COVID-19 and the food industry

Summary

With the move into a new phase of the COVID-19 pandemic, Deloitte explores how the food industry has changed in the Netherlands and what the future looks like, offering insights for business leaders. Here are our key findings:

• The Netherlands will probably not return to ‘business as usual’ in the coming year, at least structurally. More disruptions are expected, including potential lockdowns. 
• The crisis has largely inflicted severe damage on the industry, with entire supply chains experiencing disruption, although some businesses, such as (online) food retailers, experienced a sudden surge in sales.
• Forced changes to consumers’ eating and shopping behaviour has broadly affected the industry’s period of transformation.
• Consumers are seeing a link between health and food, which will remain after the pandemic has ended, and presents opportunities for more collaboration between the food and healthcare industries.
• Digitisation, technology and innovation will be key to surviving the crisis, extending to virtually every aspect of how we produce and receive food. Those companies that embrace digitised solutions have a much greater chance of surviving, and even thriving
• Stakeholders across the industry are critically assessing their businesses to not just adapt to the ‘new normal’ but do so with ecological and ethical responsibility.

There’s no denying the seismic shock COVID-19 has had on all industries, but perhaps unique to the food industry is the broad range of effects, from devastating to rewarding. Online food retail has enjoyed a sudden bounty of new customers, even as production has been crippled by a lack of workers and ingredients – not to mention the concerns and fears that arose as the coronavirus crept into factories and processing plants.

In the Netherlands, we cannot expect the world to bounce back soon. Businesses that avoid this truth – and do not plan for future disruptions – are not likely to withstand the impact of this crisis and its after-shock effects. For savvy business leaders, the question has become not whether but how to kickstart transformation that will adapt to the new reality. Deloitte has drilled down into what the next year or so will look like. Our insights should make at least one thing abundantly clear: Change has already arrived, and every opportunity must be seized to turn negatives into positives.

The saga continues: A disruption interval world

Looking at the Dutch government’s response to the onset of the pandemic, we can understand and predict the response to future such disruptions, as discussed in Deloitte’s recent article, “After the shock: Learning to thrive in a (post-)COVID-19 world”. It’s apparent that until a vaccine becomes ready and available, hopefully in 12 to 18 months, we will need more interventions as new outbreaks can be expected. Deloitte anticipates a ‘disruption interval’ world: normal at times but with intervals of severe disruption that have clear triggers, and escalations.

There is a short and crucial window of time over the coming months for companies to prepare for the 12 months that will follow. Deloitte encourages business leaders to take advantage of what is expected to be a relatively normal period over the summer, readying companies for COVID-19 intervals throughout autumn 2020 and into spring 2021. With one eye on that future, let’s survey the damage that’s been done to the food industry so far, to see what changes are likely to stick.

How the food industry has fared so far

It’s difficult to pinpoint which aspect of the food industry has been most heavily affected in the crisis, which has produced winners as well as losers. Consider the many food retailers for whom business is booming. Certainly they have struggled to meet a surge in demand and dwindling product availability as suppliers were stymied, but overall this aspect of the industry has benefitted. It began with the first signs of the pandemic, which prompted panic buying and led to record retail sales that were comparable to Christmastime shopping: 32% more supermarket sales than during the same period in 2019¹.

What’s more, consumers who had never considered buying groceries online were suddenly without any other option. Not only will this trend likely continue throughout the next 12 to 18 months, but there’s a good chance it will become permanent, especially for first-time shoppers aged 31 to 35, as well as many aged 41 and above, as Deloitte predicted in our recent piece, “People still need to eat… but how they shop has changed due to COVID-19. Possibly forever.” Many of these new customers will recognize the convenience of a seamless online buying experience, and come to prefer it over shopping in stores.

But at the other end of the spectrum of COVID-19 effects, the battle scars are undeniable. The food supply system has been hit hard, being so interdependent that effects on single suppliers have disrupted entire chains. Moreover, as countries closed their borders, suppliers also found themselves without migrant workers to pick or process harvests, and without the means to transport ingredients or products.

Then there’s the crushing blow dealt to the restaurant industry, with reverberations extending in all directions. Food and alcohol suppliers found their bar, cafe and restaurant customers either shut down or reduced to minimal takeout/delivery demand. Those supplying to fast-food restaurants were stuck with a surplus of product and zero demand, nearly overnight.And of course the restaurants themselves were brought to their knees, forced to seek financial assistance and figure out how to keep or attract customers. Even Michelin-starred restaurants began entering the once low-brow takeout scene. Now there are new challenges for re-opening businesses to address hygiene and social distancing, which are made even more complicated by factions of the public who are taking a stand against social distancing.

Most aspects of the food industry will continue to struggle. The food-service industry alone expects a loss of €7.1 million in 20202, owing to a significant drop in tourism spending and domestic demand. Consider, also, the impact on the suppliers to food-service companies. How many companies will be able to sustain business in this new reality, under the necessary restrictions? The landscape is shifting under our feet, and the entire food supply chain is at risk unless it finds a way to become sustainable, pre-vaccine.

New preferences lead to new priorities

Beyond the obvious effects of COVID-19 on the industry, another catalyst of change has gained momentum. Before the pandemic, consumer preferences were already shifting as many people had started leaning toward healthier foods and including organic products and meat substitutes in their diet. Now they’ve been witnessing the effects of the disease on vulnerable victims, and nutrition has become an even higher priority – one that’s being reflected in their recent shopping choices. As Dominique van Seggelen, Consumer Industry lead at Deloitte, noted in the recent article “The future of personalised food and global health”, we are seeing an opportunity reveal itself: for companies, governments and research bodies to collaborate in meeting a growing demand for healthy ingredients and high-quality foods.

