COVID-19 has had a dramatic effect on the food & beverage industry beginning in early March 2020 and continuing to date as food and beverage manufacturers have had to deal with customer disruptions, supply chain issues, logistics and employee health & safety issues all within the “stay-at-home” environment. This has led to a dramatic revenue shift away from foodservice to retail grocery as consumers shifted from dining out to dining in and dramatically increased their purchases from retail grocery stores. Initially, there was significant “pantry loading” driven by consumer concerns about the availability of critical food supplies which has now converted to a higher level of retail purchases that is expected to continue through 2020
Valuation trends benefit retail grocery focused food & beverage companies
As we begin to understand the impact of COVID-19, it is clear that many “essential” businesses in the food value chain have performed better than expected over the past several months. The key differentiator is the percentage of revenues that are generated from the retail grocery channel versus the foodservice channel.
The public equity markets have recognized this and have rewarded retail grocery focused companies with strong stock price performance. The public equity markets provide a proxy for the valuation of privately held manufacturers focused on this segment of the food & beverage space. The stock price chart below shows that large cap as well as mid- & small-cap food & beverage companies have performed relatively well since February 1, 2020. Conversely, the universe of publicly-traded foodservice distributors has underperformed significantly due to the impact of COVID-19 on restaurants, institutions and hospitality.
Equity market trends — Food & Beverage
Source: Capital IQ
Impact of COVID-19 on foodservice—convenience wins
The “stay-at-home” orders around the country have negatively impacted the restaurant industry. Similar to publicly-traded food & beverage companies, there are definite winners and losers among publicly-traded restaurant companies.
As shown in the below graph, “convenience” focused concepts in the Quick Service, Fast Casual and Coffee sectors which benefit from delivery and drive thru have significantly outperformed concepts that are “experience” focused such as Premium, Casual, and Specialty Casual which emphasize dine-in and unique experiences
Equity market trends — Restaurant
Source: Capital IQ
COVID-19’s Impact on the Food & Beverage Sector
Retail grocery stores have benefited from consumer concerns and market uncertainty
Foodservice has struggled due to global “stay-at-home” orders
Food distributors have adapted to unprecedented global supply chain disruptions
Food manufacturers’ revenues have been impacted by their exposure to retail vs. foodservice channels
Restaurant chains have had to pivot to more “Convenience” focused concepts to limit losses