The big question for the food industry centers on where people will buy and eat their food in 2021 as COVID-19 recedes from the economic environment. The graph below shows retail sales for ‘food and beverage stores’ versus ‘food services and drinking places’ which captures the impact of COVID-19 on the food industry. Customer after customer has confirmed that the dramatic departure shown in the graph made 2020 either a great year or a very difficult year depending on which channel they worked with. Those customers whose products naturally flowed through club stores, supermarkets, bodegas, and convenience marts saw strong sales and good margins. In contrast, those food manufacturers and brokers who focused on family restaurants and white tablecloth restaurants still struggle to regain sales and margins remain pressured. Somewhat in between, those food suppliers who work with the quick service restaurants (QSRs) saw mixed results depending their customer base and geographies.
So what does the future look like? There are a few major scenarios being discussed by the food industry. First, people have relearned the joy of cooking at home, and they have discovered the cost savings associated with eating from home. They use their own labor and savings to buy better ingredients, and they will continue to do so.
The second scenario has people just waiting impatiently to get back to their old eating out habits, and there is lots of pent-up demand. They are tired of the cooking and clean up, and they want to gather with friends and family ASAP. They will be buying breakfast and lunches from the quick service restaurants (QSR) as they return to working from the office. My scenario says that they will do both simultaneously. At the end of 2021, I expect the sales through food and beverage stores to remain elevated, and food away from home to recover to its pre-COVID-19 level and even exceed it. With food inflation, total food and beverage spending will be noticeably higher than combined spending prior to COVID-19’s disruption.
In the third scenario, there will be two different dynamics under the surface of the retail sales. Consumers who have lost their jobs and/or still have reduced personal income from the follow on effects of COVID-19 for their industries or professions will focus on home food consumption. In contrast, many consumers who never lost their jobs and received economic stimulus will continue to accelerate economic growth in a number of sectors. These consumers will be aggressive consumers of restaurant and other personal service categories. Too often economic stories talk about “the consumer.” In reality, there are many categories of consumers with different drivers simultaneously.
In January 2021, the U.S. had 10.1 million unemployed workers and 6.6 million unfilled job openings. From the unemployed person’s view, the job openings are in the wrong place with the wrong skill requirements or pay for the job seekers. From the hiring company’s view, it is just the opposite. As COVID-19 restrictions continue to be lifted throughout 2021, this mismatch between the unemployed and unfilled jobs should ease as service companies rehire people. These jobs fit their current skill sets and preferences prior to COVID-19, and they should be a good fit after COVID-19. This will reduce the unemployed category. However, many of the unfilled jobs will remain unfilled pressuring companies to increase compensation. Personal income growth from both of these developments will be a strong support of food away from home. Anyone in the food manufacturing and agricultural world should stay on top of these data sets. The labor situation will be the biggest driver of the food channel, and the BEA’s advance retail sales data will be a key confirmation.