Trends and Insights
Coronavirus and the Food Industry: Trends and Insights
The COVID-19 pandemic has caused an unprecedented impact to nearly every industry -- including the food business. At Corbion, we are tracking these important issues so that we can better serve our clients. Looking at new research and realities in the market, here are the developments that we are seeing, the economic landscape that every food company is facing, and some perspectives on what may come next.
TRENDS WE SEE:
With so much change to sort through so quickly, it can be difficult to recognize key patterns worth paying attention to. Here are three we’ve identified:
Fuller Carts: Early in the crisis, the overwhelming majority of consumers said they were buying at least a couple of weeks’ worth of groceries on every trip, according to an IRI survey of primary grocery shoppers, conducted in mid-March. Only 24 percent were picking up just enough for a week. Half of all shoppers were stocking up with two weeks of supplies at a time, and another 27 percent were buying what they needed for three weeks or more.
A Surge in Center-Store Sales: With shoppers making bigger orders, they were spending more on non-perishables, according to IRI research. Center-store packaged items now account for a larger share of baskets. Frozen foods have shown gains, as have alcohol and tobacco. Private-label brands are doing well, as consumers buying large amounts are branching out from national brands. Home and beauty products spiked early in the crisis but sales have flattened since. Still, consumers are buying more non-food items than they did pre-pandemic. One area that’s struggling: the in-store bakery, according to an IRI multi-outlet survey. Customers are choosing commercial-aisle bread products, and bakeries are responding by offering pre-packed bagels, breads and donuts.
Online Grocery Delivery Boom: One clear change in shopper behavior: the new reliance on online grocery delivery services. Mid-March numbers show online grocery spending almost doubled -- up 91 percent compared to the same month last year, according to Nielsen. Had more capacity been available for the demand, consumers might have pushed this number even higher. As is, it’s more than twice the increase seen for in-store purchases.
THE ECONOMIC ENVIRONMENT
The economic disruption caused by the pandemic is no secret. When thinking about the repercussions, here are three important questions to consider:
How bad is it?
The level of joblessness caused by the pandemic is historic. In the last half century of record keeping, there had never been even a single week in which more than 695,000 Americans applied for initial unemployment benefits. But in late March and early April, that record was shattered with a stunning suddenness and an unprecedented volume of joblessness. For those four weeks, the U.S. averaged more than 5 million new unemployment claims each week.
Is it a recession? For economists, the accepted definition of a recession is when a country’s GDP declines for two straight quarters. It takes six months of data to confirm, so it’s too early for an official designation. But consumers don’t have the luxury to wait for those kinds of technicalities. For them, the definition of recession is far more immediate and personal. In fact, 56 percent of Americans say a recession is already here, according to an April survey conducted by The Economist/You Gov. And two-thirds of Americans are now expecting a recession. According to the Financial Times, many economists agree that a global recession is already occurring. When the data is released for the first two quarters of the year, they expect it to show a severe slowdown.
How long will it last? No one knows how long the tough times will linger. Most experts believe that the duration depends on public health factors involving the pandemic. When the health crisis eases, the economy can begin its comeback. There are also clues in history. America has survived multiple recessions in recent decades. No two are quite the same but there are some similarities and lessons in them all. In 1990-91, a recession caused primarily by the Savings & Loan crisis lasted 8 months. Ten years later, when the initial dot.com economy went from boom to bust, it helped trigger another 8-month recession. And of course, in 2008 and 2009, the subprime mortgage crisis caused the Great Recession, which lasted 18 months, with an unemployment rate as high as 10 percent. In each of these cases, the economy bounced back, employment picked up and America’s GDP did grow again – to peaks that were higher than what had been seen before the recessions.
WHAT COMES NEXT
During such a fast-moving and unpredictable crisis, it’s impossible to forecast exact outcomes or specifics. But we can learn from what’s come before. The Great Recession brought a variety of changes to the food business. Some of the effects were short-term. For instance, the health and wellness category took a hit, and away-from-home eating tanked temporarily. But in time, both categories rebounded well.
Other trends took hold with some staying power. E-commerce and value retailers flourished. Coupon redemption grew after years of steady declines. Private label and value brands became a viable choice for more consumers. Most importantly, coming out of the crisis, the U.S. embarked on the longest period of economic expansion in American history, lasting more than a decade.
The pandemic ended that streak, and brought its own economic impacts. Inside the store, the immediate fallout has included measures such as reduced operating hours, restrictions on the number of shoppers allowed inside at one time, floor decals to encourage social distancing and the elimination of self-serve offerings, such as salad bars. Some of these are likely to be short-term shifts. Other changes, though, may endure, especially if consumers show an ongoing preference for them. For instance, sneeze guards at checkout registers or more curbside pickup and delivery options could perhaps become standard features. Other potentially lasting transformations:
Stronger Supply Chain -- Since China experienced the pandemic first, it’s helpful to look there to understand possible business consequences and attitude shifts that may happen here. During the pandemic, many Chinese stores were hampered by insufficient stock in some categories and difficulties in logistics and distribution, as well as inadequate staffing for delivery and other key functions. Big box hypermarkets and supermarkets in China, bolstered by strong supply chains, performed well. Mini channels, convenience stores and smaller grocers and specialty stores experienced setbacks and slowing sales. A Nielsen survey of 10,000 Chinese retailers shows that, as the pandemic recedes, more than 40 percent plan to improve supply chains. At the same time, two-thirds plan to invest more in online channels. Leaders are eyeing a business strategy that underscores O2O and omni-channel integration. Mini-grocers and convenience stores are focusing on solving bottlenecks in the supply chain through digital means and by emphasizing fresh food from local providers.
Building Trust: Many Chinese retailers reported new efforts to strengthen corporate and brand marketing, with a focus on enhancing trust and empathy during the pandemic, according to a Nielsen survey of 75 food retailers in China. Another common response at the height of the crisis: many retailers exhibited a new level of care and concern for the wellbeing of employees.
Rise of Private-Label Brands: Coming out of the pandemic, retailers in China are focused on new opportunities to serve their consumers, according to the Nielsen survey. For instance, big box stores and supermarkets are expanding private brands and building self-capacity. The pandemic heightened the importance of brands with local credentials, as consumers search for a transparent supply chain and products that they can trust.
When the crisis subsides, the U.S. market is likely to respond in some similar ways. When Americans return to daily routines, one trend that will likely remain is the growing presence of online ordering and delivery. In addition, many observers expect to see more overall consumer caution, as well as a focus on health issues, price and cleanliness.
Other issues remain unresolved. Will there be a lasting trend away from eating out? Or a restaurant comeback? Will consumers return to old weekly shopping routines? If so, when? No one knows these answers for sure. What we do know is that it eventually the crisis will pass and a new normal will emerge. By tracking and understanding the questions and issues to consider, we all can be better positioned to shape that future.
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