Foodservice comeback plotted by industry analysts at Potato Expo

AHAHEIM, Calif. – Nearly two years after the start of the COVID-19 pandemic and subsequent restrictions that gashed the foodservice operators, industry observers speaking Jan. 6 at the 2022 Potato Expo said there are both optimism and caution about what is next.

In a session about the up-and-down rebound in the foodservice sector, panelists included Kim Breshears, vice president of marketing for Denver-based Potatoes USA, and Marcie Molde, client solutions representative for Chicago-based Datassential.
For the marketing year from July 2019 to June 2019, Breshears said the share of foodservice U.S. potato sales stood at 58%, with retail at 42%.

That percentage changed during the pandemic that began in March 2020, and now stands at about a 50-50 split, she said.
Breshears said foodservice sales began to recover in the first quarter of 2021 and then saw a big surge in the second quarter of 2022. Foodservice sales leveled out in the third quarter, and fourth quarter numbers are not yet available, she said.

“We are not back to pre-pandemic levels, but if you consider quarter three year-over-year (2021 compared with 2020), it was a 29% increase,” she said. “That’s a sizeable indication that foodservice is coming back.”

Regardless of where it is sold, the potato remains the favorite vegetable of American consumers, she said, citing five straight years of surveys showing consumer preference for potatoes over any other vegetable. In addition, the potato also ranks as the favorite side dish for either dine-in or carryout, she said.

“The demand is there, we just need the supply to be able to fulfill that demand,” Breshears said. “And I think that's a very enviable position for us all to be in, regardless of the changes that we've all experienced in the market.”

Looking for the end

Molde said recent news about the Omicron variant of the COVID-19 virus has cast some doubt on predictions of foodservice recovery.

“We're all hopeful that is the last variant, but we don't know if that will be true,” she said.

Restaurant vaccine mandates have spread from New York City to Chicago, Seattle, San Francisco and Washington, D.C., she said.
“Hopefully, we don't have any more lockdowns,” she said. Along with inflation and the erratic supply chain, Molde said there are a “ton of question marks” for restaurants almost two years after the pandemic started.

Restaurants are facing labor issues, but perhaps just as significant is the number of customers who still feel nervous to dine out.

In March 2020, at the start of the pandemic, Datassential reported about 20% of the population said they were avoiding restaurants. By the spring of that year, that percentage had peaked at nearly 70% of the population. 

In December 2021, the percentage of the population who said they were avoiding restaurants was 24%, Molde said. 

“My best guess is (the percentage of people avoiding restaurants) has probably increased in January due to Omicron,” she said. “I think one important thing here is that restaurants can be as open as they want to be, and states and cities can say they're fully open, but they're not really fully open if consumers aren't ready to go back out to restaurants,” she said.

It may take until 2023 to exceed the level of consumer spending on foodservice recorded in 2019, Molde said. 

Menu changes have been quite common during the pandemic, Molde said, and the number of menu items has shrunk by about 10% over the past 18 to 20 months. She said nearly 60% of restaurants have shrunk their menus, compared with about 40% or so of restaurants who downsized their menus after the financial crisis of 2009.

In 2021, just 11% of overall vegetables increased in menu penetration, while almost 90% of vegetables decreased in penetration on menus, Molde said. 

While potatoes are found on about 80% of menus, they did show a slight decline in menu penetration over the past three years.
“Potatoes did decline a bit last year, but they did grow in a few very important and very trend-forward (categories),” Molde said.

Delivery-friendly menu categories, such as bowls, were a key application where potatoes have grown in penetration, she said.
“The whole notion of potatoes as a base of a bowl is a very trendy application and something that's growing despite the pandemic and all the declines happening on menus,” she said, adding that both fried and nonfried veggie sides are areas of growth for potatoes.

The attitude of restaurant operators has wavered slightly with the emergence of new COVID variants.

Operator optimism was at its peak in May of this past year, when vaccines were rolling out at a steady pace, Molde said. Now, she said, Datassential research shows about half the population are feeling cautiously optimistic about survival and the other half say they are worried, but still confident.

Inflation menace

Restaurant operators polled by Datassential at the end of 2021 said they experienced big prices in the listed food categories in the past three months:

• Beef: 35%;
• Takeout packaging 35%;
• Chicken wings: 35%;
• Fresh fruit: 13%; and 
• Fresh vegetables: 12%

For fresh vegetables, restaurant operators said they respond to shortage conditions by: 

• Finding a different supplier: 31%;
• Substituting other ingredients: 61%; and 
• Taking off menu: 9%

When inflation hits food items and other supplies, Datassential asked operators if they “take the hit” and maintain prices, or whether they increase menu prices. By food category, she said the results were: 

• Flour: 64% of operators take the hit, 30% raise menu prices;
• Cooking oils: 61% take the hit, 26% raise menu prices;
• Eggs: 61% take the hit, 30% raise menu prices;
• Dairy: 60% take the hit, 30% raise menu prices;
• Fresh vegetables: 58% take the hit, 30% raise menu prices;
• Fresh fruit: 57% take the hit, 25% raise menu prices;
• Beef: 34% take the hit, 54% raise menu prices; and 
• Takeout packaging: 55% take the hit, 28% raise menu prices

Two-thirds of foodservice operators surveyed by Datassential in late 2021 said they raised menu prices in the last three months, with an average increase of 12%, she said. 

Pushing back

The expectation of most consumers is that inflation will continue into 2022, Molde said. 

“There's sort of the notion that you can increase prices just slightly enough where people hopefully won't notice that prices are increasing,” Molde said. “We have really blown past that that; this is something that people are noticing and is   really at the forefront of their minds today.”

Datassential also asked consumers about what areas they would cut back on if inflation persists, Molde said. The results were:

• Restaurant meals: 42%; 
• Clothing:  36%;
• Live entertainment: 36%;
• Travel: 33%;
• Supermarkets: 26%;
• Gasoline: 25%; and
• Housing: 17% 

If inflation is robbing consumers of spending power, restaurants will have to do something to react, Molde said. But potatoes remain in an overall strong position related to consumer trends, she said. 

“If society reduced consumption of meat and increased consumption of plant-based food,” 70% of consumers said eating more plant-based foods is healthier, while 62% said it is better for the environment, she said.