Post-Pandemic Playbook

Full Whitepaper

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:

• Dine-in operations at 49 states suspended (South Dakota remains open but has limited group gatherings)
• 94% of operators reporting significant negative impact on sales/traffic
• Restaurant/bar revenue losses that total $20+ billion through the first quarter, based on Technomic projections

 

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:

• 80% drop in revenue per available room in hotels
• Convenience stores are mostly still open but have significantly curtailed prepared-food sales and limited dispensed/self-service beverage stations
• A number of major supermarket chains have temporarily closed their foodservice/prepared-foods sections
• Limitations/closures for nonessential businesses (impacting both blue- and white-collar employees) in all 50 states
• Mandated school and university closures in all 50 states, with an increasing number closing school doors for the remainder of the school year.

 

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.

• LaborIf, as seems likely, restaurants and hospitality will be one of the later industries to “open up,” the labor challenges (in terms of recruitment and training) that were seen before this crisis could potentially be worse as former employees find other opportunities. In addition, losing key staff to furloughs or layoffs will significantly hinder the ability for a quick startup for many restaurants.
• Decreased emphasis on customization/made to orderThis will be driven by labor challenges and the move toward low price among many consumers. It seems likely that operators will focus more on grab-and-go and pre-prepared items.
• Continued investment in off-premiseThis crisis has shown that having any off-premise strategy to diversify risk is a must. Expect more types of operators to invest in off-premise, whether it’s takeout or delivery. This may also mean more grab-and-go and packaged goods in segments that formerly would have avoided them.
• Acceleration of channel blurringThis crisis has shown that restaurants can function as grocers, and that full-service restaurants can offer more convenience options. Many independent operators are selling ingredients or kits as part of their offering; this may continue as an additional revenue source. The food industry will likely further blur the lines between retail and foodservice, and within foodservice more service options will be found across segments.
• Reduction (or removal) of self-serviceWhile the ultimate consumer mindset won’t be clear until this pandemic passes, it seems likely that many operators will reduce or remove self-service stations. This includes buffet-style service, self-service beverage, bakery cases, roller grills and even self-service ordering kiosks. While self-service may not disappear completely, changing methods and dispensing styles, as well as a renewed hyper-sensitivity to sanitization to ensure safety, will likely be necessary.
• Ghost kitchen accelerationToday, nearly every restaurant is a “ghost kitchen” that provides only off-premise product. As the industry resets, more companies may decide to eliminate the dining room altogether to capitalize on longer-term, off-premise trends.
• Procurement models shiftingEven as revenues have fallen, the profitability model has changed, particularly for many independent restaurants. Expect to see more usage of group purchasing as operators look to aggressively control cost.
• Renewed interest in single-use packagingThe trend over the past several years has been toward more sustainable options and banning/ reducing certain types of packaging. Technomic expects to see more focus on “safe” packaging (and overpackaging for off-premise orders). A focus on environmentally friendly packaging may be reduced in the short term to midterm as well, as cost becomes a primary driver for product selection.
• Streamlined/smaller menusAs operators streamlined menus during the pandemic, many will likely focus on those items that are revenue and profitability drivers post-crisis
• ConsolidationWhile this may manifest itself most clearly in the restaurant space, expect to see weaker competitors acquired by or lose out to stronger competitors. This can occur in the foodservice management space, and certain segments like recreation will see a different landscape as operators go out of business, merge or get acquired.  Also, expect a number of companies and players to just plain “go-out-of-business.”
 

To read the rest of this whitepaper, you can download it here.

Recent Press Releases

August 18, 2020
Technomic and Shortest Track collaborated on an enhancement to Technomic’s Ignite platform, offering market-level COVID-19 disruption indexes on a weekly cadence. Explore the top five most disrupted markets this week.
August 12, 2020
Technomic shares their forecasts that have been updated from a May 2020 release to incorporate a delay in expected recovery
July 30, 2020
Our hot-button predictions for food, flavor, operations and consumer attitudes in 2020 have pivoted as suppliers, operators, distributors and other foodservice folks have changed courses to navigate through the unexpected coronavirus. Here are our updated 2020 trends.