As a successful food producer, New Mexico’s economy has been based in cattle ranching and farming for two centuries, with more than 24,700 farms still in operation today. In addition to boasting world-renowned chile and pecan products, many locally produced goods can be found in grocery stores and on the menus of neighborhood restaurants.
Unfortunately, the coronavirus pandemic has caused rapid surges and declines in demand, impacting various sectors of the food and beverage industry.
Grocery stores have seen heightened demand as a result of the stay-at-home orders, creating pressure to meet the growing needs of consumers confined to their homes. Food and beverage distributors have faced a different reality, with their customers – such as restaurants, hotels and cruise lines – sharply reducing their demands for goods.
Here are some insights into challenges COVID-19 has created for the food and beverage industry, and a look at how these industries in New Mexico are responding.
Grocery stores: Albuquerque grocery stores have faced unique challenges due to the pandemic, including keeping workers and shoppers safe as health recommendations have evolved. To keep stores clean and safe, managers have increased their use of disinfectants, changed the physical layouts of their stores, increased signage, created and enforced policies around wearing masks and limited the number of people allowed in their stores.
Additionally, grocery stores have adapted to a growing demand for online order fulfillment, as more consumers opt to stay home and have food delivered. This has created new challenges, as some grocers have tried partnering with third-party delivery services that have been enmeshed in labor disputes and sometimes unable to make timely deliveries. Some grocers have explored hiring their own shoppers and deliverers, but these services add costs to already slim margins and create new business processes to be managed.
Distributors: Distributors have had a different experience during the pandemic, undergoing a sharp decline in demand for goods as hotels, restaurants and other large-scale venues closed. While some restaurants, notably “big chain” restaurants, are seeing a return to prior-year customer spending, smaller restaurants have seen a 25% decline, according to BofA Global Research study “Larger chains, flexing benefit of size as COVID pressures the restaurant industry.”
Some distributors have evolved their business models to supply retail grocers, but doing so necessitates establishing new processes and changing product packaging to be suitable to individual consumers. Also, like restaurant owners, distributors have had to ride the wave of restaurants closing, then opening partially, then opening fully, then closing partially – a pattern that may continue until indefinitely.
According to a recent survey, “Home cooking – implications for kitchens, grilling, and the food economy” by BofA Global Research, in June 32% of respondents did not expect to feel comfortable dining out until sometime in 2021 vs. only 20% in April.
Greater needs for safety, efficiency
Now is a time for food and beverage companies to closely examine revenue figures for specific products and product lines to see where the shortages are and what adjustments may be needed. There are several steps these companies can take to protect their businesses in the near- and long-term, including:
• Exploring key technologies that can automate food processing and packing or improve online processes for shopping, delivery, and curbside pickup.
• Shifting product lines to meet new demand. For example, many distilleries and breweries have started to make hand sanitizer in partnership with local grocers.
• Utilizing excess cash to make investments that protect future profitability, like taking advantage of lower fuel prices to move inventory now.
• Retailers should pay special attention to their expenses. Profits are under pressure as stores alter their spaces and practices for safer shopping and working, incurring unforeseen costs.
The future is uncertain, as the pandemic eases in some regions and surges in others. Remaining flexible and adaptive will help grocers and distributors continue to perform despite these waves of disruption.
Paul Mondragón is a senior vice president of commercial banking and also serves as market president for Bank of America in New Mexico. Bank of America has been serving New Mexico for more than 90 years. The executive’s desk is a guest column providing advice, commentary or information about resources available to the business community in New Mexico.
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