Guest column by Les Lambert, Bank of America Business Banking Market Executive in Charlotte.
Some sectors of the food and beverage industry have experienced rapid surges or declines in demand due to the coronavirus pandemic. Grocery stores have seen heightened demand, creating pressure to meet the growing needs of consumers confined to their homes. Food and beverage distributors have faced a different reality, with their customers — such as restaurants, hotels and cruise lines — sharply reducing their demands for goods.
North Carolina is the second-largest state in the country for food and beverage processing with more than 1,000 food and beverage manufacturing establishments, according to data from the Economic Development Partnership of North Carolina. Given the size of this industry in our state, the coronavirus pandemic has created very real challenges – and some opportunities – for many. We’ve seen some restaurants pivot to more of a retail strategy and others in the food and beverage industry manage revenue reductions and create efficiencies in other ways. Each shift has created its own challenges and opportunities.
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Here, we share insights and look at how food and beverage businesses are responding.
New challenges for food and beverage companies
Grocery stores: Grocery stores have faced unique challenges due to the pandemic, including keeping workers and shoppers safe from a virus as safety recommendations have evolved. To keep stores clean and safe, managers have increased their use of disinfectants, changed the physical layouts of their stores, increased signage, enforced policies around wearing masks and limited the number of people allowed in their stores.
Additionally, grocery stores have adapted to a growing demand for online order fulfillment, and this has created new challenges. Some grocers have tried partnering with third party delivery services, while others have hired their own shoppers or deliverers. However, these services add costs to already slim margins and create new business processes to be managed.
Distributors: Distributors have had a different experience during the pandemic, undergoing a sharp decline in demand for goods as hotels, restaurants and other large-scale venues closed. While some restaurants, notably “big chain” restaurants, are seeing a return to prior-year customer spending, smaller restaurants have seen a 25% decline.
Some distributors have evolved their business models to supply retail grocers, but doing so necessitates establishing new processes and changing product packaging to be suitable to individual consumers. Also, like restaurant owners, distributors have had to ride the wave of restaurants closing, then opening partially, then opening fully, then closing partially—a pattern that may continue indefinitely.
According to a recent survey by BofA Global Research in June, 32% of respondents did not expect to feel comfortable dining out until sometime in 2021 vs. only 20 percent in April.
Greater needs for safety and efficiency
Now is a time for food and beverage companies to closely examine revenue figures for specific products and product lines to see where the shortages are and what adjustments may be needed. Perhaps the most essential mindset for food and beverage businesses is to look to the future and aim for flexibility. There are several steps these companies can take to protect their businesses in the near- and long-term, including:
— Exploring key technologies that can automate food processing and packing or improve online processes for shopping, delivery, and curbside pickup.
— Shifting product lines to meet new demand. For example, many distilleries and breweries have started to make hand sanitizer in partnership with local grocers.
— Utilizing excess cash to make investments that protect future profitability, like taking advantage of lower fuel prices to move inventory now.
— Retailers should pay special attention to their expenses. Profits are under pressure as stores alter their spaces and practices for safer shopping and working, incurring unforeseen costs.
The future is uncertain, as the pandemic surges in many areas. We are likely to see patterns shift again, with consumers in some areas returning to restaurants and buying fewer groceries. Remaining flexible and adaptive will help grocers and distributors continue to perform despite these waves of disruption.
Les Lambert is the business banking market executive for Charlotte for Bank of America.