COVID-19 changing how customers eat - and how companies do businessApril 1, 2020By Leah Moehlig, CFAESG Senior Research Analyst, Calvert Research and ManagementWashington -- The rapid global onset of the COVID-19 pandemic has quickly and drastically shifted the food consumption landscape. According to data compiled by the United States Department of Agriculture (USDA), US expenditures on food away from home (FAFH) eclipsed food at home (FAH) in 2010 and has since maintained the majority share of total food expenditures.However, COVID-19 has completely disrupted this trend due to the forced sudden changes in consumer social behavior. Many state governments have banned on-site consumption of food or drinks at bars and restaurants in an effort to reduce crowds and the potential for exponential spread. Even in those states that have not instituted an official ban, many restaurants have recognized their responsibility to keep employees and customers safe and have closed in-dining room service. This has caused a sudden and drastic shift in food expenditures for consumption at home, which has been exacerbated by consumer stockpiling of essential goods in anticipation of possible government orders to shelter in place.This change in consumer demand has significant immediate impacts to operations across the food supply chain. For example, on March 18, General Mills indicated that US retail sales for the week ended March 7 were up low single digits and the company anticipated retail sales for the week ended March 14 to be up many times higher.1Many companies have emerged as leaders by quickly adapting to these changes in demand trends. Packaged goods manufacturers have made efforts to simplify their supply chain by reducing the number of SKUs for high-demand categories to reduce time spent changing production lines.2 Other examples include increasing direct store deliveries and production capacity. Food retail companies have decreased store hours to devote more time to sanitization and restocking.Given that approximately one-third of all food produced each year is wasted, with the majority of that at the consumer consumption phase, product availability likely will not be a barrier. However, all of these operational needs require additional labor. This is evidenced by Walmart's announcement that the company will be hiring 150,000 new associates through the end of May to work in stores, clubs, distribution centers and fulfillment centers.4Some of this increase in product and labor demand can be addressed by available capacity in the FAFH supply chain. Restaurants have seen drastic same-store sales declines due to limited operations, with one prominent casual dining operator indicating that same-store sales were down 21% during the week ended March 15.5 Equity prices for restaurant companies have drastically fallen and reflect a significant reduction in investment analysts' earnings estimates.Shifting operations to FAH to the extent possible can help food service distributors at least partially offset the significant cash flow losses they are currently experiencing. FMI, a food retail trade group, has partnered with the International Food Service Distributors association in an effort to supplement retail needs for products, transportation and/or warehousing services.6 On March 26, the U.S. Food and Drug Administration (FDA) issued a temporary policy in response to the COVID-19 pandemic allowing food intended for restaurant use to be shifted to retail use without new labeling in order to reach consumers in a timely fashion.7 From a labor perspective, companies within the FAFH supply chain can work with the FAH supply chain to provide temporary work for their employees. Walmart has reached out to industry groups representing restaurants and the hospitality sector to facilitate temporary roles that can bridge the gap for their employees. Many other food retail and food manufacturers have announced the need for additional workers and are providing wage increases and/or one-time bonuses during this team of peak FAH demand.8 While this pandemic's duration is unknown, demand for dining out will eventually return and those restaurants that are willing and able to help employees weather the current turmoil through partnerships such as these will likely see employees return after this crisis.Bottom line: COVID-19 has resulted in a dramatic shift in food consumption, as use of restaurants decreases. Companies are taking action to adjust to this new reality while still positioning themselves for a quick recovery when pandemic-born behavioral changes decrease.