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Food Business

How is COVID-19 changing the food industry?

In order to understand food system consolidation and resilience, we’ll be monitoring COVID-19’s impact on the structure and economics of the food industry, identifying where old business models are forced to expire and where innovation is shaping new alternatives. We’ll also be looking at where companies are prioritising food that is healthy and affordable, and where private sector solutions to food access problems are ensuring that vulnerable groups receive the food they need. In the long-term, will the changes we see in this sector hinder or accelerate progress towards a food system that is healthy and sustainable for human and planetary health?

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Weekly update w/c 07.09.2020: Restaurants benefit from August boost but the future remains uncertain for many, and Morrisons kicks-off the discounting war on household essentials

Official government figures report that 100 million meals were claimed during the Eat Out To Help Out scheme, with restaurant reservations up 216% on the August bank holiday compared to last year. The value being claimed now sits at £522 million, although this is expected to rise as more claims are processed. 

Despite the August boost, the hospitality sector still faces an uncertain future.  Pret A Manger has announced that nearly 3,000 jobs will be lost and expects to close 28 London sites as it restructures its business.  Targets for new revenue streams include expanded delivery services (opening its first “dark kitchen”), the launch of a “coffee subscription” service, and exploring food retail opportunities.

In the more traditional food retail sector, Morrisons have announced plans for mass discounting across 400 essentials, including fruit & vegetables, meat, bread, cornflakes, rice and pasta, as well as household cleaning products.  The supermarket has said that these discounts are to help families who have found themselves stretched due to the pandemic and that the promotions are “here to stay”.   

As reported previously, food retailers have generally seen sales increase during the lockdown, with the Association of Convenience Stores reporting that two thirds of convenience stores saw sales growth in that period.

YouGov poll finds support for extending Eat Out To Help Out scheme to prevent drop off in dining frequency

A YouGov survey has found that 59% of Brits would support a month-long extension of the Eat Out To Help Out scheme, with 46% having benefitted from the discount opportunity at least once (17% once, 10% twice, 19% at least three times).  Industry fears that the scheme will only provide a short-term temporary boost may be supported by the survey results, with 43% of those who have used the scheme saying they will eat out less or not at all when it ends.                               

First three weeks of Eat Out To Help Out scheme sees 64 million meals claimed

Data from OpenTable shows that 64 million meals were claimed (87,000 individual claims by restaurants) during the first three weeks of the restaurant discount scheme which ended on the August bank holiday.  The total number of meals claimed rose from 10.5 million in the first week to 35 and 64 million through the second and third weeks with (see our related post on a recent You Gov survey) nearly half of Brits reported using the scheme at least once.            

Tesco to create 16,000 jobs to meet demand for online delivery

In a signal that the supermarkets see the rise in online ordering and home delivery as a trend that is here to stay, Tesco are to create 16,000 new permanent roles, including 10,000 to pick customer orders and 3,000 delivery drivers, many from current temporary staff who joined during the pandemic.  The retailer saw proportionate online sales increase from 9% to 16% of total revenue, with online customer numbers growing from 600,000 to almost 1.5 million.  Online revenue is expected to reach £5.5 billion by the end of the year. 

A collaboration between caterers aims to support those made redundant during Covid-19

The Caterer reports that contract caterers have joined forces through an online platform to help hospitality workers to maintain their skills, career development and job prospects as the industry struggles to recover from the impacts of Covid-19.  The foodservice sector employs 300,000 people in the UK, with job losses predicted by some to be as high as 20%.  The initiative, Food Service Circle, is part of a wider collaborative effort by UKHospitality’s Foodservice Forum to help those in the industry adversely affected by the pandemic.  

M&S to cut 7000 jobs despite food sales holding firm

Retailer Marks & Spencer has announced plans to cut a further 7,000 jobs, in addition to the 950 announced last month, as the economic realities of Covid-19 bite deeper into the retail sector.  Whilst food sales have not been majorly impacted (down 1.1% in the 19 weeks to August but up 2.5% in the last 8 weeks), the retailer has not seen the same food sales growth experienced by competitors and the negative impacts on clothing and home goods sales have been more marked (down 49.1% and 29.9% in the corresponding timeframes). Overall sales fell by 19.2% in the 19 weeks to August.   

With consumer demand on the high street yet to fully recover and with the growth in online shopping, the company described the proposals as “an important step in becoming a leaner, faster business set up to serve changing customer needs and we are committed to supporting colleagues through this time.”

