Crisis management

7 May 2020

The rapid spread of Covid-19 poses unprecedented challenges to the food service industry. With high-street footfall completely extinguished, meaning lay-offs aplenty, and the inevitable spike in online transactions, it is a time of crisis. Nonetheless, there is space for innovation, and opportunities that some in the sector are taking advantage of. Matthew Rogerson investigates the mid-pandemic state of the food service industry.

Despite international efforts to roll out home antibody tests, and the potential route to relaxations in lockdown restrictions – with the implied prospect of reanimating normal consumer behaviour – the impact of Covid-19 will change the food service sector for good. With some of the largest urban markets in the country facing a health crisis and tight lockdowns, developing solid online ordering, with the physical resources to back it up, may become essential for meeting the basic needs of large populations.

The rapid development of the virus in the US, means the spread of online shopping trends is likely to take hold in North America as much as it has done in Europe and Asia.

While lay-offs and furloughs of a sizeable proportion will be temporary, the near-term impact on consumer behaviour will be dramatic, with longer-term effects like business failures and the potential for slow rehiring likely to further restrict spending to only the most essential items. Indeed, the likelihood of further job losses in the world’s largest consumer market is high, placing further emphasis on the relative cost of items for those consumer groups.

Rapid changes are needed to manage an almost overnight movement of vast populations from in-store shopping to online, which will skyrocket demand, pressuring supply chains and companies.

Social distancing policies in the US, UK, France and Germany has enforced the closure of restaurants, bars and clubs. Key brands, such as McDonalds and KFC, despite having food delivery or drive-through capabilities, have shut completely for the duration.

In the UK, The Restaurant Group, owner of Chiquito, announced on 26 March that 61 of its 80 branches will not reopen after the Covid-19 shutdown is lifted. Also permanently closing will be the group’s 11 Food and Fuel Pubs in London. Around 1,500 jobs will be lost. Already suffering from the effects of the decline in casual dining, the pandemic has spelled death for those businesses.

Crash landing

Widespread travel bans, and the cratering of airline and airport business, has hit associated food service operators. Travel caterer SSP has reported that revenues fell 80–85% at the end of March, putting the month down 40–45% year-on-year. Temporary lay-offs and pay reductions have followed. Food delivery companies are responding to new opportunities, stemming from food service businesses switching to delivery to maintain business continuity. Uber Eats in the UK has waived delivery and activation fees to help its partners and attract new ones. It is also increasing its delivery service for convenience stores.

Wholesalers that supply the food service industry, in the face of the near total closure of their primary market, are beginning to explore direct-to-consumer sales as a means of revenue generation. This also provides a service that offsets the difficulties associated with access to major supermarket deliveries and the effects of panic-buying. Smaller operators, however, can benefit by building local consumer relationships.

Many food service and leisure businesses were already struggling before the Covid-19 pandemic. Inevitably, some have closed down entirely – Handmade Burger Co and Jamie’s Italian being two high-profile casualties. Restaurant chains like Byron, Frankie and Bennie’s, as well as the aforementioned Chiquito, have all been steadily reducing their number of stores in response to dropping demand and competition from smaller, trendier outlets.

As people adjust to isolation by making their home as comfortable as possible, those high-street retailers will have an even harder time convincing people to leave their homes. A restaurant meal may lose its appeal somewhat when in competition with a home-cooked meal or high-quality food delivery.

High-street restaurant chains may have to start thinking about the digital viability of their business models too. Restaurants that are streaming cookery classes is one innovative approach. Because of the dynamic new landscape, the limits of this type of business creativity is totally unknown.

While this current situation is bleak for retailers unprepared for digital consumer satisfaction, the US is seeing an even more substantial impact. One of the biggest challenges for the food service industry is losing customer footfall to unforeseen force majeure events. Despite government stimulus packages and waivers on tax returns, it is evident that changes from inside the food service industry will also need to be introduced.

Following industry calls to recognise the essential nature of packaging, its materials and free movement of them in the current crisis, the European Commission has confirmed that ‘green lanes’ will remain open across Europe to fast track packaging supply, and prevent supply chain interruptions at borders.

