Agile Scottish food and drink businesses create opportunities through new channels
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The impact of the Covid-19 pandemic on the food and drink industry has been dramatic, as it has everywhere, but in few industries has there been a huge downturn for parts of the industry while there has been a massive upturn for other parts. To emphasise this, we only need to look at the business growth food producers have seen selling to supermarkets and working with new partners such as food delivery services. Supermarkets saw their shelves almost completely emptied in the first weeks of the lockdown, they have been short staffed and have scrambled to build capacity for all the new online deliveries. While the food delivery services have seen dramatic sales growth as well. On the other hand, large parts of the hospitality sector have been shut down for months, and there are concerns about people’s willingness to go to restaurants, cafes and pubs over the coming months. Food exporters have also seen export markets dry up and found it difficult to access the markets that remained, while producers selling in local markets have seen their outlet through the hospitality sector close. The overarching picture here seems to be that demand has not been destroyed, but rather redirected, and opportunities exist for those who can position themselves.
Access to market
Many businesses in the food and drink sector which have seen their usual route to market disrupted or shutdown, have been able to successfully access new markets to sell to customers where there is still demand for their products or services. For example, restaurants, cafes and pubs offering takeaway menus and delivery services, or food exporters selling to supermarkets, or partnering with food delivery services. The two factors for this strategy to succeed are the proximity to a large enough market, and the diversification of sales channels.
Hospitality
In the hospitality industry the disruption from Covid-19 has been severe. Restaurants, pubs and cafes have been forced to close their doors, and at this point in time may only be allowed to open again on 15 July, while outdoor seating areas may be allowed to open earlier on 2 July. Given that many of these establishments will have to operate at reduced capacity to comply with social distancing rules, and the uncertainty of whether people are willing to dine out in restaurants in the short term, there are still tough times ahead for the sector.
There are some bright spots, and some in the hospitality sector have been able to continue trading, reaching customers and in some cases growing revenue, by accessing new markets. As mentioned above, takeaway and delivery options have increased dramatically, and restaurants are now starting to create food boxes as well.
Luigi’s Pizzeria in Dundee has added new services which Dominque Newton, the owner, says have been vital to keeping the business going. One of their new services is DIY pizza kits, that come with the ingredients to make the pizza at home, they now also offer contactless deliveries and part-baked pizzas. They have also created their own app to communicate with their customers. This has created new challenges for the business, in setting up processes to manage the deliveries, but orders have increased dramatically.[1] Bread Meats Bread, a family owned business with locations in Glasgow and Edinburgh, has also successfully added new services to reach customers. They used social media to stay in contact with their customer’s during the first part of the lockdown, and then when possible reopened with a takeaway menu and started delivering through Uber Eats.
These companies exemplify the difficulties that many in the hospitality industry face, in that while they are close in proximity to large markets, they may lack channels to sell through when dining in is not an option. They have both successfully managed to diversify their sales channels, stay in contact with their old customers and reach new customers.
Food and drink producers
The main impacts for food and drink producers that used to export their products have been on supply chains, as James Withers, chief executive of trade body Scotland Food and Drink, points out.[2] There are new difficulties around moving goods and people across borders, while freight capacity has dropped significantly and the price has increased for the remaining space. An example of this, as he points out, is that salmon exports used to go in the undercarriage of passenger planes which are now operating at reduced capacity. The challenge over the next months is to rebuild those supply chains, though re-establishing markets will be easier for non-perishable goods as they will not have to rely as much on airfreight, where capacity is unlikely to come back online quickly. The prospect of export markets not fully recovering is real, and to build resilience food and drink producers should look to sell to the domestic market, and partner with supermarkets and food delivery services where possible, to access new customers. Many producers who sold to restaurants, cafes or pubs before face a similar challenge.
Grocery sales have grown 19% in the four weeks to 14 June.
Again, here there are bright spots for food and drink producers. To start with Reuters reported that grocery sales in the UK have grown 18.9% in the four weeks to 14 June alone, and over the same four weeks online grocery sales have been 91% higher YOY.[3] The use of food boxes has also increased, PwC report that as a result of the lockdown 20% of people have either bought from a food box delivery service or are looking to in the near future.[4]the crisis face a similar challenge.
This has led a large increase in food box offerings, which continues to expand remarkably fast. Supermarkets are now offering food boxes, for example Morrisons has added a number of options, and have food boxes for barbequing or aimed at replicating takeaways. Less established businesses are creating their own services, to fill gaps in the market. Roeder & Bell, a new online food retailer in Edinburgh, is offering high quality local produce. Their aim is to help local food suppliers get to market and reach customers while restaurants are closed.[5]
Looking ahead
The food and drink sector is unlikely to see a fast return to business as usual, as Scotland continues to exit the lockdown and social distancing rules are relaxed. Businesses that have successfully been able to diversify their sales channels and stay connected with old customers, as well as reach new customers, will be in a much better position to grow and compete. They also give themselves the option of being able to diversify the products and services they can sell through these channels.
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About Where Now Consulting Ltd: Where Now Consulting is a management consulting company that focuses on helping its clients to grow and compete. The company offers a range of consulting services, including business turnaround and performance improvement, formulating market entry strategies, mergers and acquisitions, joint ventures and alliances, and sales and distribution strategy and management.
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* A market is defined here as being both local and large enough to provide a customer base, and continuing opportunities for growth.
[2] https://www.insider.co.uk/special-reports/special-report-how-fortunes-varied-22135302
[3] https://uk.reuters.com/article/uk-britain-grocers-kantar/uk-grocery-sales-growth-driven-by-online-and-convenience-in-lockdown-idUKKBN23U0UP
[4] https://www.pwc.co.uk/premium/covid-19/uk-economic-update-covid-19.pdf
[5] https://www.insider.co.uk/news/artisan-food-delivery-service-launches-22028098
<https://www.freepik.com/free-photos-vectors/food”> Food photo created by senivpetro – www.freepik.com>