Eat Out To Help Out scheme sees 10.5 million claims in the first week

According to HMRC over 10.5 million claims for the Eat Out to Help Out scheme were made by restaurants during the first week of the scheme. The estimated average claim, which is capped at £10, was for £5, although data has not been made available regarding where the scheme has been most successful.  Over 80,000 restaurants have signed up to the scheme, including fast food giants such as McDonalds and KFC and many smaller independent restaurants, pubs and cafes. 

Analysis shows 22,000 job losses and nearly 1,500 closures in the hospitality sector so far during 2020

Data from the Centre for Retail Research (CRR) shows that to date the hospitality sector has seen over 22,000 job losses (nearly double those from all of 2019) and nearly 1,500 closures in 2020 (more than 50% higher than 2019).  With the furlough scheme due to finish at the end of October the future risk to jobs in this sector, which has been hit hard by the lockdown and social distancing measures, could worsen through 2020.

A big week for food policy and its implications for food businesses

It’s been a big week for food in the UK, with both the government’s announcement on tackling obesity, and now the National Food Strategy’s first recommendations being submitted to the government (although the National Food Strategy relates to England only).  Both arguably place affordable, accessible and healthy food at the centre of a response to Covid-19, with the National Food Strategy due to make wider food system recommendations that include environmental issues in early 2021.  Here are the areas is where the business sector might want to take note: 

 

Obesity strategy in response to Covid-19: 

  • The government’s obesity strategy aims to end advertising of food high in fat, salt and sugar (HFSS)  before the 9pm watershed on television and online. While parts of the advertising industry may squeal at some of this, the longerterm impacts will probably be felt within food manufacturers, retailers and restaurant chains who earn a high proportion of their revenues from these less unhealthy foods.  All the more reason for these companies to set clear targets on shifting their sales towards quantifiably healthy food.  You can see which of the UK-operating supermarkets, contract caterers and restaurant chains are doing this (or not) in our Plating Up Progress 2020 dashboard where the first metric we use in our company assessments is related  directly to this. 
  • There is also a plan to make calorie labelling mandatory on menus within the hospitality sector which, again, some in the industry are squealing at, but in short it is hoped that this will be a way of forcing companies to be transparent in their menus and reformulate.  Calorie counting is not the silver bullet, but broadly seen as a step in the right direction.  Again, see our dashboard for the companies we find to be already moving towards clear and intuitive nutritional labelling (note: it is no longer good enough to have an obscure web page hidden away with some undecipherable nutritional information).  You can compare the quick service chains, the contract caterers and the casual dining chains on our sector specific dashboards. 
  • A strong recommendation is made for restrictions on promotions for HFSS foods (including at pointofsale and buy-one-get-one-free).  Supermarkets without clear strategies, policies and targets to shift sales promotions away from unhealthy food are more likely to fall foul of this. 
  • Confusingly, the obesity strategy seems at odds with another food-related Covid response from the government, the Eat Out To Help Out scheme, which is essentially offering discounts on restaurant food and soft drinks irrespective of their nutritional value and calorie content.  Quick service restaurant chains have typically been quick themselves to register for the scheme and, again, our Plating Up Progress dashboard shows that very few of them are making healthy food a key strategic part of their menus, beyond tweaking some of the sugar and salt levels. 

National Food Strategy recommendations in response to Covid-19: 

  • The report recommends an increase in Free School Meals eligibility, which will probably impact contract caterers (when schools go back) although there are no obvious direct risks for the sector.  The biggest opportunity is for contract caterers to make the provision of healthy and sustainable food the bedrock of their service offering so they can show that all meals (including Free School Meals) are healthy.  See our sector specific analysis in our dashboard here. 
  • The report also recommends an increase in Healthy Start eligibility in supermarkets.  Two retailers (Coop and Waitrose) provisionally committing to ensure free fruit and vegetables are part of this, with other supermarkets and convenience stores reportedly keen to engage on this as well.  See which supermarkets already have targets for sales of fruit and vegetables here. 
  • While the National Food Strategy will be making recommendations that include environmental impacts in early 2021, it does make a recommendation that trade tariffs take into account food production standards (with animal welfare and deforestation used as examples).  Should this become a reality, UK-operating food companies heavily reliant on certain commodities or those with no real disclosure on where they source their food and how that food is produced, could be at greater risk of seeing supply and price issues impact their business models.  In our 2020 dashboard we specifically look at whether companies have data on how their food is being produced, how much comes from water scare regions, what deforestation risk they are exposed to, and their animal rights credentials.  All of these are issues are potentially relevant and could be impacted through future trade agreements  as recommended by the National Food Strategy. 

In short, food businesses with future-fit strategies, policies and targets should have little to fear and can embrace these changes.  Those planning on business as usual might need to take stock.