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?

Return to our homepage to view the COVID-19 Tracker in full.

Marks & Spencer given “junk” status by credit ratings agency S&P

As we identified at the end of April, Marks & Spencer has so far been the food retailer to be worst hit by coronavirus. On Friday, credit ratings agency S&P downgraded the retailer’s investment grade status to a “junk” investment rating. This is significant for the retailer because it signals to investors that lending to M&S, through for example corporate bonds, should now be considered a speculative investment.  “Junk” status normally increases the cost of borrowing for companies, potentially impacting economic recovery if the lockdown is gradually lifted.

The retailer has been hit harder than others partly due to its reliance on non-food sales such as clothing and home goods.  As shown in the Food Foundation’s share price analysis, other retailers have seen some recovery in share prices with Ocado in particular enjoying significant growth. The restaurant sector has seen a similar downward trajectory as Marks & Spencer’s. See here for our share price tracker.

Pizza Express becomes the latest restaurant chain to reopen a limited number of sites

Pizza Express is the latest restaurant chain to test the waters for reopening, with 15 locations targeted to run delivery-only services in London.  They join a growing list of chains slowly opening their doors, both in residential areas and around transport links, with Moto service stations beginning to open some well-known brands.  As reported previously, fast food giants such as McDonalds, Burger King, KFC and Subway have already announced well-established plans for scaling up their emergence from lockdown over the next few months.

Compass sells 195 million new shares to raise £2 billion in attempt to ward off debt during Covid-19

Compass Group, one of the world’s leading foodservice and catering companies, has raised £2 billion by selling nearly 200 million new shares at a discounted rate. Having closed around half of its business since the lockdown, and with sales in April down 46%, the move aims to reduce the company’s debt and provide resilience for the next 12 to 18 months. Group CEO Dominic Blakemore told Reuters that the potential loss of customers means Compass Group “may be a slightly smaller business, our job is to ensure that we’ve got a profitable smaller business.”  Our share tracker confirms that all UK operating foodservice companies and casual dining chains are seeing around 50% loss in share price in 2020, with most retailers and some fast food chains recovering better than others from price lows in the second half of March.

Asda sees sales boost from lockdown but owner cautions that benefits do not necessarily mean an increase in profits

Asda, owned by global retail giant Walmart, reported a 3.5% sales increase in the first quarter of 2020 vs 2019 (excluding fuel), although Walmart notes that this may not translate into higher profits mainly due to “a change in mix towards lower-margin categories in response to Covid-19”.  Asda also saw reduced demand for its clothing range.

Aldi looks to expand its delivery offering with single-site Deliveroo partnership

Aldi, who prior to Covid-19 did not offer any home delivery services, is seeking to grow its capacity by trialling a single-site offering with Deliveroo. A range of 150 essentials will be available through Deliveroo’s app, to be delivered to local residents within 30 minutes. This comes hot on the heels of Aldi’s recently-launched food box service, which includes items such as tea and pasta, and is targeted towards  those self-isolating. The retailer says, “The new on-demand service has been introduced to offer customers greater flexibility and access to affordable Aldi groceries, and to support people across the country who are self-isolating due to Covid-19.”

Fast food chains set out plans for reopening more restaurants into the summer 

Fast food restaurant chains have announced plans to significantly expand their reopening schedule.  McDonalds plans to open all of its drive-through restaurants by early June, while Burger King UK is aiming to have 350 restaurants (three-quarters of its business) open for delivery or drive-through by the end of June. This comes after media reports of long queues outside newly-opened sites for takeaway orders as major fast food chains scale up their operations

UK takeaway food waste rises during coronavirus lockdown 

Research from the Sustainable Restaurant Association and the Just Eat app compares food waste before and during the lockdown, finding that unpredictable demand levels have contributed to increased food waste in restaurants providing takeaway services. The report estimates that the increase in food waste has come at a cost to the sector of £16.7m during the lockdown. Conversely, relative household waste from takeaways appears to have decreased. 

The first quarter of 2020 sees the economy shrink at its fastest rate since the financial crisis of 2008

Data from the Office for National Statistics (ONS) shows that the economy shrank by 2% in the first three months of 2020 – the fastest rate since the financial crisis a decade ago.  With the national lockdown beginning in the last two weeks of this period (with lockdown measures brought in on March 23rd) financial experts have pointed out how quickly the economy went into free fall with the expectation that  figures from April will be considerably worse.

UK Chancellor extends furlough scheme until the end of October

With the latest government advice encouraging some sectors to return to work, but signalling that restaurants and pubs will not reopen before July or later, the Chancellor has announced an extension of the furlough scheme until the end of October.  The government’s contribution to salary costs will remain at 80%, with employers expected to pay the rest.  More flexibility is expected to be announced at the end of July to allow a phased transition back to work later in the year.