Just as the pandemic has fed a nascent consumer appetite for healthier foods, it has also fed an interest of companies to demonstrate more social responsibility. As they work to develop new business practices, Deloitte has seen companies taking on, or renewing, a commitment to fostering a more ecologically and ethically responsible food system, including supporting the health sector. This is a moment in which business leaders are casting a critical eye on their organizations’ accountability and turning in new directions.

Turning corners through technology

What can be gained from these evolving priorities? A lot, for businesses that embrace innovation and digitisation. As just one example, let’s look at food delivery. Its heightened popularity will inevitably continue into the future, as the physical spaces of restaurants won’t look normal for a while. So most restaurant patrons will continue to seek meal delivery, through a service that fits seamlessly into their lifestyle – meeting their nutritional needs along with their desires, conveniently, through technology.

In China, food delivery and mobile device use are strongly interconnected in a way the Western world likely will not see for some time. (Major players would be required to help drive such a transformation.) But recently, in the Netherlands, there are definite signs of rapid technology uptake; some restaurants are working on enhancing apps to enable customers to order food and pay for it using only their smart device, whether that’s for delivery or collection. This kind of convenience fits their customers’ behaviour by meeting them where they already are: on their phone. It also reduces personal contact to the bare minimum, in a perfect symbiosis of evolving preferences and accelerated adoption of technology.

Technology will also be critical to other industry changes. Companies that used to rely on catching the eye of hungry pedestrians or motorists at the roadside must now find other ways to engage them, through apps, membership programs, and other technology-supported ideas. The new reality offers a very limited pathway for businesses that eschew such innovation.

Beyond optimising the restaurant-customer connection; tech-driven innovation can be applied to the entire food value chain. As noted recently in the article “How COVID-19 is accelerating the food transformation”, artificial intelligence, smart data, blockchain, robotisation and precision farming are just a few of the technologies presenting companies across the entire chain with avenues to boost productivity and reduce costs. For resilience and agility, industry players are exploring and investing in online channels for their route to market, or business-to-business networks that connect siloed supply-chain elements, providing transparency and intelligence that should boost efficiency and eradicate food waste.

Let’s not forget the link that people are increasingly making between food and their health; the technology is also there to strengthen that connection. The leaps and bounds the healthcare industry has taken lately will remain useful and present a digitised environment to easily offer personalised nutrition recommendations. The pandemic has highlighted the fact that 2 billion people lack adequate nutrition worldwide³ , and, in tandem, there is a growing awareness that the right nutrients will improve preventive care and post care. Tailored advice could help combat obesity and other food-related conditions that 1.9 billion people worldwide already suffered from before COVID-19 came along. One day these recommendations may even be personalised based on a person’s specific DNA, but until more guidance and insight is in place, that forecast remains speculative.

The road ahead

It’s clear that Dutch businesses are recognising the trends and working to enable transformations, which is not an easy task. Moving past traditional means of working requires strong leadership, sponsorship and operating models that allow a degree of agility to allow experimentation and the fast-tracking of successful innovative ideas. For the food industry to accommodate these changes, new business models – and, in some cases, a whole new way of working – are inevitable.

New business models are ushering in a whole host of questions that need addressing. How do you distribute revenue? Are there new roles that must be filled, or just stakeholders whose roles will shift? Is the business owner now a platform owner? Do you need a partner for this transformation? Such questions often lead to more questions before an answer crystallises. As an example, for a company looking to rapidly adopt technology, a partner – particularly a start-up company – can be useful, but scouting the right partner and defining the way your engagement will work (capital share, etc) requires problem solving and investment. Business leaders should be prepared to take time scoping their new reality, devoting considerable effort and strong dedication while incorporating any shortcuts or lessons learned.

Regardless of the extent of transformation, Deloitte believes that three points of action can allow companies to thrive in a post-pandemic world: Understand relative exposure to interventions, increase robustness and boost adaptivity. To meet the latter two expectations, innovation and digitisation will be key. In a recent poll, more than half of the attendees of a Deloitte webinar said innovation and digitisation are among the top three priorities for their companies in their plans to survive the crisis.

Suppliers are also optimising their product portfolios to reduce dependency on single sources, having observed the downside of depending too heavily on any single country or on geographically distant suppliers. One step toward robustness may be taken by engaging with local producers whose inventory won’t be threatened by transportation logistics. Anticipating disruptions and securing alternatives now can mean assurances of stability, and potentially even partners who can help reinforce social responsibility.

In conclusion

Although our entry into this disruption interval world is being marked by a restoration of certain aspects of life, it’s not life as we knew it and the battle is not nearly over. In the post-pandemic world of 12 to 18 months from now, more people will carry on working from home, socialising at home, and feeding themselves at home. They’ll still be hungry, but their palates will have changed. Will the industry have adapted sufficiently by then to meet their needs?

_{¹ “Supermarkten zien omzet oplopen tot €996 miljoen door ‘hamsteren’ – ketens zoals C&A en IKEA sluiten juist hun deuren door het coronavirus”, ANP, Business Insider Nederland, 18 March 2020: https://www.businessinsider.nl/supermarkten-996-miljoen-hamsteren-coronavirus-ca-ikea-blokker-hema-coolblue-bijenkorf/}

_{² “Foodservice verliest €7,1 miljard in 2020”, FoodService Instituut, 16 April 2020: https://fsin.nl/actueel/nieuws/611/foodservice-verliest-€71-miljard-in-2020}

_{³ “Micronutrient facts”, Centers for Disease Control and Prevention, U.S. Department of Health & Human Services: https://www.cdc.gov/nutrition/micronutrient-malnutrition/micronutrients/index.html}