Q1 has proven to be a tumultuous time for the food and beverage industry, with over $25 billion in lost sales and the loss of approximately 3 million jobs in the first three weeks of March alone. Restaurant Business reports that, by the end of April, up to 11% of restaurants (about 140,000) could permanently close. About 40% of restaurants have decided to close temporarily, while others are scrambling to accommodate a completely new off-premise model with curbside pick-up and delivery.
Despite these challenges, some sectors of the food and beverage industry are seeing greatly increased demand. While restaurants, bars and eateries struggle to survive, grocery and alcohol sales are enjoying unprecedented gains. Whether withstanding severe downturns or rapidly scaling up services, the one thing all sectors of the food and beverage industry share at this moment is a need to adapt very quickly to a fluid situation. And, while the long-term impacts of COVID-19 are unknown, one thing is certain: the food and beverage industry is notoriously resilient.
Restaurants & Bars Struggle to Hold on Amid Uncertainty
Changing eating patterns have directly impacted restaurant sales during the nationwide, stay-at-home mandates. With the onset of school closures and many Americans working remotely, consumers are no longer participating in their traditional breakfast and lunch routines. Dine-in options have disappeared while drive-thru and pickup and delivery services have expanded. As McDonald’s stated in a March 17 filing with the Securities and Exchange Commission, “At this time, neither the duration nor scope of the disruption can be predicted.”
To counter the disruptions, restaurants are continuing to adapt to the “new norm” in innovative ways. Some are offering new menu items like family packs and meal kits, helping restaurants manage any excess food in their inventory. Restaurants are switching to curbside pickup and delivery, and new options have opened as numerous states have lifted alcohol restrictions allowing for off-premise alcohol sales with purchase of food. And industry experts predict some of the allowances offered during this time will remain in place post-COVID-19 shutdowns.
Clearly not all establishments will be able to pivot in response to the crisis. Some restaurants are simply not prepared to change their entire business model to support off-premise sales. From an operating perspective, an off-premise model often requires online ordering capabilities, a healthy front-of-house staff and additional inventory (like food-safe containers). Third party vendors, like UberEats and DoorDash, charge up to 30% per order making the sale less profitable.
Concepts hit hardest during this time include buffets and bars, which are simply not capable of these shifts in function. Unlike restaurants, bars have less flexibility with menu offerings (if they have food at all), and many have resorted to creating GoFundMe pages (approximately 30,000 created since March) or are relying on websites like serviceindustry.tips to support their staff during this time of crisis.
Other restaurants are adapting relatively well to a solely off-premise model. Starbucks, Chick-fil-A and Taco Bell have all closed their dining rooms and are relying on mobile order options and drive-thrus to continue business. How well any of these strategies succeed in the new, stay-at-home realty remains to be seen.
Alcohol Sales: A Bright Spot
In what can look like a dark landscape of closings and layoffs across the food and beverage industry, point-of-sale and online alcohol purchasing is a bright spot. According to Nielsen, alcohol sales have increased 55% during the third week of March. Tequila, gin and pre-mixed cocktails were up 75% compared to the same period last year, while wine was up 66% and beer sales rose 42%. This trend is expected to continue as consumers are asked to stay home through the end of April and beyond.
Not surprisingly, specifically online alcohol sales have skyrocketed as consumers are staying home. Apps like Drizly have made it easier than ever to order alcohol online. According to Food Dive, “Online sales were up 243% the week ending March 21 compared to the same period a year ago. Wine continues to dominate online sales, making up 71% of the total beverage alcohol sales online.”
CPG & Grocery Sales Also Show Growth
With a significant number of consumers choosing to eat at home, the consumer packaged goods (CPG) segment is currently more stable than foodservice. In fact, Nielsen reports that in the two weeks ending March 21, total U.S. CPG sales, both in-store and online, increased $8.5 billion over the two weeks prior. That’s 15 times the average rate of change for a typical two-week period!
Overall, grocery store sales have increased anywhere from 30-60%, with some states up more than 100% the week of March 23. Research company IRI is reporting meat sales have been the largest driver of grocery sales, increasing by 91% year-over-year for the week of March 16. Eater reports that Instacart downloads increased by 215% from mid-February to mid-March, driving home the fact that consumers have reservations about in-person shopping, as well as dining out.
The big jump in demand hasn’t come without drawbacks and challenges. Staffing and supply chain challenges have arisen. Retailers like Kroger are adding a sum of 23,000 jobs to support the consumer influx. The difficulties keeping some items (like toilet paper) in stock on store shelves have made headlines across the nation, and the volatility of the panic buying environment shows in the unpredictable numbers.
Nielson shows in-store week-over-week growth of consumable products increased by 21%, even as sales of non-consumable products decreased. A large segment of consumption is switching to online sales. In the two weeks before March 21, 35% more people had shopped online for CPG items compared to a typical week. And in the online market it’s non-consumable sales that have increased dramatically versus consumables.
Moving Forward: Changes Being Made
With so many unknowns, there are a few key lessons emerging for the food and beverage industry. For the foreseeable future, consumer behavior, workforce and supply chain issues, and pretty much all other variables are going to be in constant flux. Innovation and flexibility are going to be key to sustaining viability, and reinvention may have to become as much a part of the new norm as social distancing. Monitoring and forecasting the rapidly evolving food and beverage industry trends and responding in real time — both with business practices and with tailored promotions and marketing efforts — are essential.
Fridge is committed to being a valuable agency partner during this uncertain time. Please don’t hesitate to contact us for support as we all navigate this together.
Emily Carlson, Vice President