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Industry Insights: How is coronavirus impacting on the food and drink sector?

Produce may have been flying off the supermarket shelves in recent weeks, but that only tells part of the story when it comes to the impact of coronavirus on our food and drink sector.

As panic buying was followed by lockdown, food stores recorded their strongest monthly sales growth on record in March, at 10.4%, while alcohol store sales rose by 31.4% on the previous month, according to the Office for National Statistics.

However, for many artisan producers and those supplying the food service sector, the lockdown closed their routes to market overnight. More than 80% of hotels and restaurants are temporarily closed, and few are predicting a swift return to normality as lockdown restrictions are eased.

So how can businesses respond to this unprecedented disruption? Are there any positives to be found? And how will the sector look different on the other side of this collective trauma? We asked a panel of experts for their views.

Food and drink sector leaders give their views on the coronavirus crisis
Clockwise from top left: John Sheaves, Taste of the West; Mary Quicke, Quicke’s Traditional; John Farrand, Guild of Fine Food; Ruth Huxley, Cornwall Food & Drink and the Great Cornish Food Store; Steve Ashworth, PKF Francis Clark

 

Taking part in our virtual roundtable discussion are: John Sheaves, chief executive of Taste of the West; award-winning cheesemaker Mary Quicke, managing director of Quicke’s Traditional; Ruth Huxley, managing director of Cornwall Food & Drink and owner of the Great Cornish Food Store; John Farrand, managing director of the Guild of Fine Food; and Steve Ashworth, tax director at PKF Francis Clark and a passionate foodie.

 

How is coronavirus impacting on our region’s food and drink sector?

JS: It’s pretty devastating – it’s carnage out there. This isn’t just affecting hospitality, but food and drink manufacturers, particularly the whole artisan sector we have built up over the last 20 to 30 years down here. Those producers are being very seriously impacted by the shutting of markets.

For years we’ve been encouraging businesses to diversify away from reliance on supplying supermarkets and into small retail outlets and the food service sector, and unfortunately food service has been hit the hardest, so they are suffering in a big way.

People might think food producers are doing well out of this, but notable brands are struggling to find alternatives to their food service supply chains, which have died overnight. Whilst there are some notable exceptions, overall it’s a pretty bleak picture.

Most businesses have been able to keep going in the short term, but once we get into July onwards we are going to need a long-term recovery plan. One ice cream manufacturer I know reckons that if the lockdown continues throughout the summer, it will take six years to make up for this year’s losses.

MQ: For those speciality, artisan producers like us who sell little or nothing to supermarkets, the current situation is devastating. Over the last 30 years, we have worked so hard to create this amazing food culture in Britain, and now Covid has come along and hit it like a truck.

Many of the restaurants around the world that champion our products are closed, as are many deli counters. Because the strategic imperative has been, quite rightly, to feed the population, small and artisan producers are being squeezed out as supermarket lines are reduced to prioritise commodity food.

Nearly half of all producers had endured a loss of at least 26% in turnover

RH: In Cornwall a lot of suppliers and wholesalers are dependent on the hospitality industry for as much as 80% of their business, and that stopped overnight. Some have introduced delivery schemes but it’s not easy to change your operations, and won’t be possible for everyone.

Our sales at the Great Cornish Food Store are just 20% of what we would expect at this time of year, but we still have about 50% of our staff cost and 80% of our overheads to pay. The challenge is quite significant but we are keeping going in order to provide a service to our loyal customers and also to do what we can for the local supply chain.

At the moment I really feel for our strawberry and asparagus growers, because their season is short and it’s now. A lot has been made of the lack of people to pick, but at this time of year that’s not such a problem. The growers tell me the labour is there, but there isn’t the market for all their harvest with the hospitality outlets closed. There’s a strong chance that some produce will be left unpicked.

Smaller growers who supply us with this type of high value product don’t supply supermarkets. Over the years they have followed advice and developed alternative sustainable local supply chains. Now everybody is being pointed in the direction of the supermarkets, but you can’t suddenly switch to becoming a supermarket supplier. Those relationships are built over time and contracts are arranged months or even years in advance.

JF: In our recent survey of more than 200 businesses, the Guild of Fine Food found two in three retailers have seen an increase in new customers. However, on the supply chain side, nearly half of all producers had endured a loss of at least 26% in turnover. This was largely due to the closure of food service businesses.

SA: The food and drink and hospitality sectors have been quite hard hit. It’s so sad that these great businesses where we all go to relax are suffering. It’s a bit like going through the grief cycle – a lot of businesses are still mourning what’s happened, but I’m seeing some glimmers of hope as people are coming out the other side of that and starting to think about how are we going to exit from coronavirus, how are we going to restart our businesses and what’s our revival plan.

 

How are businesses adapting to the current situation and exploiting new opportunities?

SA: After the tears and heartache, people are being very clever and creative in finding a route to market. If your market is not coming to you, how do you get to your market?

A lot of businesses have been pivoting to online sales, takeaway and delivery services, and some have done it very successfully. A chef in Cornwall who is renowned for his sticky toffee pudding is now selling them throughout the UK by mail order. For some with an established delivery model, the biggest problem has been demand outstripping their ability to meet it.

Some have gone into collaboration, for example a soft drink producer and a snack business who include a free sample of each other’s products when sending out orders.

And some people have gone community focused, like Bristol Food Union. Chefs and restaurants across Bristol have been providing free food to NHS and frontline workers, and now they are thinking about how to generate some income by doing it on a commercial basis for anyone who wants to buy a meal to take home.

JS:  Producers are trying some inventive ways of direct selling to consumers, particularly online, and pubs and restaurants are selling take-out meals. One or two food businesses in the South West have been reasonably successful on QVC, the shopping channel.

