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Tale of two Covid halves brings new sales realities for under pressure sector.

Alex Witcpalek, foodservice industry specialist and director of sales for North America at sales-i.

Members preparing for the forthcoming IFDA Distribution Solutions Conference have plenty to ponder as they reflect on a rollercoaster year. Few sectors of the US economy can have faced such polarised outcomes from the Covid-19 pandemic as the nation’s food service industry. While the advent of lockdown restrictions across the States in the Spring forced many hospitality venues to shut their doors overnight for weeks and in some cases, forever, on the flip side, the grocery sales sector saw a major and sustained sales boost as homebound consumers stocked up on supplies.

 

"Online grocery sales across the US grow by as much as 40% year on year."

 

The disparity in cross sector fortunes couldn’t be starker. According to the National Restaurant Association, between March and June, restaurant sales were down more than $116 billion from expected levels. Factor in the sharp reduction in spending at non-restaurant foodservice operations in sectors like the arts, entertainment, recreation, education and healthcare and the total shortfall in sales is likely to be more than $145 billion over the period. According to other commentators, as many as 100,000 restaurants across the nation could have failed by the end of the year.

It has been a very different story for grocery retailers however, where sales witnessed double digit gains in April and May and further strong growth into June as consumers shunned public venues in favour of eating at home. What’s more, the changing consumer appetites of the nation are set to see online grocery sales across the US grow by as much as 40% year on year as more consumers become increasingly accustomed to having their groceries delivered, according to Coresight Research’s U.S. Online Grocery Survey 2020.

 

Food service bears the brunt.

Such unprecedented shifts in consumer attitudes to food, coupled with the associated unpredictable market dynamics add up to a tale of two halves for food service distributors, whose Covid era experiences have varied wildly depending on their customer base.

Overall, despite the gains made by grocery distributors and the march of QSR offerings, research from McKinsey & Company paints a downbeat picture of the challenges ahead for the industry, indicating it could take some years to fully recover from the effects of the pandemic.

Cashflow concerns have been commonplace for businesses across all sectors since the pandemic hit, but these have been particularly acute in food distribution where margins are typically very slim and cash-poor providers have increasingly been forced to request payment on delivery from customers when they typically would have facilitated extended credit lines to them pre pandemic.

Distributors have also been hit by quick-service and casual-dining restaurants consolidating their menus and switching to take-out services only, leading to reduced order volumes.

 

"The crisis has really brought home to distributors the importance of understanding their customers better."

 

The importance of operational flexibility.

Like other industries within the US economy, many food distribution businesses have been forced to address their business models and question how they can evolve to cater to changing consumer tastes and wildly fluctuating market dynamics in the ‘new normal’. For many players this has meant some relatively simple operational changes to prop up muted revenue streams such as diversifying their offers. That means food service distributors increasingly making available the Covid-ready products hospitality businesses need to remain operational such as essential jan/san cleaning supplies and maintenance products.

 

Data-enabled decision making.

Regardless of which corner of the industry they serve, the crisis has really brought home to distributors the importance of understanding their customers better. This is especially the case among smaller players who typically rely on a small pool of longstanding customers to keep order books ticking over. While many salespeople might usually be focused on securing new business, muted demand across the sector has led most to double down on ringfencing spend from existing customers. Increasingly we are seeing operators turn to sales enablement technology in this quest to help them better understand customer buying patterns, identify under and over performing sales lines and essentially better manage their customer relationships. So many food service suppliers carry swathes of data on their customer relationships yet fail to adequately collate it, let alone use it to inform sales strategy. In an era when taking advantage of precious cross and up selling sales opportunities as they arise will be important for maintaining cashflow, many operators are finding data-driven sales strategy can give them the edge.

 

Learning to live with uncertainty.

With efforts to find a Covid vaccine still ongoing, looking to the future with any certainty remains a difficult task for food service distributors right now. However it’s important to remember that it’s not all bad news on the horizon – indeed respected market research organisation, Mintel has already predicted total food service market sales will rebound to pre-pandemic levels by 2023. As we have already seen with the success of quick and limited service operators, there remains much resilience in this dynamic and innovative space and those operators with the wherewithal to pivot their operations towards growth markets and harness technology to do better business will be well placed to thrive over the longer term.

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