AQ, along with industry veteran Robin Ashton, recently presented a webinar providing a data-driven view of the impact of COVID-19 on the industry and a look ahead to 2021. Read on for a recap of the presentation.
An in-depth look into an anomalous year and preparing for what’s ahead
It’s safe to say that 2020 has been an unusual year for the FES industry. This year has brought unexpected shifts in sales results that have made it challenging to prepare future projections. Business strategies built around equipment sales, industry employment rates, and consumer behavior toward market segments have proven difficult to produce. The economic instability associated with COVID-19 and unpredictable infection rates has fueled doubts barring any optimism for a quick rebound. AQ, along with industry veteran Robin Ashton, recently presented a webinar providing a data-driven view of the impact of COVID-19 on the industry and a look ahead of what may be to come.
2020 FES industry sales:
Sales performance within the industry has been unusual this year as surges in some categories saw plummeting rates in others. Quote activity plunged at the beginning of the year, consistent with the timeline created by pandemic related closures driven by temporary mandates. The hardest-hit category in foodservice equipment sales was tabletop furniture, with a decrease of over 62%. The second highest decrease came in supply sales, with a smaller margin of 35.4% of sales dropped. These rates are consistent with reduced dining services attributed to the pandemic.
Within AQ, we accumulated 1.6 million quotes throughout the past year. The most quoted categories were smallwares by a wide margin, followed by furnishings. These results are in line with the strategy driving restaurants toward expanding outdoor space use to accommodate additional patrons.
Internally, our team focused on optimizing our database through a cleanup process that generated the below results:
These efforts have elevated value across the board within our products as we’ve worked vigorously to project price changes seamlessly. Our team uses quotes, rather than a list price database, to determine our software price changes. AQ quoting data is then aggregated by product and month, which allows us to organize and develop better analytics. The data is split into four categories: AQ Category, AQ Supercategory, COVID, and NAFEM product categories. The quotes themselves contain three price points: List, Net, and Sell.
We saw an average list price increase following reopenings in late spring/early summer with these measures in place. Additionally, net and sell pricing trended alongside the average list price.
Generally, pricing trends have resulted in the below rates and quotes analyzed:
Foodservice employment by the numbers:
The pandemic created damaging and somewhat lingering effects beginning with employment rates dwindling in the spring. The most notable drop happened in April, with over 5.4 million restaurant jobs lost. Recovery has been slow, with only a fifth of these being recuperated in May and June, respectively. While job growth has increased since then, the rate of employment has still not steadied to what was previously held before the pandemic as many businesses were forced to close permanently.
The economic struggles that restaurants are facing are similar to those of the 2008 economic recession. In fact, restaurant performance contracted further in 2020 than during the recession and is currently sitting just above rates comparable with that time.
These rates are due to a combination of temporary and permanent business closures, elimination of restaurant jobs caused by lost revenue, and indirect job losses affecting consumers’ discretionary income.
The foodservice consumer:
The avoidance of dining in restaurants exacerbated the industry’s performance downturn, having since softened by varying degrees among different age groups. Age progressions are consistent with a higher likelihood of avoidance reported amongst Gen X and Boomer generations. These numbers come as no surprise as many consumers continue to limit outings to public settings due to personal health concerns.
Recent analyses calculated that 45% of consumers were still warry of dining inside establishments, 33% feel uneasy but are open to the idea, and 22% reported no concerns. There has been a slow, gradual shift toward growing comfort levels with public interactions.
Results by the spectrum:
Performance is also contingent upon what segment under which a restaurant falls. Mid-Scale, Casual, and Fine Dining categories have been affected more severely than Quick Service and Fast Casual counterparts. These results are consistent with consumer behavior associated with comfortability dining inside restaurants instead of pick-up or delivery options. Consumers are just as—if not more—enthusiastic about visiting their favorite restaurants—the challenge presented is by the dining option they would like to experience.
Commercial foodservice categories present similar performance results with markets dependent on in-person gatherings being the hardest hit, notably Recreation, Lodging, and Catering categories.
These behaviors are projected to continue with demand for Quick Service and Fast Casual options growing significantly as some current consumer behaviors are expected to convert into permanent preferences.
Where we are now:
The most notable plunge in sales throughout the industry took place during Q2, during the first wave of the pandemic affecting the US and the regulations that followed the outbreak. Since then, sales have improved at a conservative rate.
There are currently clusters of COVID-19 hotspots throughout the Eastern part of the country, with surges concentrated in the Rust Belt and Deep South regions. Local government responses to the uptick and consumer reaction will play key roles in how businesses perform within these communities.
Many restauranteurs are shifting gear by investing time and energy toward outdoor dining options that allow them to continue operations without violating capacity restrictions. Additionally, there has been an increase in demand for takeout options and a broader push for delivery services through apps with partnerships with restaurants. These delivery alternatives present an opportunity to retain sales and provide employment.
What to expect in 2021:
The most notable trend that will seemingly follow us into 2021 is the shift of preference toward quick service and fast dining experiences. This trend is consistent with consumers' reluctance to exhibit the habits that were present before the pandemic struck. While total industry growth is expected to happen, the margin may not exceed 10%, with the highest attribution toward non-restaurant segments.
Forecasting models can be split in two ways: a comparison to the previous quarter or the same quarter from the previous year.
The first of these scenarios predict a strong market recovery driven by chain restaurants taking back revenue from suburban markets and adding profits from anticipated expansions. This result is directly dependent on the open rate of restaurants for dine-in services. The second scenario predicts a much slower rate at which restaurants recover, driven by a combination of continued closures of establishments and a lack of continued government aid to struggling businesses.
Sizable shifts are expected between 2020 and 2021 as the economy recovers, with large segment expansions expected in the three categories most impacted (Mid-Scale, Casual Dining and Fine Dining). These are expected to come close to recovering their overall losses in sales for 2020. Quick service dining will see a respectable increase, while fast dining is expected to increase slightly, consistent with boosted demand associated with consumers' distancing precautions.
With a volatile market, predictions will be more difficult to decipher accurately as consumer behavior and government policies will have the most significant impact on future performance. There are just too many variables involved that, given the slightest shift, would significantly impact the speed at which the industry recovers. Businesses prepare for various scenarios with the expectations of a slow recovery seemingly anticipated.
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