging to be suitable to individual consumers. Also, like restaurant owners, distributors have had to ride the wave of restaurants closing, then opening partially, then opening fully, then closing partially—a pattern that may continue until indefinitely.
According to a recent survey by BofA Global Research, in June 32 percent of respondents did not expect to feel comfortable dining out until sometime in 2021 vs. only 20 percent in April.
Greater needs for safety and efficiency
Now is a time for food and beverage companies to closely examine revenue figures for specific products and product lines to see where the shortages are and what adjustments may be needed. Perhaps the most essential mindset for food and beverage businesses is to look to the future and aim for flexibility. There are several steps these companies can take to protect their businesses in the near- and long-term, including:
- Exploring key technologies that can automate food processing and packing or improve online processes for shopping, delivery, and curbside pickup.
- Shifting product lines to meet new demand. For example, many distilleries and breweries have started to make hand sanitizer in partnership with local grocers.
- Utilizing excess cash to make investments that protect future profitability, like taking advantage of lower fuel prices to move inventory now.
- Retailers should pay special attention to their expenses. Profits are under pressure as stores alter their spaces and practices for safer shopping and working, incurring unforeseen costs.
The future is uncertain, as the pandemic eases in some regions and surges in others. We are likely to see patterns shift again, with consumers in some areas returning to restaurants and buying fewer groceries. Remaining flexible and adaptive will help grocers and distributors continue to perform despite these waves of disruption.
Mark Riley is the business banking market executive for the Central Valley for Bank of America.