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The crisis so far: impact and outlook

21st Apr 2020 7 min read

This is the latest update from Santander’s Food & Drink team on how the coronavirus pandemic is affecting our clients and the sector as a whole.


It is now a month since the UK government ordered a lockdown in response to the coronavirus pandemic. Over the last few weeks, Britain’s food and drink businesses have seen seismic changes in a number of areas, ranging from heightened consumer demand to new working practices and supply chain disruption.

This is a good point for us to assess what the impact of the pandemic has been so far for various food and drink subsectors, as well as to examine the outlook for the industry in the weeks and months ahead.

Food service businesses are under intense pressure

The mass closure of restaurants, cafes, pubs and a ban on social gatherings have put food services businesses under intense pressure. A number of restaurants – including higher-end operators – continue to offer food to the public, either via online ordering platforms such as Deliveroo and Just Eat, or through their own contactless collection services. This could lead to a longer-term trend towards takeaways even when the current lockdown rules are relaxed. As of 1 April, all restaurants and similar businesses benefit from a 12-month business rates holiday. Those with a rateable value of between £15,000 and £51,000 will be entitled to apply for a £25,000 cash grant.

The food distribution businesses which had previously supplied the hotel, restaurant and café (Horeca) sector have quickly pivoted to the B2C market, supplying consumers directly through online platforms.

Food manufacturing output is up but shows signs of slowing

Soaring retail demand for food and drink – in particular staples such as bread, pasta, fruit and vegetables, and cupboard stores – has led to volumes typically seen only during the Christmas period.

Output among manufacturers is up by between 30% and 40%, but are showing signs of returning to more normal levels following the March surge. One key challenge for manufacturers was expected to be a sharp rise in absenteeism due to a high number of actual and suspected coronavirus sufferers. However, absenteeism levels at present are around 18% – lower than some predictions – while businesses have been able to recruit successfully from sectors such as hospitality and non-food retail.

Smaller food brands have been negatively affected by larger retailers’ decisions to reduce stock-keeping units (SKUs) and focus on big-brand essentials – although increased consumer interest in health and wellbeing could benefit smaller businesses as much as their larger rivals in this sub sector.

There are other challenges for manufacturers to deal with: increasing demand has to be balanced against new health & safety protocols, for example. Disruption to some elements of food processing looks inevitable as a result of labour shortages and logistics issues. Meanwhile, currency fluctuations also have the potential to create problems for businesses involved in international trade.

Demand levels set to remain above average for food and drink retail

Stock levels are beginning to stabilise following a period of stockpiling by consumers concerned about the lockdown and possible periods in isolation. However, demand levels are likely to remain above average for the foreseeable future.

We have seen retailers cut back the number of product lines they offer in order to improve manufacturing efficiencies and speed up supply lines. At the same time, retailers have removed multi-buy incentives – in fresh food and food cupboard lines in particular – in order to manage demand and promote a more responsible approach to shopping.

Online retailers see unprecedented demand

Large retailers have seen unprecedented demand for online delivery, with many firms’ schedules fully booked weeks in advance. Recipe box delivery companies such as Mindful Chef and HelloFresh have also benefited from a sharp uptick in demand – as have online food and drink suppliers of all kinds. This has presented an excellent opportunity to reach new customers, but also a major logistical challenge for businesses unused to dealing with such order volumes.

Highlights of Santander’s food & drink webinar

Last week, Santander’s food & drink team ran a webinar featuring Ian Wright, CEO of the Food and Drink Federation (FDF).

Wright talked about how manufacturers were managing to raise output to cope with retail demand, and looked at absenteeism levels at such firms: although they have remained below 20% to date, there is still potential for this to rise to 25%-35% as infection levels peak.

Wright also paid tribute to the resilience of supply chains in the sector, with products continuing to arrive in the UK from all over Europe. However, he added, greater levels of disruption are expected in the future if drivers fall ill or face difficulties returning to their home countries, or if there are import/export delays caused by paperwork issues or worker illness at ports. The lockdown in India is also likely to reduce the availability of products such as rice and spices as we move forward.

To discuss how Santander can help your business during the coronavirus pandemic, please contact: