Will the reopening of the foodservice sector boost fresh produce businesses?
In our article on the fresh produce industry’s response to the pandemic, we discussed how one of the major challenges it faced was a decline in demand from the foodservice industry. A study concluded that “the greatest impact of the COVID‐19 pandemic in the short term will be felt through the realignment of fresh produce supply chains due to the closure of nearly all foodservice outlets”.
Many of these outlets are open again or preparing to reopen as much of the world relaxes Covid-19 restrictions. We ask whether this is good news for the fresh produce industry and ponder the challenges readjusting to supplying the foodservice sector is bringing.
What state is the foodservice industry in?
Despite most countries giving foodservice businesses like restaurants the green light to reopen, results thus far have been mixed. The rapid recovery some envisioned certainly hasn’t materialised just yet. In the UK for instance, sales in pub, bar and restaurant chains were half what they were in the same month last year; clearly the public does not feel as comfortable in these environments as they did pre-Covid-19.
And while chains are likely to recover more quickly from this position, smaller and independent foodservice outlets may not be so fortunate. A Bank of America study found smaller businesses to be lagging around 20% behind their larger counterparts in their rate of recovery. As well as business size, the pace of recovery also seems to be stratified by location. In major cities for instance, spending in suburban areas is well above that seen in city centres as office workers continue to work from home en masse.
Government incentives to spend more money in the foodservice sector such as the one implemented by the UK government have undoubtedly given businesses a temporary shot in the arm - but as with most industries, long-term fortunes will be determined by how quickly the virus is brought under control. However, reopening itself was the first and most major barrier for the industry to overcome, and it places businesses in a far stronger position than many feared they would be back in April and May. As consumer demand continues to tick up, so crucially will foodservice demand for fresh produce.
What does this mean for the fresh produce industry?
The simple answer is we just don’t know yet. Little data exists on fresh produce demand from the foodservice sector since the widespread reopening of outlets. But by looking at the information we do have available we can say with confidence that the fresh produce industry is recovering the foodservice market.
Take the previously mentioned statistic that UK pub, bar and restaurant chains are suffering 50% of usual takings for the season. This is still considerably more than during lockdown, when most were relying on sporadic takeaway sales and others had no revenue at all. Couple this with the news that retail demand for fresh produce is plateauing, and it’s clear that the balance between sales to retail and foodservice is shifting back towards the pre-pandemic norm. It’s just not clear how quickly this is happening yet.
In individual cases, the impact the reopening of foodservice is having on individual fresh produce businesses will vary significantly depending on the type of business they are and who they predominantly served before the pandemic. Any resurgence in the foodservice industry is good for fresh produce - a high tide raises all ships after all - but ultimately some businesses will benefit more than others. Factors that will determine this include:
- The proportion of revenue accounted for by the foodservice industry pre-pandemic.
- Location - remember the disparity of sales between suburban and city centre outlets - this has a big impact on demand.
- Foodservice businesses they have strong relationships with - fresh produce businesses predominantly supplying larger companies and chains may have an advantage as these are more likely to be in a position to place larger orders. Those mainly supplying small, independent businesses could be more vulnerable.
It’s these inconsistencies, along with more general uncertainty, that are presenting real challenges for the fresh produce industry as it attempts to readjust.
Difficulties for fresh produce businesses presented by the reopening of foodservice outlets
This uncertainty has almost become the norm for many industries by now. But it’s important not to underplay how big an impact simply not knowing what the market will look like in a few months has on a business. For fresh produce businesses, a global second wave is still a real threat. This is not to mention the situation in the United States, where high virus prevalence is causing restaurants to re-close.
So what are fresh produce businesses to do? On the one hand, resuming regular service to the foodservice industry is vital for the business models of many, on the other the constant uncertainty means it is difficult to take confident decisions - especially when so much financially rides on making the right call. This is another scenario where more integrated technology solutions like Fresh ERP come into their own.
The data-interpreting capabilities of ERP take inputs from all areas of a fresh produce business to give much better forecasts than would be capable using traditional siloed sources of information. In addition, ERP allows for greater control over the warehouse and packhouse environments, making the inevitable order and strategy changes of the post-lockdown world more manageable. To learn more about the benefits of Fresh ERP, download our white paper below!