How the Food & Beverage Industry Is Navigating the COVID-19 Pandemic
The global COVID-19 pandemic has upended the food & beverage industry. Companies are facing supply challenges, shifting consumer demands and other dynamics that didn’t exist just a few weeks ago.
The unprecedented environment is driving significant change across the industry. Baird’s Global Consumer Investment Banking team works closely with companies from across the food & beverage industry. Following are several significant trends our team is monitoring as the Food & Beverage industry works to establish its new normal during COVID-19:
In recent weeks, COVID-19 cases have impacted meat plants across the U.S., causing some to operate below full capacity and others to close. Smithfield Foods, which represents 4-5% of U.S. pork production, reported more than 200 cases among its plant employees and announced the indefinite closure of its Sioux Falls, South Dakota, facility.
Meanwhile, a significant decrease in demand from now-closed schools, universities and restaurants has created substantial pricing pressure for farmers. Farm commodity prices and futures declined between mid-March and mid-April.1 Perishable items were particularly disrupted given the limited time to move fresh products to store shelves. Lower demand prompted dairy farmers to dump milk and lettuce farmers to recycle this year’s crop as fertilizer.2
Finally, a significant increase in home baking – a social phenomenon some are calling “stress baking” – has created supply pressures for the baking industry. Hopkinsville Milling is packing two times the flour compared to normal levels. Central Milling and Bob’s Red Mill are posting out-of-stock items due to unprecedented demand.3
Reallocating Resources to Support Shifting Demand
Food & beverage companies are remaining dynamic during the pandemic environment. In late March, FMI – The Food Industry Association partnered with the International Foodservice Distributors Association (IFDA) to create a matching program that connects foodservice distributors with excess capacity to retailers and wholesalers that need additional resources to meet demand. For example, Sysco and US Foods are both leveraging their supply chain expertise to distribute products and provide transportation and warehousing services to the retail grocery sector.4
Additionally, many restaurants are testing creative solutions to encourage continued consumer spending (and compete with grocery and home delivery services). These innovative approaches include meal kits and even free toilet paper with purchase. Alinea, a renowned Chicago-based, three-Michelin-star restaurant, normally charges $300 per person for a prix fixe menu. During COVID-19, it has offered to-go meals for $35 per person. Its first batch of dinners featured Beef Wellington and sold out within five hours.
The Surge of Online Grocery
Shelter-in-place and safer-at-home orders have encouraged consumers to turn to online grocery services. In March, 31% of U.S. households reported using an online grocery pick-up or delivery service within the past month. Additionally, 26% of all online grocery shoppers indicated they were using such a service for the first time.5 The proportion was even higher among online grocery shoppers 60 and older, with 39% of those consumers reporting using online grocery services for the first time.7 This trend is likely to continue after the COVID-19 pandemic, as 43% of households said they are “very likely” to use online grocery services after the COVID-19 crisis subsides or ends.
Demand for Shelf-Stable Comfort + Healthy Foods
As consumers started to spend more time at home, demand for shelf-stable packaged goods surged. Dried beans, rice, canned tuna, soup and bottled water sales all increased more than 100% early in the pandemic.6 Consumers are also buying comfort and indulgent food options during the crisis. In the week ending March 14, popcorn sales jumped 48% over the prior year. Pretzel sales increased 47% and potato chip sales ramped up 30% over the same period.7
A number of healthy premium packaged food brands are also seeing sharp upticks in sales. Country Archer Jerky Co. saw a 400% increase in e-commerce sales over prior months, while plant-based milk brand Elmhurst 1925 has reported online sales increased by more than 300%.8
Renewed Interest in Home Cooking
Consumers are using extended periods of time at home to learn basic cooking skills and recipes. Many are turning to high-effort, time-consuming entrees and desserts as a way to pass the time at home. Sales of certain basic ingredients have sharply increased, with pasta sales up 699% over last year, crushed tomatoes up 316% and evaporated milk up 287%.9
Meal kits are also becoming increasingly popular. These services provide novice and pressed-for-time home cooks with simple instruction and pre-measured ingredients. While this industry has struggled to maintain a sticky customer base in the past, a handful of names are soaring. Blue Apron’s stock price increased as much as 301% from the market peak on February 21, 2020, while Hello Fresh was up as much as 11%.10
Baird’s Global Consumer Investment Banking team has a proven track record of delivering outstanding results for our clients, offering comprehensive strategic advisory and capital market services across several consumer sectors. Our transaction experience, frequent dialogue with industry participants and robust deal flow provide us with unique insight into the sectors we serve. Since the start of 2010, we have completed 222 consumer M&A and public equity transactions with a total value of $49.0 billion.
5Brick Meets Click: “Online Grocery Shopping Surges to Record Levels in US during COVID-19 Crisis.”
10Market data as of 4/8/20.