Where to Go From Here? Impact of COVID-19 on the Food System
May 22, 2020
In previous blogs, we’ve considered:
- the initial impact of COVID-19 on the U.S. food supply chain
- how producers and packagers can stabilize the retail supply chain during COVID-19, and
- ongoing challenges to the global food supply chain
As the U.S. starts to reopen, where does the food system go from here?
Future of Plant-Based Meats
By now, all of us have heard about the devastating effects of COVID-19 on meat plant workers and federal inspectors. This situation impacts the consumer’s ability to purchase desired meat supplies, but in some cases, the industry offers alternative meat cuts (e.g. hanger steaks, shanks, etc.) not typically seen or purchased by consumers. Furthermore, plant-based meat analogues are reporting 200 percent growth in this quarter as consumers, especially Millennials and Gen Z, give these products a try. Conventional meat products also reported a 30 percent increase as consumers hoarded supplies, fearing meat shortages.
Can plant-based meats sustain this momentum after the pandemic? The consumer will seek healthy food alternatives post-pandemic, and if these products meet sensorial and nutritional criteria, they might continue to be more widely accepted. Wall Street is less optimistic as most major companies in this space strive to identify their ongoing strategies in both retail and food service. Obviously, the pandemic has not been kind to their food service business.
Appropriate pricing of these products may maintain consumers’ attention if the other criteria are met. Most major meat alternative companies’ pre-pandemic business models had the opportunity to achieve higher margins for their products, but if the economy enters a recession then plant-based meat suppliers will need to identify the pricing sweet spot to compete against conventional meat. To reduce their cost of goods sold, they will need to further secure raw material supply chains and improve processing efficiencies.
Strain On Food Manufacturing
Other food ingredient manufacturing areas are enduring challenges in certain geographies, especially in the areas of New York and New Jersey. These challenges will eventually trickle down to processed food manufacturers, who are running operations around the clock to meet consumer demand. Even if food ingredient plants do not currently have disruption due to the coronavirus, their plants will eventually be disrupted as supply chains are strained due to the consumers’ insistence on hoarding products. Manufacturing operations have run 24 hours a day, 7 days a week for months now, with many companies neglecting scheduled maintenance and shutdowns. Continuation of this pattern will eventually strain the food safety system.
New Behaviors Beget New Culture
Other signals and behaviors are currently being expressed that will become the new culture. For example, ecommerce shopping increased 74 percent in March. One major food manufacturer recently reacted to this trend by launching two new product lines only available online. Millennial and Gen Z consumers are the generations with the largest buying power, and during this pandemic, they’ve cut back on spending, stocked up on essential items and spent less on experiences.
Specific grocery sectors have surged and maintained momentum throughout the pandemic. All consumer age groups continued to purchase comfort foods the last few months. Frozen foods, which have slowly rebounded the past couple of years, once again interested consumers as they stocked their freezers, concerned about produce and meat availability during lockdown.
How can food companies maintain sales growth during rejuvenation? Interestingly, during the pandemic, online gaming sites are reporting a 97 percent increase in activity as people seek new ways to occupy their free time. How can food companies blatantly, and subliminally, entice gamers to purchase their products? What other channels can be used to announce and promote new products? Design thinking ideation sessions can help identify effective channels.
The Future of Brick-and-Mortar Shopping?
Will brick-and-mortar shopping come back as life evolves to our next “normalcy”? Many experts think it will not. Therefore, food entrepreneurs and established companies need to consider new ways to offer products and develop an unprecedented ecommerce strategy. During the pandemic, we’ve seen consumers shopping online, but they usually land on a site with limited options and leading products. Currently, it’s difficult for new products to secure consumer attention, and consumers are not comparison shopping by “click-throughs.” Additionally, more consumers are embracing subscriptions and convenience services.
Meal Delivery + Online Grocery Shopping Sustainable?
Meal kit companies observed 40 percent growth in the first quarter of 2020. Online grocery shopping increased a similar percentage. But is their momentum sustainable? Pre-pandemic, home meal delivery was declining, and online grocery shopping was only growing at a rate of 19 percent. Although convenient to shoppers, these services have not been a panacea, with some products only available online or some only available in store. This has limited exposure for new products.
As ecommerce recalibrates post-COVID-19, will this recent uptick in activity maintain itself, or will consumers return to comparison shopping and eating meals away from home? If ecommerce becomes a major segment of the normal, how can companies make certain their products—both new and established—get just exposure?
The BOPIS Movement
One positive trend for traditional brick-and-mortar retail grocery stores has been the buy online-pick-up-in-store (BOPIS) movement and delivery options, like Instacart. Wal-Mart and Target both reported double digit increases in BOPIS in the first weeks of the pandemic. Instacart orders increased 218 percent. This trend was in progress pre-COVID-19 as consumers prefer to spend a little more money for someone else to shop for them, thus saving time. With that said, grocery retailers should have seen signals prior to the pandemic that they needed to closely examine their strategies.
Why were consumers less than enthusiastic about shopping in-person in their stores? Convenience only goes part of the way to explain the draw of BOPIS, but deeper underlying reasons exist that need attention—not just from the retailer but also from the suppliers of products to the stores, especially food manufacturers.
The BOPIS trend is ripe for innovation. Online shoppers spend nearly as much time filling out order forms for BOPIS as they would actually shopping in-store. So how can website applications improve this process? How can big data be used to further influence a shopper’s buying patterns? Amazon and others have experimented with standing orders for goods repetitively purchased, but consumer acceptance of this concept has been slow.
Uncertainty of Restaurants
Most major food companies rely on the food service trade to move large volumes of their offerings, yet restaurants have been especially hard hit by COVID-19. Analysts suggest 80 percent of the restaurant industry will fail before the pandemic has run its course. Restaurants that tried remaining open for carry-out have struggled because even reduced menu offerings often required a full kitchen staff, and diminished alcohol sales meant the restaurants were at best going to break even. Food service raw material costs rose during this time, further cutting into the razor thin margins restaurateurs make.
Despite health officials’ clarifications regarding food being safe from coronavirus, more consumers opted to eat at home. When bars and restaurants reopen, they will still face challenges as social distancing recommendations remain in place, resulting in reduced patron capacity. Furthermore, increased ingredient costs and reduced diner numbers will threaten restaurants’ thin margins.
NCFIL is Ready to Help
The North Carolina Food Innovation Lab offers services to assist both start-up and established food companies move toward the future. A plant-based facility, we’re staffed with industry-experienced professionals familiar with developing deep knowledge in market sectors and design thinking to advance new business strategies and products. Our cGMP Pilot Plant offers companies interested in plant-based foods a venue to produce products that can be test marketed.
For more information, visit www.NCFoodInnovationLab.org.