Consumer demand has drastically changed during the COVID-19 pandemic, and that behavioral shift is likely to remain for the next 12 to 18 months, according to one dairy analyst.
“As that behavior takes root, dairy supply chains will need to adjust from farm to fork,” Phil Plourd, president of Blimling and Associates, said in a new report for CoBank.
Most profound, perhaps, is a massive shift in where consumers eat.
Before the pandemic, U.S. consumers spent about as much money at restaurants as they did at grocery stores. But as restaurants closed virtually overnight in March, consumers flocked to grocery stores, he said.
“For the dairy industry, that meant skyrocketing sales in grocery stores,” he said.
Processed cheese sales increased by nearly 20% from Mid-March to late May, and fluid milk sales increased more than 10% as consumers covered their basic needs, he said.
Unemployment is also a factor. It was up nearly 13% in May, and some forecasts are for higher rates in the months ahead. An early May survey by Piper Sandler indicates 55% of Americans don’t expect spending to return to normal for at least seven months, forcing many consumers to stick to the basics.
“That could be good for traditional bulk items such as fluid milk, commodity cheese and butter. It might not be so great for specialty items and products focused on foodservice. Demand could suffer overall,” he said.
Blimling calculates aggregate domestic demand for cheese is down 35 million pounds per month and demand for butter is down 2 million pounds a month.
The question is will consumers immediately return to pre-pandemic behaviors and activities once restrictions lift.
A Business Insider survey in late April found just 9% of Americans believe they would resume their routine exactly as it was before the lockdowns and only 16% would resume almost all of their activities.
In addition, the Piper Sandler survey found 71% of Americans say they will keep cooking at home after the disruptions end and Open Table forecasts suggest the U.S. could lose 25% of its restaurants.
“At a minimum, we think it will take some time for sit-down restaurant traffic to look anything like it did before the pandemic unfolded,” he said.
Any structural reduction in restaurant sales has potential product mix implications for dairy processors and converters. For instance, firms that make or package products for foodservice will need to retool, making different types of cheeses or filling different size sour cream containers, he said.
Other structural changes could be ahead as well.
As demand spun toward retail, foodservice operators disposed of fresh products. Anecdotal reports suggest some buyers are asking if suppliers can develop extended-shelf-life alternatives. Retail business models might also be adjusted from “just in time” inventory supply to having more inventory stored in warehouses. Manufactured could be asked to share the cost, affecting their ability to invest in other parts of their business.
Grocers are also reducing product selection to enhance operational efficiency.
“For dairy companies and other food marketers, that could mean fewer line extensions, fewer opportunities to differentiate and fewer chances to test new concepts,” he said.