“In the UK, The Restaurant Group, owner of Chiquito, announced on 26 March that 61 of its 80 branches will not reopen after the Covid-19 shutdown is lifted.”

The packaging sector is facing massive demand spikes for materials based on consumers’ stockpiling of, and demand for, bulk packs. There are supply disruptions in some key packaging materials thanks, indirectly, to the crisis. For example, the British Coatings Federation has observed that ethanol and n-propanol, used in printing ink for packaging, and more pertinently, hand sanitisers and disinfectants, rose in price by 350%. In response to the finite amount of ethanol, there has been discussion around limiting its use to healthcare – to which packaging businesses have sounded the alarm to governments, given the importance of properly labelled food and health products.

Nevertheless, the new consumer reality does provide opportunities for those savvy enough to take advantage.

Trends retained

Despite all the chaos and insecurity that markets and people the world over are suffering from, companies are still chasing the same food service trends that were originally expected to dominate in 2020. Some of them – for example, novel experiences – may no longer be possible, and the conditions of their deployment might be different, but consumer trajectories can still be plotted in roughly the same way. Chief among those trends are: combatting plastic waste and single use items; the introduction of indulgent, gourmet and premium goods; and street food (albeit now at home).

“Covid-19 will likely solidify the dominance of online shopping. As people adjust to the virtual experience over the coming weeks and months, it is likely that many habits will stick.”

Rising environmental awareness means consumers are still seeking more sustainable options, despite an epidemiological stopper to their on-the-go lifestyles. Pret a Manger has pledged to eliminate all unnecessary single use plastic, and make its remaining plastic 100% recyclable, reusable or compostable by 2025. It had increased its discount from £0.25 to £0.50 on coffee for those that bring a reusable cup. It has also installed free filtered-water stations across many stores for society’s grand return, and sells a new range of reusable branded water bottles to help cut down its plastic waste.

In a similar vein, it is estimated that 8.5 billion plastic straws are thrown away each year in the UK. The government announced plans to ban the sale of plastic straws and drink stirrers in April 2018, and Starbucks has pledged to stop using plastic straws by 2020. McDonalds also has plans to move on from straws.

In 2017, Coca-Cola European Partners (CCEP) collaborated with the University of Reading to create a new generation of smart Coca-Cola fountain dispensers, known as Coca-Cola Freestyle machines. Refillable, micro-chipped bottles were also developed to interact with the dispenser technology, enabling students and staff to buy soft drinks in reusable bottles while reducing plastic waste.

Outside in

As to specific innovations within the food service sector, there have been numerous global launches up to and throughout the Covid-19 pandemic. How about street food at home? In Indonesia, a Indomie Hype Abis-branded instant noodle has been introduced in a Rasa Seblak Hot Jeletot variant, offering a street food flavour for people stuck in their homes. Seblak is an Indonesian cuisine dish that contains deep fried crackers presented in spicy sauce, and is usually available in restaurants or with street vendors.

This new release features wide noodles with dried chili sauce and red cracker topping. The launch shows that brands are still looking to tap into consumers’ desire to explore new tastes, even when stuck indoors.

In Indonesia, according to GlobalData’s 2019 Q4 global consumer survey, 37% of consumers prefer to opt for newer flavours in pre-packaged meals – the introduction of a street food flavour shows that Indomie Hype Abis is looking to capitalise, and that there are genuine market possibilities offered by the idiosyncrasies of the time.

The current pandemic and national quarantine laws are putting the final nails in the coffin of an already struggling UK high-street, particularly in food service and entertainment. As a result, Covid-19 will likely solidify the dominance of online shopping. As people adjust to the virtual experience over the coming weeks and months, it is likely that many habits will stick. High-street brands know the longer this lasts, the more familiar consumers will become with online shopping and virtual experiences. That is great news for some, and the death knell for others.

Despite drivethrough availability, even McDonalds has closed down its restaurants across the world.
The proliferation of online delivery is a risk for rank-and-file, but a lucrative one for the companies they work for.

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