The implication of restaurant closures in a US foodservice market worth more than $830 billion a year and employs 15 million people is huge. Leading industry consultant and speaker Doug Fryett gives his verdict on what the coronavirus pandemic means for the US foodservice equipment industry and why he thinks it will radically change the distribution channel landscape when it’s all over.
The COVID-19 pandemic has unleashed economic and social pandemonium throughout the world.
A growing number of governments are mandating the closing of non-essential business, and limiting foodservice operators to take-out and delivery orders only.
The immediate net result of this later point is that over seven million food service industry workers in the United States have been laid off (so far) with no clear idea as to when things might get back to ‘normal’.
Whatever that ‘normal’ is going to look like. I dare say that the ‘new normal’ is going to be very different than what we have been used to seeing in our industry.
The commercial side of the American foodservice industry is loaded with many independent, single unit and multi-unit operators who, unfortunately, have limited long-term financial resources, and are, and have been for quite some time, operating on a limited cash-flow basis. And their operating margins are razor thin.
A prolonged shut-down is going to have very dire consequences for these operators. In fact, one recent article authored by a restaurateur and published by Fox Business stated that “75% of them (independent neighborhood restaurants) are on track to never reopen”.
But what are the some of the channel consequences associated with foodservice operators having to close their doors – permanently?
The immediate upshot of these closures means that there will be fewer and fewer orders for equipment and supplies going to the traditional dealer base and then on to the various equipment and supplies manufacturers.
With a huge percentage of the US-based equipment and supplies dealers being relatively small and family owned (sales less than $10m per annum) and, like their end-user / operator customers, very much driven by immediate cash flow and operating on very thins margins, one can expect to see a large number of these entities permanently shut their doors as well.
And of course, the next channel member to be impacted are the various equipment and supplies manufacturers.
Countless numbers of manufacturers I have spoken to say orders are ‘drying up’. It is not unusual to hear that orders received, and orders shipped are down 90% or more over the past few weeks. And they are expecting them to get worse. Of course, there are exceptions, but very, very few.
And once this crisis is ‘over’, I can assure you that the restauranteurs who survive are NOT going to rush out and buy those equipment and supply items that they had planned on purchasing prior to the COVID-19 outbreak.
No, they are going to sit back, make do with what they have, try to replenish their depleted cash reserves and retirement accounts, and then reassess things six to 12 months hence. And of course, this further exacerbates the dynamics within the supply chain.
Oh, and one more thought. For those of us who have had to stay at home and actually cook for a change (and that pretty well accounts for 95% of the American population) instead of enjoying a steady diet of eating out, we might just get used to it, and do a lot more ‘home cooking’ in the future, even when things get back to ‘normal’.
That is just one more dynamic that very well could have negative consequences upon our industry.
As you can see, there will be change. But like so many times in the past, there is always a silver lining to every grey cloud.
As such, there are plenty of opportunities for those, no matter where they are positioned within the channel of distribution, to come up with innovative ideas or ways to provide value.
Because it is providing ‘real’ value that is going to keep those restaurateurs, dealer / distributors, and manufacturers around for the next iteration of our industry.
And don’t forget, if you aren’t providing value one will very quickly become irrelevant. And once one becomes irrelevant in the eyes of their channel partners, it is only a matter of time before they become obsolete.
Doug Fryett is the founder of the Fryett Consulting Group a global consulting firm specializing in strategy development, strategy execution, and proprietary market research for companies and organizations in the hospitality / food service industries. He is also a frequent speaker at industry conferences and events. www.fryettcg.com