4 Ways COVID-19 Is Impacting the Global Foodservice Industry

COVID-19 mitigation efforts around the world are causing major disruption in the $3.7 trillion global foodservice industry, with the level of impact expected to vary by country depending on the scale of the crisis and the timing and efficacy of government response.

For example:

• China, Japan, and South Korea – the Asia/Pacific region’s top three largest foodservice markets – have begun to gradually reopen restaurants and other closed businesses after swiftly implementing strict measures to contain the virus.
• Conversely, countries that have been slower to enact national measures – such as Brazil, Italy, the UK, and the US – could see a prolonged crisis and recovery, which could delay the reopening of businesses.

Additional waves of the outbreak are expected to occur until a vaccine is developed (a 1-2 year process), which could cause reopened businesses to close again in the future. Nevertheless, the most significant impacts of the crisis on global foodservice revenues are expected in 2020 and 2021, followed by a swift recovery as businesses reopen. However, some effects are likely to linger post-COVID as well.

Here are four ways the COVID-19 pandemic is affecting the global foodservice industry now and what its legacy could be beyond the crisis.

1. Mass restaurant closures lead to steep short-term losses

Restaurant closures will have the largest effect on global foodservice revenues. For example:

• In April 2020, McDonald’s reported a 22% decline in global same store sales in March due to the coronavirus pandemic, with the steepest losses seen in Western Europe.
• In March 2020, the National Restaurant Association projected sales losses of $225 billion for the US restaurant industry over the next three months.

While many restaurants are permitted to stay open for takeout and delivery, these channels are generally not conducive to the market’s higher-value, experience-focused full-service segment, which is seeing the most widespread closures.

In addition, some takeaway- and delivery-oriented businesses are fully closing operations in certain countries – such as McDonald’s in the UK – and reduced foot traffic is leading brands to downsize operations by closing some locations and limiting others to takeout, curbside pickup, and delivery.

2. Weakened consumer incomes depresses near-term spending – but stimulus can help

COVID-19-related business closures have led to mass layoffs and record unemployment in the US, which alone accounted for 25% of global revenues in 2019. In addition to lost and reduced consumer incomes and restaurant closures, foodservice spending is being affected by self-isolation measures and safety concerns causing consumers to cook more at home.

Sharp downturns in travel and tourism and shutdowns of many offices and retail establishments are also having an adjacent effect on foodservice outlets that rely on commercial activity to facilitate foot traffic, such as cafeterias, commercial catering, and coffee shops.

Nevertheless, stimulus checks and unemployment benefits will help mitigate lost income in the near term, allowing for a rapid rebound in spending levels once pandemic-related restrictions are lifted.

3. Strong long-term opportunities reside in online food delivery & cloud kitchens

Online food delivery was already a high-growth area for foodservice brands prior to the coronavirus outbreak. Now, it’s key to competition during the crisis – and likely to remain so beyond it, particularly as self-isolating consumers grow more accustomed to the convenience of app-based ordering.

Strong opportunities exist for cloud kitchens (i.e., ghost kitchens, virtual restaurants), whose low overhead costs, nonpublic nature, and convenient consumer access via mobile app make them well suited for foodservice operations during a pandemic. Before the outbreak, leading brands in foodservice and online food delivery were ramping up investment in these dark facilities – which are exclusively dedicated to processing online food delivery orders – because they help improve logistics, expand delivery coverage areas, and reduce wait times. For example:

• In 2019, Grab (Indonesia), Uber (US), and Rebel Foods (India) announced plans to expand cloud kitchen facilities in various global markets.
• A number of traditional foodservice brands – including Chick-fil-A, Inspire Brands, and Wendy’s – are investing in developing their own cloud kitchen capacity.

Furthermore, the pandemic is propelling innovation in foodservice technology. In China, for example, a number of food e-commerce vendors – including JD.com and Meituan Dianping – deployed ground delivery robots on public roads for the first time to provide contactless delivery during the outbreak.

4. Virus shifts focus from sustainability to safety

Sustainability remains a major concern for consumers, which has driven foodservice brands to implement more environmentally friendly business practices, such as banning single-use plastics, enacting recycling and composting programs, and introducing plant-based menu options.

However, the coronavirus is changing the conversation around sustainability in foodservice somewhat. For example, the shift in the past few years in many mature foodservice markets toward more environmentally friendly reusable products (e.g., cups, bags) and away from disposables may slow during the pandemic as:

• consumers and businesses opt for single-use products due to their improved hygiene and safety
• foodservice brands increase focus on takeaway and delivery, which involve intensive use of single-use products such as bags, utensils, napkins, lids, cups, and other containers

These short-term trends could lead to a longer term revival for single-use products in foodservice, particularly considering how the crisis is galvanizing ban reversals in some areas, and safety concerns about patronizing foodservice establishments are likely to endure even after the pandemic subsides.

Want to learn more about the global foodservice industry? See Global Foodservice, now available from The Freedonia Group.

About the Author:

Peter Kusnic is a Content Writer with The Freedonia Group, where he researches and writes studies focused on an array of industries.