We see a lot of change right now as everyone is dealing with the COVID-19 situation. Last week, we made the case that this disruption has evolutionary character, where we try to adapt to the current situation the best we can and learn new ways to move on. I took the last week to talk to almost all of my clients in the food industry, and I see change. What I do not see are things like disruption of our food supply or any real concern of the industry as a whole, actually quite the opposite: there is tremendous opportunity ahead.
I did my panic purchase of food items last week. As I was visiting my favorite wholesale store with a long list of items and purchase horizon of 4 weeks, I pretty much got what I needed. $500 later, my cart was full with everything on that list, except a handful of items: Hamburger Buns, shredded cheese, Italian salami and tortilla chips were either not available, or I did not like the style they had. America seems to start cooking fast food – at home. Go figure.
The food feeding the world is usually the result of a long agricultural process which provides a continuous flow of supply. Natural disasters like the one we are facing right now are usually not disrupting the food supply. The ingredients we make our food from have been growing for months or even years. Your Hamburger Meat is most likely from a dairy cow that expired sometime after her 3rd birthday. Some of your cheeses or dry cured meats take months to produce and may even be aged much longer. These things change rather slowly, and as long as we do not see a breakdown in logistics, keep the borders open for food and the industry running, there will be no shortage. This is not the Dustbowl of the 1930's or a cricket attack on our growing fields, this is a healthcare crisis.
The healthcare crisis will of course affect us in this industry, but probably not very hard. I hear that most business right now try social distancing in manufacturing, segregating break rooms, limit people from moving, reducing team sizes. There will be one or the other sick person, and one or the other business disrupted by the outbreak, but these things will be incidental and isolated, a segment of a business at a time or perhaps one particular business as a whole. Business will resume in short order after that. Businesses in food may have some labor shortages, as parents may need to stay home for the kids, but unskilled labor will be not short in supply over the next months and business probably do well to get their HR department in order and perhaps partner with some of the hardest hit food service establishments to fill these vacant positions.
The larger change affecting us all is probably the shift we see in consumption. As our food consumption has shifted from food service to retail, we start making more of our food at home. We also see a rise in home food delivery (Domino's, Papa John and the likes are still running), but the food service industry as a whole is all but shut down. Of course, restaurants will re-open, concerts rescheduled and a next NFL season will take place. But we adapt to eat at home. People have time at home to prepare meals. They may find out that the $4 burger made fresh at home from ground beef is a better than the $16 restaurant burger. People will try the recipes their friends share on Facebook and Instagram. They may learn how to make a stir-fry in 20 minutes with a bowl of rice that rivals you favorite Chinese place.
I am not sure how the consumption will shift. If I would, I would probably not sell software but stocks and derivatives. But I am sure that the consumption changes happening right now will change the type of foods people buy, where they buy and how they buy. I believe that the change happening right now will not revert back, and people will think twice before they revert back to old habits, perhaps a little depending on how long they are being trained in the new ways.
The best of all is, that I can see that most of our customers are doing well. Their production volumes are mostly up, they can sell without promotional expenses or special discounts. Their biggest worries are whether they can get the raw material to produce on Saturdays and Sundays. These current volumes and margins are probably unprecedented. The demand outstrips supply by so much, that margins run high and most processors will have the financial means coming out of this to invest into their business to defend the newly claimed market spaces they are in.
No, most customers of ours produce and sell on levels only seen at the best of their respective seasons. Food manufacturing is growing and they are taking a bite out of food service – one it will take years to earn back.