This article is the second half of a two-part series examining the current and potential impact of the COVID-19 pandemic on the food and beverage industry.
Earlier this year, in the first article of this series, I focused on the food trends taking shape as we began to accept the fact that COVID was going to be a major factor in 2021. One of the changes that quickly rose to the top when socializing activities were severely restricted was the spike in at-home meals and the corresponding movement toward healthier eating with a unique focus on preparing meals using immunity-boosting ingredients.
But the influence of the pandemic did not only disrupt behavior regarding obstacles facing retail grocers and the debilitating effect of ‘shelter in place’ on restaurants. In fact, the reality of more meals at home forced rapid adjustments not only to the food industry but also to the beverage world. Those businesses in the beverage sector, like their colleagues in the food sector, had to ‘pivot’ quickly by creating new opportunities, forming new distribution channels, and creating new products- including expanding options from traditional wine and beer offerings to ‘all in one’ pre-made popular cocktails like bottled Mai-tais, Cosmos and Margaritas!
A roller coaster ride for restaurants
Restaurants were hit hard during the initial 2020 shut down across the country, many closing temporarily and others shutting for good. But during the spring and summer months, there was a return to a more normal status as customers took advantage of the good weather to enjoy outside dining in retail food establishments. But as winter and its cold weather approaches for most of the country, restaurants are expected to struggle once again as the number of positive COVID diagnoses begins to steadily increase.
And although the exodus from restaurants may slow down, the trend could continue. Nearly three fourths of the people whose responses were included in an article entitled, “Moving Forward: How Food and Beverage Companies Can Adapt” said they intend to continue cooking more at home even after the pandemic ends.
The data behind the covid-driven transformation
In 2019 the National Restaurant Association eagerly predicted a 3.6% rise in industry sales. But as the pandemic continued to explode around the world, the reality of the situation became clear. The influence of COVID-19 reversed that expectation as consumer spending in restaurants went into a steep decline. By August 2020, spending in restaurants was down 34% on average!
This shift to eating and drinking at home has been behind some interesting changes in the industry. According to a study conducted by Technomic as published in Beverage Industry magazine, behaviors regarding beverage consumption followed a distinct pattern because of Covid-19. Here are some of the details:
- 52% of consumers who ordered food from a food service (for eating at home) did not include a beverage, because they already had a beverage at home; and, as a result,
- 35% of operators said they reduced the number of beverages they were offering because of COVID-19.
Despite these data points, beverage consumption continues to thrive. What is different is the distribution channel, which has undergone drastic changes. While restaurants experienced severe loss of revenue, grocery store sales were up nearly 30% in March 2020.
When restaurants and bars shut down last year, industry data demonstrates that bottlers got through it by moving away from fountain and single-serve drinks to focus instead on more convenient consumer-centric packaging to encourage shoppers to load up their carts at grocery and liquor stores with drinks to take home.
Supply chain challenges appear on the horizon
Once the vaccine became readily available in early 2021, it was expected that consumer confidence would rise and the number of patrons at bars and restaurants would return to more normal levels. So, when Americans stopped staying home as much over the recent summer months, that prompted the need for beverage suppliers to pivot once again to keep up with the new demand for “immediate consumption” packaging. And that’s when supply chain challenges moved into first place on the list of obstacles for the beverage industry.
A shortage of bottles and cans is responsible for much of the problem, but trucking and shipping snarls, missing ingredients, labor woes and even freak weather are all contributing to shortages, leaving grocers scrambling to fill in the gaps. So, although most traditional grocery categories are experiencing 5 to 10 percent of products out of stock right now, beverage shortages are even higher resulting in 13% empty shelves.
Innovation for the beverage sector
Since the way beverages are being purchased and consumed has undergone a major transformation, so, too must the entire industry embrace new ideas.
The expansion of online shopping, curbside pickup, and at-home delivery of beverages has changed the shopping experience for individuals forever. The convenience cannot be overlooked. While traditional restaurants may be suffering, beer, wine and liquor stores have been among the top performing industries during the pandemic, according to Vertical IQ market research reports.
And what is the result of this more robust market? Well, stronger, consistent cash flow and access to more dependable levels of cash provides a cushion for offering employees bonuses and raises at a time when the ‘Great Resignation’ is strangling many retail companies. In addition to more cash for employee incentives, stronger cash flow also enables attempting new creative approaches to enriching the ‘new’ customer experience and engaging more effectively with their target market. Lastly, extra cash can fund necessary improvements to the company’s infrastructure, including installation of new software for more efficient automation – such as inventory management.
Leveraging the chance to change
The pandemic has surely changed the way people purchase and consume beverages – which has proved challenging for beverage companies. It is only going to get worse with the holiday season around the corner. But one important lesson that has been learned throughout the COVID pandemic is that while change is never comfortable, it is a necessity.
A recent survey conducted by McKinsey found that “nearly 80% of the consumer-packaged goods executives” who responded to their questionnaire said they believe the “pandemic will have a lasting impact on their consumers’ needs over the next five years.”
For those in the beverage industry, change is inevitable. As in any time of great upheaval, innovation must take root to succeed. And, most likely, those companies that approach the new landscape with a strategy that takes into consideration their customers’ new shopping styles and tastes while making the purchasing experience very personal, customized, and easy by implementing online shopping and convenient, free at home delivery, will be the ones to thrive through any challenges!
