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Global food economy: Assessing impact – Part 2

Analysing market metrics, key drivers and consumer behaviour as food producers set out their targets and goals for 2021.

In Part 1, we examined how food producers are set to take advantage of new consumer trends, purchasing behaviour and future adjusted lifestyles. 

Due to the inconvenience and public interaction associated with in-store shopping, online shopping for groceries has been a big winner in this strange climate. For example, in the UK in April, the proportion of online spending on food increased from 5.7% to 9.3% according to the Office for National Statistics. In the US, research from Coresight showed that almost half of shoppers reported that they are buying more groceries online or have started making online purchases because of COVID-19. US online grocery sales grew 22% in 2019 and, encouraged by high demand from nationwide COVID-19 lockdowns, and are expected to increase by 40% this year. In another case, a leading European grocer, typically witnessing 500 concurrent users on its website, saw this number jump to 12,000 concurrent users within one day at the onset of COVID-19-related lockdown.

Providing market estimates for the year 2020 is a very difficult task due to the large uncertainties. Yet, companies still need to set out their goals and targets for the year. Given that Europe and parts of Asia are now slowly getting back to normal life after the lockdown, and that the USA has decided to open up its economy, we need to examine the global markets based on the observed market drivers and the expected consequences of these drivers. In order to examine market numbers in an analytical format, Giract has split 2020 into three distinct periods:

  • Pre-COVID-19 market: January-March 2020 or Q1
  • During COVID-19 market (lockdown period): April-June 2020 or Q2
  • Post-COVID-19 market (assuming no major flare up late this year): July-December 2020 or H2 2020, which is unlikely to see any major lockdowns irrespective of the virus situation.

This will help us to make realistic market estimates of each sector/segment for the rest of the year. For example, sales of specific staples have increased such as instant noodles and canned soups, while business has fallen for some luxury foods. How will this change in a post COVID-19 market when stockpiling may not be seen to be necessary? Will dairy sales continue to be high in markets where milk is still seen as a ‘healthy’ product? What is the likely penetration of restaurant sales in the second half of the year? Each company needs to carry out such an in-depth analysis by examining each relevant food segment and the possible impact on its business, in order to have reliable market estimates. With this in-depth analysis, we will also be able to understand the respective ingredient trends in a clearer fashion. Questions such as “Will middle-level pricing be possible?” need to be posed since the food market is likely to be more polarised into basic foods and health/immune-boosting foods. The time for fun-foods will come, but that may not be the focus of the consumer in any significant manner as of now.

Food producers will try and take advantage of the new consumer trends which are likely to last until at least the end of 2020 due to the lack of a universally-available vaccine. This will be seen in their focus on certain food sectors as well as an increased interest in online selling. Traditional retail is likely to continue to feel the effect of an increasing online grocery trade. Similarly, sit-in restaurants will have to be re-organised to receive a smaller number of customers which in turn will have a strong impact on the profitability of restaurants in general. Food safety will still be a concern for home-delivery foodservice, and consumers will be reticent to accept food from unknown or less known sources. Brand and source loyalty will be highly important in this changing market.

An important task ahead is to measure the change in consumer behaviour with respect to home-cooking and to assess to what extent that has continued even after the lockdown period was over. Hence, the food industry should carry out a scientifically-sound survey to understand to what extent, during the second quarter of 2020, the younger generation has lost the ‘fear of the kitchen’ following forced home cooking. This is vital, since if a significant part decide to stay back in the kitchen either partly or fully, it will have a strong implication on the food and food ingredient industry, since scratch cooking rarely involves the food industry outside of the commodity staples and some cooking aids. The specialty food ingredient industry stays largely outside the kitchen in any case, while consumers opt to cook simple, safe, and ‘natural’ food. 

Moreover, youngsters are impressionable and are willing to change unlike the older generations who are most likely to revert to their normal food habits once the situation becomes quasi-normal. The current younger generation is also more sensitive to issues such as job insecurity, hygiene and social responsibility—which may well favour home-cooking at least to some extent, now that they have had a good immersion in the kitchen for three months. Thus, it is hoped that a reliable study will soon be made available on the expected future buying and cooking behaviors of consumers in different parts of the world across different demographic and psychographic groups. 

There are many challenges for the food and food ingredient industry such as the shortage of labour, working capital deficiencies, broken supply chains, and above all, a significantly changed consumer. But this strange situation has also thrown up quite a few opportunities. The four major consumer drivers in the food industry—price, food safety, immunity-boost, and overall health & nutrition—are here to stay for some time. Those companies that are flexible in their approach to business will survive these testing times.

Dr. V. Krishnakumar is managing director at GIRACT, Switzerland. Giract continues to work with the food and food ingredient industry and constantly evaluates this changing mosaic in order to be able to make meaningful and useful forecasts for the coming years across global sectors and countries.

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