Restaurant Failures Could Slow Beef's Recovery
In its latest report the National Restaurant Association revealed as of March 12th, a net 417,000 foodservice jobs had been lost. That was more than six times the previous record of a 67,000-job decline, nearly 20 years ago in October 2000.
The report notes "it is likely that the net job losses in March stemmed more from a reduction in hiring than a sharp increase in layoffs. Restaurant operators likely saw the approaching economic uncertainty associated with coronavirus, and a lot of planned hiring activities ground to a halt."
This huge number, unfortunately, is expected to be only a fraction of the job loss numbers shown for the foodservice industry in the next report, scheduled for release by the U.S. Bureau of Labor Statistics May 8th.
Will Sawyer, lead economist for animal proteins at CoBank, says these losses are especially troubling for the U.S. cattle complex. Beef, more than any other protein, depends heavily on restaurants and other foodservice outlets for consumption.
"Right now, we see that beef sales to foodservice are down about 50%, compared to pre-Covid-19 levels," he says. "That is especially an issue on the middle meats, like the tenderloins. I won't be surprised if we see a two-thirds loss in beef sales due to steaks and roasts and other high value cuts, compared to the ground side."
Sawyer says it's important to remember beef has the highest dollar sales in food service of any protein. The highest proportion of domestic beef sales are to foodservice.
"This means beef has the most at risk right now," he stresses. "Given the sit-down nature of beef consumption in foodservice, and the higher price point, the beef complex is the one that feels the most pain when there is a shift in consumer traffic to restaurants."
Looking ahead, Sawyer notes a concern is how many of those restaurants that close, will do so permanently. At this point, reports are indicating about 3% of the restaurants that have closed say it is a permanent decision; 50% are closed temporarily.
"Some projections I'm looking at are showing another 15% could make the decision to close permanently," says Sawyer. "That is a real concern. This is not just how soon can we get this under control and start to see Covid-19 cases plateau and decrease, but long term when does the consumer come back into a restaurant? If that takes longer than anticipated, it could mean more restaurants permanently go out of business."
Sawyer wonders if as more people wear masks, that hurts the ability to normalize restaurant traffic over as much as the next 6 months.
Consumers are, however, finding paths to get the product they want. Sawyer says there are likely to be expanded opportunities in direct sales and some types of branded programs.
"Right now, any method that allows a consumer to get your product without being around others is doing very well," he says. "I even know of chicken plants selling direct to consumers out the back door. Within an hour or two of word getting out, they are out of product."
Branded programs that emphasize higher-end attributes are at an increased risk, however. Sawyer says it's important right now to consider "consumer shock" with regards to beef prices and high unemployment.
"We are looking at moving from 3.5% unemployment to possibly 20% to 25% unemployment," he notes. "Prior to Covid-19 we were in a buying phase where consumers were eating protein the way they did pre-recession. Now I think we have to be worried that higher-end programs may struggle to find someone willing to pay $15 a pound for beef. The question remains is this a fast, deep recession; or is this something that will challenge our economy and as a result beef consumption for a longer period of time."
There's more to where the market goes than domestic consumption, concludes the economist. He reminds people that importer competitiveness is eroding quickly, as the US looks to have larger beef supplies, and lower prices. It remains to be seen if demand can be the game-changer the industry needs to wrap up 2020 in a positive way.
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