Are you ready for the reset?
Written by Trefor Griffith, Head of Consumer Industry Group and Head of Food and Beverage, Grant Thornton UK LLP
The return of the freedoms restricted during months of lockdown is dominating the thinking in many businesses as we all get ready for a new ‘normal’ this summer.
Things are going to be different. If we fast forward even further to 2022, it’s still hard to picture Friday nights with customers standing shoulder-to-shoulder in busy pubs.
Will low cost flights still be available and packed out with sun-seekers, as they were before the pandemic?
With offices potentially only half-full, is downsizing away from locations with expensive rents and rates going to be a formality?
UK Plc has spent the last 12 months coping with upheavals and abandoning received wisdoms. Parts of it will have to adapt again to stay in front of any market resets.
In all this change the food manufacturing industry, which plays an important role in the South West economy, has proved itself resilient. We always eat. We don’t always go on foreign holidays or drive new cars. Yes there have been sector challenges but as a nation we are consuming a similar amount of calories now as we did before lockdown – we are just consuming them different ways.
Over 30% of our calorific intake before the pandemic was outside the home – more than 50% in the US. That figure tumbled as we have not been able to pop into cafes or coffee shops for breakfast or lunch, and dining out with friends and family has been impossible for long periods. At the same time, people have been experimenting with home cooking and sales of wine for home consumption have soared, the latter perhaps more likely to bring the required sense of indulgence.
Online food shopping has boomed. Sainsbury’s doubled its online sales in the first three months of the lockdown last year. It was managing 700,000 online grocery orders a week by the end of October. How much of that demand will stay online?
We do expect to see new concepts in the restaurant and hospitality sector. There will be pubs, restaurants, cafes that can’t operate profitably if there is any significant reduction in capacity driven by social distancing or if consumers turn away from crowded venues. New environments may come into play. The space increasingly available on the High Street, in some cases vacated by large retailers such as Debenhams, could be an option. Imagine restaurants which would have previously occupied small venues on a secondary street relocating to larger spaces on main streets, with the level of rent and rates adjusted to the new market realities.
For hospitality the really good news is that most of us are desperate to eat and drink out again. Some operators are expecting a golden summer. Everyone been locked in for months and large swathes of the economy will be able to afford to enjoy the experience – they are still in work, and have not been spending.
Brexit is also in the mix. The disruption so far has been focused around the import and export of fresh produce. Wider repercussions involving labour drying up may be just around the corner. A shrinking pool of overseas workers will only to add difficulty and costs – and could put a struggling business in real trouble.
These and many other dynamics affect the food service supply chain. In terms of trends, the double-header of pandemic restrictions and Brexit may well encourage more interest in seasonal produce that is grown locally or at least in the UK. Smart producers will also be concerned about the increased risks of selling to pubs and restaurants that could ultimately fail as the market faces, in some cases, harsh reality.
On top of all these ingredients, there is the question of how our nation pays for COVID-19. Any significant changes to the tax system can crystallise views about growth or exit strategies. Consolidation may be attractive to some, large scale restructuring on the table for others.
The food and beverage sector as a whole has showed itself to be both resilient and innovative through all the turmoil. That reality will add to the appetite for the sector now. From an M&A perspective, there is no shortage of investors ready to fund deals. We work, rest and play in interesting times.