COVID-19 brings wild swings to economy, expectations

The up-and-down economy in Texas followed the same jagged path as nearly every other state during the COVID-19 pandemic. 

The first quarter of 2020, the period from January through March, saw the real (inflation-adjusted) Gross Domestic Product of Texas dip by 2.5% compared to the previous quarter, according to the Bureau of Economic Analysis.

With a U.S. average GDP loss of 5% in the first quarter, the bureau reported the change in states’ real GDP in the first quarter ranged from 1.3% lower in Nebraska to 8.2% lower in New York and Nevada.

Rough patch

The second quarter of 2020, from April through June, was the roughest period for the U.S. economy and for Texas. The U.S. saw its GDP fall by 31.4%. Texas saw its GDP fall by 29% compared with the previous quarter, higher than the 20.4% loss of GDP in Washington, D.C., but better than the 42.2% decline in Hawaii and Nevada.

Hotel and foodservice economic activity decreased a whopping 88.4% nationally in the second quarter and contributed to the decreases in all 50 states and the District of Columbia, the BEA said.

The third quarter of 2020 saw a big bounce-back Texas and the whole nation, with the GDP up an average of 33.4% in the U.S. and up 29.7% in Texas compared with the previous quarter. 

Texas produce operators in January said the economy remains an area of critical concern. Out of seven produce operators polled by The Packer in an informal survey, four estimated that more than 15% or more of restaurants in their market area had closed in the past year because of the pandemic. 
Expanding distribution of COVID-19 vaccines should change the fortunes of restaurants in the months ahead, but how quickly the economy flips is anyone’s guess.

Responding to The Packer’s survey, Texas produce operators said profitability and finding new business to replace lost foodservice sales are challenges during the pandemic.

Some the ways business have adjusted during the pandemic include:

• Cut/furlough staff;
• Increased sales to retailers;
• Cut items/SKUs carried;
• Increase cold storage business;
• Diverting from specialty produce to other produce; and 
• Marketing produce boxes to consumers.

Feeling mostly optimistic

When asked to grade their level of optimism for their businesses in 2021 from 1 to 10 (with 10 the most optimistic), the seven surveyed operators gave answers across the spectrum, with most in the 6-8 range.

Most of the surveyed produce operators indicated a continuation of current federal COVID-19 assistance programs could be helpful. The main two programs survey respondents cited were the Paycheck Protection Program and the Farmers to Families Food Box program.

Bright spots

Produce operators say they have made it through the tough year by being responsive to the market.

“Trust from suppliers and loyalty from our customers has served Coosemans Houston well,” said Liok DeThomas, office manager. 

Whit Wagner, retail product and business developer for Houston-based fresh-cut processor Texas Harvest Kitchen, said fresh-cut retail items have done great for the company, and the company also has seen an increase in retail business in general.

Jorge Vazquez, president of Latin Specialties LLC, Houston, said one successful strategy for the firm has been quick “pivots” to items on demand, as opposed to sticking with a predetermined produce lineup. In addition, Vazquez said his company is hiring more tech and social media savvy workers.

A growing cold storage business and direct-to-consumer sales have been paths that have helped Brothers Produce and Houston Cold Storage, said Brent Erenwert, CEO and branding specialist.

The next three months will be critical for foodservice customers, Erenwert said, with the amount of government aid perhaps determining whether there will be a hard or soft landing.

Produce distributors feel there is reason for optimism for their business, but said the stressed economy and regulation are concerns.

Asked “What is the biggest long-term opportunity for your business? What is the biggest long-term challenge?” several survey respondents indicated expanding retail sales is the biggest opportunity and the biggest challenge.

Some operators said the compliance burden is growing from ever-increasing oversight and regulation.

Vazquez said pivoting to comply with new food safety, labeling, and environmental, social and governance industry requirements is the biggest opportunity. 

“The biggest challenge lies in doing so while competing with companies who are not implementing or do not currently care about those changes,” Vazquez said.

Erenwert said that the biggest long-term challenge is waiting and letting pieces fall into place so the economy can rebuild. The months ahead could bring consolidation in the industry, but he said that could be good in the long-term.

Better days ahead?

When the pandemic is over, hotel and convention business will come back in a big way, produce operators say. Food is essential, and inflation may also elevate sales in coming months.

Bottom line, Texas produce operators believe they can adjust to whatever is coming.
“We are still alive and kicking, and we will evolve, period,” Wagner said.