- The restaurant industry is expected to lose 20 years of revenue gains as a result of the coronavirus pandemic, according to a new UBS report
- Restaurants are expected to see a 40% drop in consumer spending, but grocers may be able to recoup 10% of restaurants’ losses with innovative action.
- Focusing early on e-commerce, alternative revenue streams, and differentiated offerings will allow grocers to preserve or even expand their market share over the long run.
- Visit Business Insider’s homepage for more stories.
The restaurant industry has slowly been making headway over the grocery sector for the last 20 years.
But according to a new research report by Swiss investment bank UBS, those gains are likely to vanish as a result of the coronavirus pandemic. UBS estimates that foodservice consumption or food away from home, which is how UBS categorizes meals like those at restaurants, could drop by around $350 billion, or 40%, even after the pandemic is over.
There are two likely factors for a structural shift away from foodservice consumption. The first is that consumers are expected to be more price-sensitive as the likelihood of a recession continues to weigh on purchasing decisions. Personal savings rates spiked during previous economic crises, showing that consumers often choose to save their money during periods of economic uncertainty. Another potential factor is that consumers will simply be hesitant to return to crowded spaces like restaurants before a vaccine is available.
Steep losses for the restaurant industry go against twenty years of consumer spending trends.
From 2000 to 2018, restaurants gained an increasing share of food spending in the US. In 2000, food at home comprised 52% of US food consumption, while in 2018, it comprised 24%. According to the UBS report, spending on food away from home grew at a 4.8% CAGR (compound annual growth rate) between 2000 and 2018, while spending on food at home has grown at a 3.4% CAGR. However, while UBS estimates a 40% loss of revenue for food services as a result of the pandemic, grocery stores could stand to benefit from those losses.
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“We believe that food and beverages at home could recoup around 10% of that reduced spend,” the report reads. However, grocery stores must take action to snap up that 10% gain.
The report suggests that grocers will be able to preserve or grow their market share by taking a page out of restaurants’ playbook by focusing on innovative pickup and delivery options. Ecommerce, alternative profit streams, and differentiated offerings will help grocers stand out in the long run. UBS points to Kroger’s Delivery Kitchen, Walmart’s free grocery pickup, and Giant Eagle’s dark stores as examples of innovations that could prove advantageous for grocers.
As always, digital sales will play a vital role in grocers maintaining and expanding their market share. Despite higher fulfillment costs, grocery apps, and online ordering for pickup and delivery will be vital going forward. While a portion of consumers will likely return to shopping at brick-and-mortar stores after the pandemic is over, e-commerce gains won’t go away completely. UBS expects market penetration of e-commerce to reach 15% by 2025.
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