Market Matters Blog

Can Retail Purchasing Surge Make Up for Food-Service Losses?

Rick Kment
By  Rick Kment , DTN Analyst

With COVID-19 changing daily buying habits for most consumers, the effect of "social distancing" is significantly affecting the food chain. Once life gets back to normal, many studies are likely to be done on how consumer eating patterns changed through the virus pandemic.

In a pre-virus generation where eating out, rather than buying food and cooking it at home, was becoming normal, the shift over the last month where many food-service suppliers have either closed or scaled back is significantly shaking up demand in the food chain. There are many changes being seen in retail food demand. Through the early stages of the pandemic, consumer buying surged at retail locations; this caused a surge in demand for most food products, such as meat, dairy and flour. However, the biggest change that cannot be seen by the consumer, at least on a short-term basis, is how these buying surges will affect overall demand for these products.

Given the massive change in buying patterns in such a short period of time, the entire food-service network has been significantly affected. The food-service network not only includes restaurants, but institutions such as hotels, catering, cafeterias and school food programs. Not only do these sectors make up a significant portion of demand, this segment of business also was steadily growing.

The food-service marketspace is also more reliant on larger purchases, some of which are contracted months in advance. An example would be school districts purchasing milk for student lunches. It is estimated that school lunches account for 7% of all fluid milk demand. With most schools now recessed due to COVID-19, this is a significant segment of the fluid dairy market that is up for grabs. Cheese used for pizza continues to be the staple for dairy products, and even though many pizza chains are striving to keep business going by increasing deliveries and takeout specials, the long-term effect on dairy demand may be significant.

When it comes to meat demand, the question is whether consumers will maintain the same buying and eating patterns as they were when eating out. Given the uncertainty in the economy at this time, will consumers tend to buy high-value meat products, such as steak, roasts and pork loins? Or will this retail demand be met by increased ground meat demand, which is typically the lower end of the price scale at the meat counter?

It is too early to tell where the final numbers for each meat product will land, but a quickly changing pattern in buying has the potential to limit long-term demand. The longer social distancing continues and the more stay-at-home orders that are issued by government agencies, the more likely it is damage will be done to demand for many of the perishable food products (products that consumers can't store for a long period of time). For most products in most areas, panic buying and hoarding seems to have slowed significantly.

Even though demand for food at the supermarket remains strong and the food-service industry is trying to stay above water in these challenging conditions, the abrupt change of how and where the average consumer buys their food is likely to shake up the industry well after the COVID-19 issues are over.

Rick Kment can be reached at rick.kment@dtn.com

(BE/AG)

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