Coronavirus Update: Food & Beverage Industry
- An increasing number of bars and nightclubs are closing completely or restricting services and/or hours of operation either voluntarily or by government order as the number of coronavirus infections increases.
- Beer distributors are bracing for a downturn as state and local officials mandate the closure of restaurants, bars, and nightclubs due to the coronavirus outbreak. The increasing number of event cancellations is also expected to negatively impact sales. Beer sales to consumers who are practicing “social distancing” at home rise, according to the National Beer Wholesalers Association. Distributors with drive-thru sales services may be well positioned to benefit from the outbreak.Many larger breweries are temporarily closing taprooms to comply with local restrictions on large gatherings. Those that remain open have implemented operational changes, such as disposable menus or chalkboards, replacing glassware with recyclable plastic cups, and asking diners to bus their own tables.
- Caterers that benefit from expense-account dollars are taking a major hit as coronavirus fears force cancellations of public events around the country. As the CDC recommends smaller and smaller gatherings of people, cancellations of corporate public events, conferences, weddings, parties, and other large events are greatly impacting the catering industry. Some catering delivery platforms have seen an uptick in individual packaged items. Caterers may take the opportunity to make individually packaged ready-to-eat meals that customers can take home and reheat.
- Coffee giant Starbucks said on March 15, 2020, that it is moving to a to-go model for all its stores in the U.S. and Canada for at least two weeks to minimize exposure risk for customers and employees. The company will also temporary close stores in what it calls “high social-gathering locations,” such as malls and university campuses, and it will close stores or reduce hours in areas where there are clusters of coronavirus cases.
- Dairy product manufacturers may benefit from declining input prices. A combination of reduced Chinese imports, significant supply chain disruptions — including extreme competition for shipping containers across the globe — and rising dairy surpluses in export regions will keep downward pressure on global dairy markets through much of 2020.
- Consumers stocking up on products have left retailers’ shelves empty and in need of restocking, while restrictions at or enforced closures of restaurants, bars, and schools has resulted in surpluses and reduced demand at those locations. Industry experts say that the imbalances are caused primarily by a distribution system tuned to supply consumers with just enough of what they need on a given day. This system cannot keep up with a nationwide surge of relentless shopping fueled in large part by fear. The most pressing issue is getting more food on the shelves while the supply chain is largely unaffected by illness.
- Food service contractor demand is being heavily impacted as schools and universities close, sporting and industry events are cancelled, cruise ship travel is stopped, dine-in restaurants shutter, and international airline travel faces bans.
- Grocery stores are taking measures to enhance sanitation and maintain adequate inventory as the coronavirus outbreak spreads across the U.S. Many are reducing hours of operation to limit panic buying and to provide employees with opportunities to clean and restock shelves.
- Food trucks have experienced a sharp drop in demand as major corporations send their employees home from office buildings and organizers of large events cancel them to reduce the potential spread of coronavirus.
- States have temporarily closed restaurants in an effort to slow the spread of coronavirus.
- Snack food manufacturers providing snacks for home consumption may see increased demand from consumers sheltering in place, while firms providing snacks for consumption at events and venues expect a sharp drop in demand. Manufacturers are also struggling to maintain production amid supply chain disruptions from foreign sources and the need to protect workers from infections.
There are always some winners in any disaster. In the current environment, Big Food – with its processed, frozen, paper and sanitizing products – is the front-runner. Delivery companies are also in the mix. Ghost kitchens are robust. Grocery retailers have seen a tremendous spike in demand.
But restaurants, catering facilities, bars, hospitality, and companies who service schools, universities and other institutions are being crushed. So are the suppliers to these companies and the manufacturers of products sold to these companies.
Steps You Can Take:
Companies that waited in the 2008 financial crisis never recovered. Don’t wait to lay off staff, contact vendors and inform them that payments may be slower, talk to your financial institution and ask for forbearance on covenants and current payments, speak to landlords about delaying rent payments, freeze all non-essential expenses, cut executive compensation, discontinue all travel and meetings and use the internet instead. Waiting to decide which course of action to take or a slow reduction of expenses can be fatal.
Your people are your most important asset. You must communicate – honestly – to keep them. I read that a restaurant chain terminated 80% of its staff in a “very difficult decision.” They agreed to continue to pay medical insurance coverage for a month or two, but how does that help feed the employees’ families? When will they return to work? Will they even have jobs? Transparent, honest communication with employees is critical so they understand your plans and what you can and can’t control. Keeping them informed of reopening plans and current status keeps the juices flowing and keeps them connected to your company.
Explore All Assistance Options
Look into federal low interest loans through the SBA, industry grants and other assistance (the National Restaurant Association has asked for $225 billion of assistance with projected job losses of up to 7 million). Ask your financial institution about programs they are offering during the crisis. Lean on your advisors, your accountants, attorneys and insurance professionals. Seek advice from your trade associations.
Speak to your tax advisors about disaster tax relief, including deferral of tax payments, tax-free reimbursements and payments to employees, special tax credits, and recouping some of the taxes you’ve already paid. Too many companies do not pursue the many wonderful tax benefits and credits currently available such as the Research and Development tax credit, work opportunity credits, tip credits, charitable contributions of food and beverage inventories, accelerating depreciation on owned facilities with cost segregation studies and many others. These are available in good times and bad.
Stay in Touch with Your Customers
Don’t forget about the life-blood of your organization. One restaurant chain is reaching out to prior customers and informing them of their take-out and limited dining-in options. Others are suggesting gift cards and enhanced loyalty programs. Let them know your plans. Offer them incentives.
Hate to Say It
When terminating staff, now may be the time to not bring back those who don’t perform well and don’t fit your business model. Maybe now is the time to evaluate expenses that are extraneous. Maybe now is the time to better plan your processes and goals for the future.
The FDA has suspended certain regulations. Some importer rules are being waived. Tariffs may be suspended. Stay close to your industry associations for new information and visit government websites.
The New Normal
That term originated in the 2008 financial crisis. Things were never the same again. I question what the long-term impacts of the current crisis will be for business. Will working remotely become the norm? Will reduced staff levels work? Will the way we order food and beverage and the way it’s delivered be a permanent change? Will processed and other foods prosper? Will organic even matter when people just want whatever they can get?
We will get through this as we have other disasters, but it will take its toll. In business and in life, only the strong survive. So stay strong!
Coronavirus Resource Center
Have more questions about the impact of the coronavirus on your business? Visit Marcum’s Coronavirus Resource Center for up-to-date information.
*Some industry content was sourced, in part, by Vertical IQ, a third-party content platform.