As providers of essential goods during the coronavirus pandemic, food and beverage companies are grappling with extraordinary pressures in a divided landscape. Grocery stores, called upon to supply a nation of consumers confined to their homes, have seen sales shoot past 2019 levels. 1Yet many food and beverage distributors, distilleries and processors have seen vital markets such as hotels, cruise lines and resorts shuttered, and restaurants, another key outlet, have been reduced to takeout business or closure.
Companies in both situations are finding ways to carry on through conditions unlike any they’ve seen before, even as they prepare to thrive again as the country reopens. Here, Bank of America specialists who work closely with the food and beverage industry share insights into how businesses are responding.
What are the greatest challenges food and beverage businesses face right now?
While increased sales have helped many grocery stores, these businesses face challenges in keeping workers and shoppers safe from a virus whose properties are not yet fully understood. Plus, the greater use of disinfectants, and physical changes to stores, are driving up costs. With many consumers turning to online shopping, smaller grocers, in particular, are using third-party delivery services to get goods to consumers. But delivery companies have their own problems, including delayed deliveries and labor disputes, and some stores are exploring alternatives, hiring their own shoppers and deliverers. But those added costs could put retailers’ already slim margins at risk.
Navigating these challenges is key to the reputations of stores that must keep food and other products on the shelves while reassuring shoppers that their health and workers’ safety are being protected.
For distributors, meanwhile, the impact of restaurant and hotel closures has been profound. To compensate for lost business, some are seeking to supply retail grocers instead. Yet this transition involves potential obstacles, from establishing new relationships to adjusting food packaging for individual consumers. Adding to the difficulty is uncertainty as restaurants begin to reopen, and whether that market will bounce back or remain significantly diminished for as long as social distancing continues.
What key internal and external factors should they be reviewing?
There's a reason grocers now refer to once-mundane toilet paper as "white gold." That's just the most obvious example of how consumers’ needs and desires have shifted during the pandemic, with demand spiking for some products. Now is a time for companies to closely examine revenue figures for specific products and product lines to see where the shortages are and what adjustments may be needed to keep store aisles and shelves full. Store owners also need to monitor supply chains for possible snags. For example, some food processing plants have had to close, and stores that anticipate problems may be able to prepare for potential shortages and keep customers informed.
Retailers should also pay special attention to their expenses. With profits under pressure as stores alter their spaces and practices for safer shopping and working, some price adjustments could be necessary. Distributors and others that have lost customers may need help with liquidity. Deferring loan payments and tapping government support programs may help, and companies with concerns about liquidity, credit and debt should speak regularly with their relationship bankers to discuss what options may be available to them.
Distributors and grocery stores can also get advice from their business associations about evolving government stimulus programs, changes in health laws and guidelines and work practice recommendations.
What steps should food and beverage businesses consider now?
To help meet the need for greater efficiency and safety, many food businesses are turning to technology. Distributors may be able to automate food processing or packing, while retailers could improve online processes for shopping, delivery and curbside pickup. Some food processing plants are also considering adding scanners that can check workers’ temperatures to ensure a safer work environment, though implementing such programs may involve negotiations with unions.
Some companies are shifting product lines to make up for lost business and serve emerging needs. For example, a number of distilleries that previously sold to restaurants are now making hand sanitizer,[i] and some are even partnering with local grocers to sell locally branded sanitizer in neighborhood stores.
Perhaps the most essential step for food and beverage businesses is to look to the future and aim for flexibility. For grocers whose revenues have risen, that means not only thinking about how they can utilize excess cash to improve future profitability, but also preparing to resupply and build back inventory. Low energy prices now could make this an advantageous time to ship goods at reduced costs—provided companies have the space to store them. When the pandemic eases, food and beverage businesses should be prepared for the landscape to shift again, as consumers begin to return to restaurants and buy fewer groceries. Focused now on the immediate needs of keeping workers and customers safe, they should also consider a future in which pre-crisis challenges—the demand for quick meals and positive shopping experiences—may re-emerge, rewarding companies that can stay nimble and find fresh ways to serve their customers.