Foodservice sector recovers, protein industry readjusts

As COVID-19 spread rapidly throughout the nation and many restaurants were forced to shut their doors, U.S. consumers made a historic shift to eating at home, upsetting the long-standing trend of U.S. food consumption in restaurants and other away-from-home foodservice outlets.

            According to a new report from CoBank’s Knowledge Exchange Division, written by Will Sawyer, CoBank’s lead economist of animal protein, foodservice sales declined by more than half in April 2020. This led to the “Great Grocery Grab of 2020,” in which consumers emptied shelves and meat cases in grocery stores to fill their pantries. 

            This also led to one of the largest shifts in the U.S. food supply chain, as food distributors, processors and retailers diverted massive portions of meat and other food originally intended for restaurants into retail distribution channels and grocery stores around the country.

Lasting effect

            Sawyer notes while foodservice sales have certainly improved since the spring of 2020, they still remain well below 2019 levels.

            “This prolonged period of reduced restaurant foot traffic will cost the restaurant industry over $240 billion in lost sales and nearly 2.5 million in lost jobs in 2020 alone, according to the National Restaurant Association,” Sawyer explains, further noting an estimated one in five restaurants have closed in the last year.

            “Making matters worse, foodservice sales have only worsened as COVID-19 cases continue to rise, which is a trend likely to occur through the rest of the winter,” Sawyer adds. “As we look ahead in 2021, as the availability of vaccines improves over the course of the year, the hole left by the closing of thousands of restaurants will mean foodservice demand will take far longer to normalize.” 

            As the sector climbs out of the hole dug in 2020, Sawyer explains U.S. foodservice will likely see an uneven recovery.

            In fact, he notes some foodservice channels, especially quick-service restaurants (QSR), have rebounded from the lows seen in the spring of 2020 to achieve sales growth, while other full-service restaurants continue to face double-digit declines in sales.

            “In November, full-service restaurant sales were down by 36 percent versus the same time last year, and total foodservice sales were down 17 percent,” states Sawyer.

            He notes these differences in the performance of various foodservice channels is especially evident in the beef industry. An example is ground beef, which makes up the majority of beef volume in the foodservice industry.

            “Ground beef in limited-service restaurant channels has performed quite well, but the beef sector continues to be hurt by the full-service restaurants, hotels and education channels which remain depressed,” Sawyer explains. “The high-value steaks and roasts primarily sold in these channels only make up one-quarter of the volume of beef sold through foodservice but nearly half of beef sales.” 

            “Many fine dining establishments closed during 2020 and in the months to come will leave a significant hole in beef demand,” he adds. 

A historic shift

            In addition to the historic shift in eating at home, the COVID-19 pandemic also lifted margins for grocery retailers because they were able to increase the price of animal protein and other food products.

            According to the U.S. Department of Agriculture, in 2020, retail beef prices climbed by 8.1 percent, pork prices increased 4.8 percent and chicken prices rose 4.5 percent. 

            “This isn’t the highest level of retail meat price inflation U.S. consumers have ever seen, but with overall lower livestock prices in 2020, it indicates grocery retailers are seeing higher return in the meat case than before,” says Sawyer. “With the foodservice sector expected to experience a continued uphill battle in 2021 and for years to come, grocery retailers look to be in a favorable position to capture margins and pricing.”

            Sawyer further notes while some packers and processors, especially those in the beef industry, realized higher margins due to limited processing capacity, the cost of harvesting livestock for most animal protein processors increased significantly as a result of the pandemic.

            “Processors increased wages, invested in personal protective equipment and experienced significant idle time in the spring. As a result, while there are examples where price spreads for processors have increased relative to 2019, the bottom line profitability has not increased to the same degree,” Sawyer states.

Protein sector readjusts

            With this said, Sawyer notes as the foodservice industry continues to recover, animal protein will need to realign with the survivors of last year, which, in many cases, includes large, publicly traded, franchise and multi-location limited service restaurants.

            For beef, Sawyer says this may mean a long-term shift in high-value steak consumption to retail since many upscale restaurants remain closed.

            “The pork sector will need to bring back the value-added meat products, which not only provide convenience for their retail and foodservice consumers while also boosting processors’ bottom lines, but they also need to invest in automated processing equipment,” says Sawyer.

            “Poultry producers who focus on retail and fast-food chains have fared reasonably well during the pandemic,” he continues. “Others will need to continue their focus on cost and supply reduction until foodservice demand normalizes, which may very well be one or two years away.” 

Hannah Bugas is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.