It won’t make up for the amount of sales that have been lost, but it’s about damage limitation and trying to get some cash in, not profitability. In these times, cash is king. Businesses are hanging on by their fingernails to see what happens.

MQ: Many restaurants and small food producers are moving online. Some are doing click and collect or using delivery services or the post.

Our online sales have gone through the roof (x20), but our total sales are roughly 40% by volume of what we would have been doing. We’re selling individual pieces of cheese to customers rather than pallets of cheese that would have been going into hospitality and supermarket deli counters.

And people are doing some really great stuff online with virtual food festivals like the British Cheese Weekender, where we livestreamed from farms for three days over the bank holiday weekend.

People underestimate how complex the food system is

JF: From a retail perspective, we are seeing farm shops, community shops and rural retailers doing really quite well because they are serving the community, as they have always done, but are additionally attracting many new customers.  A recent survey by the Association of Convenience Stores identified that 29% of consumers had shopped in a local shop for the first time during the lockdown. Among those providing a vital lifeline is Landrace Bakery in Bath, which is taking orders via WhatsApp for delivery by bicycle, while extending its range to include meat, vegetables and handmade pasta.

At this time people are discovering their local shops a lot more because they don’t want to queue or be among a lot of people at the supermarket. Shoppers are realising the customer service benefits and personal service that independent retailers can provide.  There was a similar move away from multiples to independents during the horsemeat scandal.

The businesses that can adapt and be flexible – either finding new customers or providing new or different services to their existing customers – are succeeding.

The side benefit of that is people are realising the local shops often have better food that’s not more expensive and is served by people who really understand it. And every pound spent in a local shop benefits the local economy.

RH: Our store is closed to the public and we are just open for collections and deliveries. We turned our operating model around in the space of 24 hours, which was a real challenge. We weren’t geared up for online sales so we’re taking orders by email and over the phone, which is very labour intensive when we stock about 2,000 local lines and are offering a bespoke ordering service. We still have a butcher and fishmonger operating and our kitchen is still open, making meals for people to eat at home.

A lot of our customers are in the vulnerable groups and aren’t able to get supermarket delivery slots, so people have said our deliveries are a lifeline. In some respects it would have been easier just to mothball our whole business, but we have taken the long term view and feel that it’s right to do what we can to help everyone get through this.

On the upside, some of the farm shops are finding it’s like Christmas all over again, and suppliers to supermarkets are generally experiencing an increase in demand because people are dining at home and not eating out. However, it’s also a massive challenge responding to that demand.

Some fresh produce suppliers found, for example, that the demand from supermarkets rose to astronomical levels when everyone was stockpiling but dropped to almost nothing immediately after lockdown. That’s not easy to manage unless you have a sophisticated storage capacity.

People tend to forget that food is a natural product that can’t just be magicked from nowhere or switched off at will. There is also another whole supply chain behind those farmers and food producers – providing things like packaging and logistics, for example – that has to respond to the same demands. People underestimate how complex the food system is.

 

What is your advice to food and drink businesses on dealing with this crisis?

SA: Now is the time to step back and look at your business, revisit your business plan and think about what you want your business to look like going forward. Previously you may have been doing things because that’s the way you’ve always done it. Are you going to stick with the business model you had before, or are you going to make some fundamental changes?

All businesses need to start thinking about how we exit from lockdown – what will it mean for them, and which elements of their business will return first?

Businesses should also check out the variety of support schemes and consider applying if they are eligible. A recent survey by the Guild of Fine Food found 87% of fine food businesses have not applied for a Coronavirus Business Interruption Loan.

One of the issues, particularly at the start of the crisis, has been access to clear information. I set up a WhatsApp group which has grown to about 80 food, drink and hospitality related businesses. I’m getting some positive messages as grants from the Coronavirus Job Retention Scheme are coming through, and we’ve been helping with some of those applications, but there’s still a long way to go. It’s a useful forum and we’ll keep it going until we see some light at the end of the tunnel.

My advice is to seek advice! It will be about the best way to keep a business afloat for the next 12 months

MQ: We need to look for the opportunities in this and bring all the creativity and inventiveness that has transformed British food culture in the last 30 years to come out of this stronger. Social media is a great platform for showing people around the world who we are and what we are doing.

RH: We have to acknowledge we are going through a really tough time, and that it’s not going to be business as usual for some time, if ever. The key thing that seems to be coming through in our network is that we are all in this together. We have to think about how we can best meet our customers’ demands and help each other along. That’s the approach that’s going to stand us in good stead.

Nonetheless, there are going to be redundancies and business failures down the line, and we need to be prepared for that. The furlough system has enabled people to put that off, but it’s not realistic to think that every furloughed worker is still going to have a job and every mothballed business is going to come out of this unscathed.

Businesses have definitely been thinking creatively to adapt to the changes we’re all experiencing. That’s something we are very good at in Cornwall and it’s where smaller businesses can gain a competitive edge – they can be nimble, and be up and running with something new or different in a hurry.

JS: My advice is to seek advice! It will be about the best way to keep a business afloat for the next 12 months.

JF: The challenge is hanging on to those new customers who have discovered what their local retailers have to offer. You have to make yourself accessible to the customer, and finding a way of continuing to communicate with them is key, whether that’s through social media, emails or loyalty schemes. That’s where you can remind them you are there when things get back to some kind of normality.

 

In part two, our experts look to the future and consider the potential long-term changes in food and drink after coronavirus. To read the concluding part of the discussion, click here.

Any questions?

If you would like to discuss how coronavirus is affecting your business, please email Steve Ashworth: steve.ashworth@pkf-francisclark.co.uk.

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FEATURING: Steve Ashworth
Before joining the Bristol office of PKF Francis Clark in July 2019, Steve started his career at HMRC over 30 years ago and then spent… read more
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