Everyone in retail today is, or should be, focused on understanding and responding to sales impacts due to COVID-19. One study I have been directly involved in examines the shift of food-away-from-home (FAFH) dollars back into food retailers. We’ve all seen this surge and are witnessing thousands of new variables being added to consumer behavior on a daily basis. It’s unprecedented and it’s global.
I’d like to share some of the insights I’ve discovered around food-at-home (FAH) and the shift as restaurants close, and its potential long-term implications. But first, I’d like to say that in terms of general trends derived from POS data, the next 12 to 18 months will offer little insight. In order to identify new behaviors that are actionable in the immediate term, household data is critical.
The pendulum swings: food-away-from-home vs. food-at-home
Below is some research that we pulled together on FAFH, meaning restaurants, and then FAH, which is primarily delivered through the retail grocers.
This indicates that FAFH in the United States has been taking a bigger and bigger share of stomach for more than a decade. It’s the thing that retailers complain about the most. People are eating out more and more over time. In fact, in the US, one out of every $2 spent on food is spent away from home. And that’s been growing since 1997.
Further, if you drill into the data, full service and limited service restaurants make up the largest portion of that away from home spend by far. Seventy-two percent of all away from home spending is done in these two channels – and these are the ones most dramatically impacted by COVID. So, the shift back to eating at home is obvious. What are the implications of this? I’ll quantify that in a moment.
The first wave: pantry stocking
If we break the shopping trends of the COVID event into segments, we see the first wave consists primarily of stock-up and panic buying. We see high demand of non-foods, center-store grocery and frozen foods. While there is some increase in perishables, it wasn’t close to the magnitude of shelf-stable items.
It’s interesting to note that, as we take a closer look at food retail, we see many of them self-limiting by the same constraints as FAFH. In other words, grocers were closing sections of their stores like deli counters, salad bars and hot food bars. Since the outbreak, I’ve started to see some of those open back up, and that’s a real opportunity for food retailers. As restaurants continue to be closed, grocers can start to capitalize on the situation and change trends around the “restaurant-alternate” areas of their stores. Further, some retailers that I work with say that they’re expecting this trend to continue for quite a while because their customers are telling them that they are fearful of returning to FAFH outlets in the near term.
The second wave: economic impacts of the shutdown
The second wave, which I believe is already here, will see shifts in buyer behavior in response to the current economic downturn and rising unemployment. Decreasing stability in our economy is going to create a big shift, especially in terms of price-sensitive households that really need to stretch their food dollar. I believe food retailers are uniquely positioned to capitalize on this shift.
The closest event to the COVID outbreak, from a dining spend perspective, is the 2007-2009 recession. During that period, the net decline of FAFH was 10% and food retail picked up 4% of that decline. Considering the current shifts in behavior during the COVID event, we think we’ll see, at minimum, that type of a shift going forward.
If we apply that 4% shift in FAFH spending experienced in 2007-2009 to food category sales in the United States, it’s possible that about $10 billion in additional sales will shift back toward grocery retail in the US alone. So, we can see that even a 4% increase would have a large impact and I believe that this Covid-19 event will have an even greater effect than the previous recession.
The third wave: a permanent shift in behavior?
The third wave, yet to come, is more long term. The key question is: Once this temporary shutdown is over, and the restaurants open back up, what will be the collective impact coming from 150 million households cooking at home pretty much every night? It’s almost certain to keep some portion of dining dollars in the home as people have developed a renewed appreciation of the importance of meals with families, as well as some of the savings from reduced eating out.
So, let’s use a very modest assumption that only 5% of that food-away-from-home spend permanently shifts back to food-at-home. That impact would account for an additional $13 billion going back into food retail. In the end, we believe that the collective impact of COVID-19 on food-away-from-home is that it could shift a minimum of $23 billion in spending back into FAH outlets. Further, if we break out the distribution of food-at-home across the different types of retailers, with traditional grocery accounting for about 72% of all spending, it’s quite likely that almost $17 billion in new sales could leave food-away-from-home and flow into traditional grocery retail (+7.7%).
There’s a lot of change in the air and in the aisles
As the FMCG industry shifts during and in the wake of the COVID-19 crises, there’s no doubt that major changes in food retailing are ahead. To fully understand the trends resulting from new customer behaviors, more than ever, retailers and CPGs will depend on very specific household data. To better meet the changing needs of the post-COVID19 consumer and to leverage the vast sales opportunities resulting from them, retailers and CPGs must gain ongoing insights to consumer data to sort out the short-term purchasing behaviors from longer-lasting – even perhaps permanent – purchasing habits.