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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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IGD Weekly update reiterates sales growth slowing down in April and retailer concerns over operating costs, while Morrisons innovates to help suppliers

Here is the end of April update from IGD:

  • As already mentioned, grocery sales in April were up 5.5% on 2019, lower than March’s 20.6% growth.
  • Again, as we highlighted last week ourselves, Sainsburys are looking at a £500 million increase in operating costs due to Covid-19, but expects these to be partially offset by reduced business rates.
  • Tesco has seen fewer but much bigger shopping trips, as customers optimise their shopping habits.
  • So far Sainsbury’s Comic Relief and Children In Need appeal has raised £1.5 million, with the retailer promising to match the final total
  • Morrisons has opened discounted meat and fish counters to help suppliers to sell food that would normally be sold to the restaurant sector.

Deliveroo to make over 300 roles redundant

Deliveroo plans to make over 300 redundancies (15% of its global head count), primarily in head office roles. The company cites negative impacts of the economic downturn from Covid-19, meaning some roles will be reconsidered and others furloughed. Whilst the delivery company has recently partnered with retailers such as Morrisons, and would appear primed to benefit from delivery-only re-openings from major restaurant chains, the sector-wide closure of restaurants in key operating countries has led to a “significant decline in revenues”.

Greggs U-turn on reopening sites, preferring to open “behind closed doors” to test processes

More signs of the high street and quick service food sector coming out of hibernation. Having previously announced the planned reopening of 20 sites for delivery only, Greggs has now decided these will be “behind closed door” tests for their operational procedures rather than for sales to customers. Driven by concerns that high demand might compromise safety before procedures have been tested, the sites could be open to customers shortly afterwards. The tests are part of a wider ambition to reopen up to 700 sites by early June, and all stores by the beginning of July when the government’s job retention scheme is due to end.

Sainsbury’s sees food sales drive overall sales growth by 8%, despite increased operating costs with 15% of staff off sick. Impacts of coronavirus expected to last until at least September.

Sainsbury’s has seen an 8% growth in overall sales, due to a 12% increase in grocery sales. Sales in clothing and general goods, however, have fallen. Increased operating costs due to staff sickness and introducing safety measures could account for £500 million in profit, although this would be partially offset by business rate savings from the government business aid scheme. The lockdown has changed the way customers shop, according to CEO Mike Coupe, with the retailer increasing its home delivery and click & collect slots by 50%. The impacts of coronavirus are expected to last into September. In line with comments made by Tesco CEO, Dave Lewis, Coupe says the fact that supermarket shelves are now back to resembling normality reflects the resilience in retail operations after unprecedented demand in March.

 

Analysis of US GDP data shows how customers’ food buying habits have changed.

Bloomberg analyst Michael McDonough tweets two handy graphs, one showing the US GDP contribution of food and beverage purchases for off-premise consumption vs foodservice and accommodation. In short, US citizens are eating at home. As reported earlier (see 24.04) ONS data for the UK shows a significant retail swing to online food retail sales and, with UK restaurants that are open using delivery services such as Deliveroo & Just Eat, a similar pattern could be expected in the UK.

YUM Brands (owner of KFC) report 68% fall in quarterly profit, with 7,000 restaurants closed globally

More negative financial news from the restaurant sector. YUM Brands report 68.3% fall in quarterly profit, amid mass closures of restaurants across its global operations. As reported earlier, in the UK KFC are piloting how they might reopen for delivery only and in a very limited number of stores.

IGD reports grocery sales growth slowing in April, strong growth in convenience retailers such as Co-op, and warnings of financial impact from M&S

The latest market update from IGD shows that grocery sales growth has slowed (from 20.6% in March to 5.5% in April (according to Kantar). Convenience stores such as Co-op have seen strong growth, with total revenue up 7% and underlying profits up 50% like-for-like. Co-op is also responding to COVID-19 in a number of ways, including:

  • New Co-op Members’ Fund established to support Foodbanks, address funeral poverty and help local causes
  • £1.5m of food delivered to FareShare
  • Vouchers given in lieu of free school meals to Co-op Academy pupils
  • Online resource ‘Co-operate’ launched to direct those in need to local and national support initiatives

Conversely, Marks & Spencer has warned of poor financial results due to the crisis, with non-food operations closed, the closure of its cafes, and reduced footfall overall.

We’ll be assessing the financial impacts across different food businesses in our forthcoming analysis.

McDonalds to “test” reopening stores, while more high street chains open for delivery only

The fast food sector continues to take tentative steps towards reopening, with McDonalds planning to open a branch in the coming week, but only for operational testing (not for sale to customers).  The company says this is to assess processes for ensuring the safety of customers and staff, but also testing its supply chain. Casual dining chains are also beginning to come out of hibernation – both Nando’s and Wagamama are opening a small number of restaurants for delivery only via Deliveroo.