Restaurant Exodus Has Food Giants Rushing to Stock Supermarkets

(Bloomberg) -- America’s top food companies are rushing to meet a spike in demand as panic buying sets in at supermarkets, with consumers preparing to stay at home -- and eat in -- in ways they’ve never done before.

With coronavirus cases mounting across the nation, meat packers including Tyson Foods Inc. and milk makers such as Dairy Farmers of America are changing the way they produce to supply consumers instead of restaurants. The shift comes as several states shutter dine-in services, depriving food companies of a clientele that in many cases accounts for more than half of their business.

Americans spend more than half of their food budget eating out. With governors from Texas to Illinois only allowing delivery or pick-up services at restaurants and restrictions on socializing, consumers are flocking to stores, picking up everything from meat to milk to pasta and tomato sauce to stock their freezers and pantries.

“If you are geared up to cater to food services, then it’s not just flicking a switch,” said Nick Fereday, executive director for food and consumer trends at Rabobank. “Even the size of the can, it’s not the industrial-sized can of tomatoes that you would put on a store shelf.”

America’s biggest meat processor Tyson is making its “most-significant shift” ever to produce more chicken, beef and pork that’s favored by supermarket shoppers, rather than cuts that restaurants use. Employees are working through weekends to fill as many orders as possible.

Campbell Soup Co. is churning out more cans of its iconic soups, along with increasing output of snacks and Spaghetti O’s, Chief Executive Officer Mark Clouse said this month.

Poultry giant Sanderson Farms Inc. said it is adding Saturday shifts at its five plants that process chicken for grocery-store customers, and is ready to convert two other plants to process more such birds. Pilgrim’s Pride Corp. and Perdue Farms Inc. are also working to accommodate the boom in retail demand.

Dairy Farmers of America is taking a variety of steps to ramp up output and is producing more popular items such as gallon and half-gallon jugs and limiting milk quarts. Dean Foods Co. is focusing on products that have the highest demand among consumers such as whole and 2%-fat milk rather than 1% and non-fat.

“We will continue to supply our food-service customers that need support,” Dean said in a statement to Bloomberg. “Unfortunately though, the needs of our food-service customers are declining significantly.”

Empty shelves have already prompted President Donald Trump to hold a call with food companies including Cargill Inc. and Tyson as well as the big supermarkets to gauge their ability to meet demand and tackle the regulatory challenges they may face.

The president later asked Americans to cut back on purchases of groceries and essential goods that are straining the system. Still, there’s no major food shortages for now, it’s a matter of adjusting the distribution, Fereday of Rabobank said.

Despite the supermarket rush, the drop in demand from restaurants is still likely to hurt company’s bottom lines. Tyson has added the coronavirus as a risk to its earnings as the pandemic may disrupt consumption and trade patterns and quarantines may depress demand for protein.

Baldor Foods, a produce-focused distributor with centers in New York, Boston and Washington, has long primarily served the food-service sector, but now the shift to retail is the way to go. The company has gone from having 12% of its business in retail to 65%, said Ben Walker, vice-president of sales and marketing at the firm, and on Wednesday announced that it would start serving consumers for the first time ever with home deliveries.

“We’re hoping we don’t have to be doing this forever,” he said. “But if this thing carries on and becomes a substantial part of our business, we will have to continue to re-engineer product assortment and how we load trucks -- it could force us to shift our entire business.”

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