UTRECHT, NETHERLANDS – In the aftermath of widespread government mandates to control the spread of the coronavirus (COVID-19) in the United States by ordering restaurants and schools close and only allowing businesses deemed essential to remain open, food companies are challenged to adjust to a “dislocation in food demand,” according to a recent update from Rabobank’s North American RaboResearch analysts.
The shift from focusing on supplying both foodservice and retail customers initially put the food manufacturing sector on its heels and had grocery store operators reeling as they attempted to keep up with historic spikes in demand. According to Rabobank’s report, all segments of the food supply chain have successfully adjusted to the dislocation that began in early March.
“The initial stockpiling stage that led to empty shelves and lines at grocery shops’ doors seems to be behind us,” Rabobank’s report said. “Consumers have adapted to new shopping routines and added stocks to their fridges and pantries. Food companies and retailers have accepted the challenge to keep running and make more food available for consumers during the unfolding crisis. On the production side, there are no signals of a major disruption in the production chain other than isolated cases.”
Adapting to the shifting demand was a transition that has been more seamless for companies accustomed to supplying food to both retail and foodservice customers. However, the conversion to retail-only production has only been achieved on a limited basis, due in part to the limited availability of packaging and labeling that is designed for retail use. Like all food categories, meat and poultry manufacturers face challenges unique to their segment as they strive to ramp back up to maximum production rates.
According to Rabobank, the almost-overnight shift to consumers eating at home is illustrated by what analysts estimate to be a 3% increase in retail spending for every 10% drop in foodservice spending.
In response, many meat and poultry companies are cutting back production of pricier, specialty and value-added products and offering more affordable commodity items considering the growing number of Americans that have become unemployed as a result of the pandemic.
“We do not foresee plants reverting to previous items until markets stabilize,” the report said.
Across-the-board cancellation of professional and college sports for the foreseeable future have created a surplus of would-be foodservice products such as chicken wings, chicken tenders, bellies and grinds, which have been re-designated for retail with only lukewarm success.
Rabobank acknowledged the labor challenges posed by the coronavirus and the discovery of a growing number of cases at processing plants, which has resulted in some facilities closing and others cutting production. Precautions taken to protect workers at meat and poultry plants hasn’t staved off increased absenteeism and has caused production slowdowns at many facilities. Given the demand shift to retail, many plant operators have re-assigned foodservice and distribution personnel to retail production roles and there is hope that the industry’s labor shortage will be stemmed by the flood of millions of new job seekers in the market.
As of early April, Rabobank analysts pointed out that distribution of meat and poultry products had not been interrupted, due in part to regulatory concessions made that limited drivers’ hours.