Before COVID-19 captured the nation’s attention, new dining trends—such as meal kits and at-home grocery delivery—were already changing the way we eat. The pandemic may have accelerated the transition.
Pantry stockpiling is likely to ease up
Meal kits may have staying power
The hard-hit restaurant industry may see big changes
The impact of the novel coronavirus (and accompanying shelter-in-place orders) has had a significant impact on the way people eat. Some people started hoarding canned goods and buying comfort foods; supply chain distributions were interrupted; and restaurants closed or moved to takeout-only.
QSR magazine reported that before COVID-19, Americans only cooked 33% of their meals at home, with 67% of meals consumed or purchased somewhere else. But during shelter-in-place orders, the percentage of home-cooked meals jumped to 55%, while food eaten or purchased away from home fell to 45%. The magazine suggested that six to 12 months after the lockdowns end, those figures may revert close to what they were before: 37% of meals are likely to be cooked at home and food eaten away from home could rise back to around 63%.
That forecast suggests there will be changes in Americans’ eating habits, but it may be too soon to predict them with certainty. And it’s hard to look to the last big recession for clues, because this situation is unique. Plus, many publicly traded food companies (and many companies overall) have withdrawn full-year earnings guidance because of economic uncertainty.
Still, there are early signs that a few changes are here to stay. These changes in dining trends could spice up your portfolio—or leave you with a bit of indigestion.
At the beginning of the pandemic, people hoarded shelf-stable pantry goods along with their favorite comfort foods.
According to Nielsen and FMI (the Food Industry Association), demand for consumer-packaged goods (CPG) has skyrocketed. Just in March, Nielsen data showed that people spent $18.8 billion in this category alone, a sum that’s attributed directly to coronavirus buying. Of that total, about $10 billion went to increased consumption and $8.2 billion went to stock pantries.
According to Michael Kealy, education coach at TD Ameritrade, companies like Mondelez International (MDLZ) and Campbell Soup (CPB) received a surge in business. MDLZ, maker of Oreo cookies and Ritz crackers, beat earnings and saw organic growth of 6.4% in the first quarter. Like many other companies, MDLZ withdrew its full-year guidance, but CEO Dirk Van de Put told CNBC that the company expects continued growth.
The question is how long the bump in pantry stocking will last. The NPD Group said early returns from its Net COVID-19 Pantry & Food Strategy Tracker reported consumers describing almost three-fourths of their eating occasions as “atypical” compared to before the outbreak.
Contagion concerns led to a surge in food delivery. The way we buy food, both online and offline, is likely to evolve throughout the year.
Ecommerce orders saw a surge in March, Nielsen data showed. Online orders for consumer-packaged goods rose by 60%, with about 37% of that growth attributed to new households or increased purchase frequency. Forty percent of new online shoppers were over the age of 55.
The top three companies for grocery delivery are privately held Instacart, Amazon Fresh/Whole Foods (AMZN), and Walmart (WMT). Many companies were unprepared for the surge in demand, and online grocery shopping has had plenty of hiccups. A Retail TouchPoints survey found that more than half of consumers experienced a delayed delivery order.
The impact of online grocery shopping depends on consumers’ experience versus their interest in getting back inside brick-and-mortar stores. Even in the midst of the pandemic, a Harris Interactive/Toluna poll showed that 70% of people like to grocery shop in stores.
The meal-kit industry is one grocery sector that may benefit from increased cooking from home as well as food delivery demand. With meal-kit services, home cooks can order meals online and have them shipped to their doors with all the ingredients premeasured and individually wrapped.
This business model had been struggling previously. Perhaps the best-known, publicly traded meal-kit firm, Blue Apron (APRN), went public at $10 per share in 2017. Its stock price was down to about $2 in March 2020, but shares surged to nearly $29 at the height of the shelter-in-place orders. Since then, shares have retreated to about $9—above the pre-pandemic price, but still below the initial public offering (IPO) price (see figure 1). The company’s first-quarter revenue fell 28% to $102 million year over year, but it’s forecasting second-quarter revenue to grow to $130 million.
APRN isn’t the only meal-kit company that’s doing well. Home Chef, owned by Kroger (KR) and available for delivery or at Kroger stores, is forecasting high demand. Home Chef chief revenue officer Rich DeNardis told the Chicago Tribune that the company is now forecasting at least 60% growth this year because of the pandemic, up from a 20% to 30% revenue growth forecast earlier this year.
Kealy pointed out that meal kits could have staying power because people are using them long enough to establish a routine.
The restaurant business has been upended by the coronavirus, and many restaurants had to find ways to offer carryout or delivery only. That’s benefited delivery services. One of the surprise winners has been Uber Eats, the food delivery arm of Uber Technologies (UBER). It made news when it bid for online rival Grubhub (GRUB).
“It wasn’t too long ago that much of the sentiment was pretty sour on Uber Eats being a cash drain. The question was, why on earth did it go this route? Flash forward, and it really has proved to be a savvy business model versus that of Lyft (LYFT),” Kealy said.
Some independent restaurants are trying to pivot by offering their own meal kits or changes to their menu to survive. But there’s no doubt that the industry is going to be different. A research report by consulting group McKinsey showed that casual-dining and fine-dining restaurants saw their revenues decline by as much as 85%. For some fine-dining establishments, revenues fell to zero.
McKinsey forecasted that of the 650,000-plus U.S. restaurant locations that were in business in 2019, approximately one in five—or more than 130,000—will be permanently shuttered by next year, with independents hit the hardest.
Diners will return, but it may take time. The NPD Group surveyed diners in Tennessee and Texas, which are among the largest states in terms of restaurant unit counts that have lifted restrictions to on-premises dining. Early data showed that customer transactions improved by 7% in both areas within a couple of weeks after restrictions were lifted. But sales versus 2019 are still down by 14% and 18%, respectively.
Publicly traded restaurants like Darden Group (DRI), owner of Olive Garden and other well-known chains, have rebounded from their 2020 lows. But DRI is far off previous levels, while even McDonald’s (MCD) is well off its 2020 highs.
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In addition to more ecommerce, people also sought out plant-based meats during the pandemic. This trend was already growing before the pandemic, albeit from a small base, and data suggests it has grown. According to data from Nielsen, meat substitutes sales from April 12 to May 9 jumped 35% versus the four weeks ending January 18, before the United States had any reported coronavirus cases.
Compared to 2019, for the nine-week period ending May 2, fresh meat alternatives were up 264%, Nielsen data showed.
That’s good news for companies like Beyond Meat (BYND), which reported record sales in the first quarter of 2020.
Meat-substitute demand may be benefiting from a general interest in trying these foods as well as news reports about slaughterhouses closing because COVID-19 sickened and killed workers. To be sure, Americans didn’t stop eating meat entirely—the Nielsen data from that time period showed meat sales were up 28%.
Whether people will continue to include plant-based meats on a permanent basis and on a large scale while slaughterhouses reopen remains to be seen, but the trend of consuming meat substitutes is unlikely to go away.
As restrictions are lifted, consumers may venture out to restaurants or back to the supermarket. But some new habits have formed too, and that means changes for companies—and opportunities for investors.
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