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Covid continues to overshadow the food market

How will the next phase of the pandemic impact demand for food and what can we learn from previous recessions? Cedric Porter reports.

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Covid continues to overshadow the food market

The pandemic has highlighted the importance of eating out to the food chain.

 

Sales did increase after restaurants, pubs and cafes were able to reopen in July, helped by the Eat Out to Help Out scheme in August and special discounts from many outlets in September.

 

There are now fears that national limits on opening hours, local lockdowns and economic hardship could stifle any recovery.

 

In June nearly 90 per cent of people said they had reduced out-of-home food spending as a way of saving money and as households budgets get squeezed spending on eating out could reduce again.

 

The most affected segment of the foodservice sector continues to be coffee shops and food-to-go outlets in city centres, stations and airports. Market analysts IGD expect a 43 per cent drop in food-to-go sales in 2020 to £10.8 billion, with the market still only 88 per cent of 2019 levels by 2022.

 

Takeaway sales were back to pre-Covid levels by July, but came under pressure as they were excluded from the Eat Out to Help Out scheme.

 

They may increase again because of new restrictions on restaurants, according to Kim Malley, senior consumer analyst at AHDB.


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How was the sector affected during the 2008 recession?

 

The 2008 recession hints at what might happen to out-of-home sales over the next few years and there is evidence that sales could be impacted for a limited period.

 

Figures from the Office for National Statistics show that catering sales were down 3.1 per cent between 2008 and 2009 but were back into growth by 2010.

 

There was a drop of nearly five per cent in alcohol sales (in and out of home) in 2009, but a small recovery in 2010.

 

Total retail food sales were up 2.5 per cent in 2009, with sales in retail, catering and alcohol up 18.4 per cent to £165.5 billion between 2009 and 2013, although catering sales had only grown 13.9 per cent to £53 billion.

 

A Euromonitor report from 2009 said there was still a desire among consumers to eat out, but tight budgets meant they opted for takeaways or lower-priced outlets, including fast food restaurants, while higher end places need to incentivise diners with offers and discounts to win trade.

 

That desire to eat out is repeated this time around, but fear of catching the virus, restrictions on opening times and the closure of outlets could mean the recovery in sales takes longer.

Retail sales on the up again

 

Growth in retail sales look like picking up after being muted in August and September as more people ate out.

 

UK grocery sales were up by 8.0 per cent in the four weeks to September 6 compared to 2019, according to researchers Kantar.

 

Although impressive, that was the slowest monthly growth since April, while sales in the 12 weeks to early September were up 10.8 per cent on 2019.

 

Online sales in the four weeks to 6 September were up 77 per cent on last year, with a £3.2 billion increase in the category since lockdown. Online retailer Ocado experienced 41.2 per cent growth in the year.

 

There was also a desire to shop more locally, with sales in independent and chain local stores up 31 per cent.

 

Of the conventional retailers, frozen specialists Iceland saw a jump in sales of a fifth in the 12 weeks to 6 September, Co-op was next at 13.4 per cent growth, Morrisons at 12.9 per cent, Lidl at 11.4 per cent, Tesco at 10.5 per cent, Aldi at 10.0 per cent, Sainsbury’s 8.0 per cent and Asda 6.3 per cent.

 

“We can expect growth in retail sales to start increasing at a faster rate,” said Kim Malley, senior consumer analyst at AHDB.

 

“With more time at home and a need to watch budgets, people are cooking from scratch more with comfort foods involving meat, dairy and potato products popular. However, there is also demand for the occasional treat to cheer people up.”

 

Sausages and burgers did well over the summer as people fired up their barbecues, but more recently sales of steaks and mince have been strong.

 

June’s IGD survey found that 72 per cent were cooking from scratch more as a way of saving money.

 

There is a definite shift to maximising value, according to Ms Malley, with a third of households experiencing a drop in their household income since the start of the pandemic, according to an AHDB/YouGov survey.

 

The research found that 43 per cent say they have become more price conscious, with that figure rising to 57 per cent among those with children.

 

Price is now the most important factor when buying food for 55 per cent of those questioned. People are also trading down to more value ranges and buying fewer convenience foods.

Sausages and burgers did well over the summer as people fired up their barbecues.
Sausages and burgers did well over the summer as people fired up their barbecues.

No sign of a ’V’ shaped recovery yet

 

General business confidence recovered a little in the three months to the end of September, but remains depressed.

 

A survey of more than 6,400 firms by the British Chambers of Commerce found 46 per cent experienced lower sales, which was better than the 73 per cent in the second quarter of the year. Cash flow slowed for almost half of firms cutting back on investment.

 

“Our latest survey indicates that underlying economic conditions remained exceptionally weak in the third quarter,” said Suren Thiru, head of economics at the BCC.

 

“While the declines in indicators of activity slowed as the UK economy gradually reopened, they remain well short of the pre-pandemic levels with little sign of a swift ‘V’ shaped recovery.

 

Brexit not Covid the biggest threat to farm input supplies

 

The agricultural supply industry is not expecting any major threats to availability of inputs due to Covid-19 over the coming months, but distribution could be affected by the end of the EU transition period.

 

“Apart from in a few isolated cases, the farm supply chain held up well at the start of lockdown,” said Ed Barker, head of policy at the Agricultural Industries Confederation.

 

“Since then even more systems have been put in place to minimise the threat of the virus and the disruption it could cause. However, this time the situation is complicated by the transition process.”

 

Mr Barker reported there were no signs of panic-buying of inputs, but that may be because farmers have learnt from previous Brexit deadlines not to over-react, while the poor harvest has reduced on-farm cashflows.

 

He said that the farm supply chain urgently needed details on how post-transition trade might operate and there could be some disruption to movement of goods even if there is a deal.

 

He urged farmers to communicate their input needs to their suppliers as early as possible so that they any disruption is kept to a minimum.

 

Falling oil prices may help keep the cost of a range of inputs down over coming months.

 

The current world oil price is half what it was at the end of 2019, although at about US$37 a barrel it is twice the value it fell to at the height of the first Covid-19 wave in April.

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