Foodservice, retail see growth amid higher consumer spending on food

How the food dollar ultimately splits out between foodservice and retail remains to be seen, but right now both channels are experiencing growth.

“Much of the talk at the start of spring was whether lifting COVID restrictions on foodservice would mean lower spending at retail,” the Steiner Consulting Group observed in a new report. “In the last two months, however, it appears that both food distribution channels managed to eke out gains.”

According to the report, May dollar sales at foodservice were $67.3 billion, a record high. That number was up 1.8% from April. More traffic and higher menu prices due to inflation have driven the gains.

Anne-Marie Roerink, principal of 210 Analytics, said numerous indicators – gasoline sales, TSA checkpoint numbers and OpenTable reservations among them – show increased consumer mobility, which generally coincides with more meals happening outside the home.

“It is an interesting thing that we see happening where restaurants have largely recovered and yet we’re seeing elevated demand at retail,” Roerink said.

Habits and meal occasions

“I do believe that people have changed habits that will stick around for quite a bit. When the pandemic first started, there (were) some Amazon statistics of 7,000% increases of sales in things like cutting boards and knives and colanders, your most basic kitchen appliances and supplies," Roerink said. "So that would indicate that, hey, people clearly were not cooking, because if you don’t have a cutting board and knives, then more than likely, other than scrambling an egg, you probably didn’t do a whole lot of cooking. So there’s been an investment in kitchen tools and appliances.

“Without a doubt that has resulted in at least picking up some skills and at least, I imagine, a system where not every dinner or as many dinners will be eaten out, so I do think that retail is going to hold onto a majority share for a while, whereas we had of course dropped below 50% of food spending,” Roerink said.

The extent to which people return to offices will be another factor in how much of the food dollar goes to foodservice and how much goes to retail in the longer term.

A recent IRI consumer survey found that 32% plan to work from home full-time, while another 14% plan to work from home at least two days per week. Fifty-one percent don’t expect to work from home at all going forward.

“The meal occasion that has changed the most is lunch for the simple reason that, despite best intentions and the cutest lunch boxes we have bought a lot of times, we still run out of the house without a packed lunch, and also that was a social activity where you’d grab some co-workers and grab some lunch, and so what we actually see is a lot more people are making lunch at home,” Roerink said. “It’s an interesting consumption occasion in that there’s more pressure on time, so not a whole lot of people are going to spend a ton of time putting together a complicated meal at lunch time because they’re trying to let the dog out or they’re trying to get back to work.

Outlook

“I would imagine that once people start going back into the office or a hybrid system … initially we’re going to see people be very gung-ho about trying to bring their lunches to the office, realizing how much money they have saved, realizing that probably the lunch is a little healthier,” Roerink said. “I cannot imagine that longer-term we wouldn’t fall back into the patterns that were there simply because they were there for a reason and certainly, best intentions, but I imagine that a lot of those lunch dollars will move back into foodservice.”

Jeff Cady, director of produce and floral for Tops Markets, commented during a recent United Fresh webinar on how the resurgence of foodservice might affect retail sales.

“For us, we learned a lot during this,” Cady said. “We’ve identified things people like, and I think we just keep bringing those to folks as (restaurants) open up. There’s still going to be needs. I don’t think everybody’s going to be rushing out 100%, they’re not going to spend every food dollar there, we’re not going to keep every food dollar, there’s no doubt about it, but I don’t think now is the time to curl up in a little ball in the corner.

“We have to continue to be consistent, and that’s how we’re going to keep them – because I think that’s what we earned,” Cady said. “I think we earned a lot of respect, a lot of respect that maybe I wouldn’t say was lost, but maybe was just forgotten about over the years in this industry.”

Roerink noted that another factor in whether people spend more at retail or at foodservice is inflation.

“At the end of the day, not many of us get a raise just because life got more expensive, so we basically have the same money but have to stretch it a whole lot further, and that tends to favor cooking at home,” Roerink said.