In many parts of the country, the foodservice industry is closing in on the one-month mark of being essentially closed down. As the COVID-19 pandemic continues, the damage to the industry is becoming increasingly clear. As of April 10, the damage to restaurants is as follows:
Importantly, while much of the attention has been focused on restaurants, most other foodservice industry segments have been severely impacted as well. A small sampling of that data includes the following:
While acknowledging the clear and ongoing damage to the industry, it’s important to begin thinking about how the industry ultimately opens up and what a post-pandemic playbook looks like. What does the restaurant industry look like when this is over? How will other foodservice segments evolve? What does the industry need to do to prepare for this new reality, however and whenever it appears?
The goal of this whitepaper is to evaluate those potential changes and help foodservice operators, distributors, suppliers and others serving the industry to begin developing strategies around the longer-term ramifications of the COVID-19 pandemic. As always, Technomic will continue to update our thinking on the outlook for this industry as the situation evolves.
Economic Contraction Through the End of the Year
The foodservice industry has largely expanded as the U.S. economy grew. Factors such as rates of employment and income growth all help support higher away-from-home spending. However, with the rapid collapse of the U.S. economy, it’s clear that a recession has become likely. As of April 10, Blue Chip Economists forecasts declining economic growth through the first quarter of 2021:
A Significantly Smaller Industry in 2020
Technomic continues to model growth on a segment by segment basis. Our current industry forecasts have been revised and consider all current industry reporting and research; recent announcements from restaurants, distributors and other entities; and government and economic forecasts for the remainder of 2020 (as noted above).
Given that many unknowns remain relative to the ultimate path to reopening the industry, we have once again conducted our analysis using three different scenarios.
SCENARIO 1: BEST CASE OUTLOOK
Most shelter-in-place orders across the country stay in effect until mid-Q2 2020, with a rolling regional economic reopening thereafter. We assume a recession in the second half of 2020, as forecasted by Blue Chip; short-term foodservice resurgence due to pent-up demand; and a return to more regular economic activity. It also assumes some localized reactivation of shelter-in-place orders as some limited virus resurgence returns.
SCENARIO 2: MIDDLE CASE OUTLOOK
This scenario is a midpoint between our optimistic and pessimistic estimates. While we don’t refer to this as our “most likely” scenario, it blends the assumptions of our most optimistic and most pessimistic estimates.
Scenario 3: WORST Case Outlook
This assumes that most shelter-in-place orders exist through the end of the second quarter of 2020. Recessionary impacts will cause continued weakness in consumer spending. More widespread virus resurgence requires regional shelter-in-place mandates throughout the year. Large-scale events and gatherings (e.g., sporting events, concerts, etc.) will be mostly be suspended.
Taking into consideration all of these factors, Technomic’s outlook for restaurants and bars, as well as the total foodservice industry, is shown below. As Technomic has gathered more data and observed how the past four to six weeks have unfolded, our range of estimates has narrowed slightly compared to our first forecast issued on March 20.
Please note that Technomic’s forecasted Best Case Outlook results in a $169 billion smaller industry than 2019; this could go as high as $234 billion in lost consumer spending under the Worst Case Scenario.
Macro Issues to Watch
Coming out of this pandemic, there are certain trends/issues that will accelerate in the short term and may have longer lasting impact on the industry over the course of the next several years. With the broader outlook still unclear, including the speed with which the industry returns and changing consumer sentiments toward restaurant and foodservice usage, these issues have been identified as potential disruptions that should be included in any company’s strategic analysis of potential responses to the pandemic. These macrotrends will generally be true across most foodservice sectors and will have impact on not only operators but also will reverberate through the supply chain.