Foodservice Manufacturers Discuss Business Changes during COVID-19

Foodservice manufacturers and COVID-19 business impacts. This topic doesn’t need much introduction – it’s all around us – changing our habits and decisions. Foodservice manufacturing companies are working hard in the face of the pandemic, adjusting to major changes in velocity and volume.

 

Look at some recent headlines…

 

We’ve been speaking with our foodservice customers and various industry associations since the early days of the outbreak and it’s clear there are many questions about how the pandemic will impact business and what the post-COVID world looks like. On Friday, April 3, we met up (virtually) with foodservice manufacturing industry professionals to consider:

 

  1. Distribution & Product Shifts 🚚

  2. Trade Programs & Accruals 💰

  3. Operator & Alternative Channels 🏪

  4. Looking Forward 💡

 

Distribution & Product Shifts 🚚

 

It’s important to mention that we’re seeing lot of positive feedback related to foodservice distributors. Especially from operators and retailers. Foodservice distributors are doing their part to improve the supply chain and move essential supplies to retailers (and the end consumers).

The International Foodservice Distributors Association (IFDA) projects the industry will lose $24 billion over the next 3 months. As far as business with their suppliers, foodservice distributors have requested extended terms. Some distributors have even asked that foodservice companies take inventory back, which our discussion group agreed is not something they’re able to do.

Since Sysco made its announcement to support the retail side of business on the supply chain, many of the discussion group’s participants have said they are trying to deviate items from foodservice into retail.

  • Do the products have bar codes?
  • Does the package or size matter?

All of these quick changes have our group’s participants wondering… in the future, will distributors continue to play in the retail space?

 

 

Trade Programs & Accruals 💰

 

Because the pandemic has created such a fast-paced environment, many of our group’s participants noted that trade programs are not a top priority. While they are keeping track of commitments and numbers, foodservice manufacturers are focusing on inventory, terms and moving products.

One participant said that most of their programs are rate-based (per case), which means that the trade dollars increase as the case sales increase. While the pandemic is certainly costing quite a bit of concern, growth programs that tie to volume is a small win for mitigating trade spend.

And, for those programs that operate on lump-sum payments, we learned that the group’s participants are continuing internal discussions on the best way to restructure that to go with their focus on product.

As far as accruals go, our participants all agree that forecasting trade will be difficult. “I mean, it’s a challenge anyway,” said one person in the group. There was agreement to considering volume decreases and removing growth components. Most importantly, one person notes, “we’re going to learn.” This is a time to review shipment information, look at street volume, and identify key products.

There’s no black and white roadmap at a time like this.

 

Operator & Alternative Channels 🏪

 

Dining rooms are closed. Industry experts explain that for much of the US restaurant industry business just disappeared overnight. Arenas, airports, movie theaters, and schools have been shut down. One participant, in foodservice sales, said this is a don’t call us – we’ll call you situation. He emphasized that his business doesn’t want to further burden struggling customers at this time.

C-store sales are strong, reports one participant. And while there’s good activity there now, the company will keep its eyes peeled for a downturn.

We also discussed healthcare and K-12 channels. Even though schools have closed, many school districts are making sure the community’s kids have food to eat and are still serving free lunch, so that channel, while serving less, is still seeing volume.

During the discussion, we talked a lot about how the restaurant industry will change because of COVID-19. And, how those changes will impact these foodservice manufacturers. A few questions and assumptions we made:

  • What happens when dining rooms reopen?
    • Consumers will have a heightened sense of food safety – how it’s handled, where it’s from, how it was processed – how can we be a part of that?
  • What can we do for operators (when they begin seeing business return to pre-pandemic operations)?
    • Suppliers are talking about ways to help their customers succeed.
  • Will restaurants come back with a smaller menu? How do we keep our product part of the menu?
    • We expect restaurants to keep fewer SKUs and simplify their operations.
    • Will private label impact suppliers?
  • Anticipated changes to volume with delivery & take out.
    • Take out will be more acceptable and may be used more often.
    • Plus, delivery services will increase. With the shelter-in-place orders, many people have adopted third-party apps to receive restaurant meals, and many will continue to use those after dining rooms reopen.

We discussed how these manufacturers are working with brokers. For foodservice-only brokers, this is a really tough time. Some have furloughed employees. The participants are all staying engaged with their brokers – exploring ways to find new products, places and solutions.

 

So… What’s ahead? 💡

 

“For where we are, we’re doing our best,” says one participant. He continues to explain that his team is not looking too far ahead since the timeline is so unclear and no one has a crystal ball.

We all agreed that the biggest hurdle is that the landscape has changed. UBS predicts that up to one in five restaurants in the US could close permanently because of the coronavirus pandemic. The National Restaurant Association reports that about 3% of restaurants in the US have already closed permanently.

All of the participants talked about how important tracking volume is. They’ll be looking at data to understand where business is shifting, how to accrue for the shifts, and ideating how demand planning can forecast changes.

At Blacksmith, our team is here to help. We are offering invoice, trade spend and accrual analysis specifically to help you steer through the current uncertainty. 


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