Foodservice Recovery to Continue Amid Rising Covid-19 Cases

Though local and state governments have begun to reimpose restrictions in some hard hit areas, there is little appetite among governments, businesses, or consumers for another lengthy nationwide shutdown, given much lower hospitalization/mortality rates in new hotspots, higher/quicker recovery rates, and the widespread desire to achieve a better balance between public health and economic recovery. Most states began to lift restrictions as Covid-19 cases stabilized. By the end of June, stay-at-home orders were lifted in all but six states, 43 states reopened all or some non-essential businesses, large gathering bans were lifted or limits raised in 42 states, dine-in services (with capacity restrictions) reopened in all states except California, and bars reopened in 42 states.

That said, many cities and states with rising cases are facing new restrictions on the riskiest activities and gatherings (e.g. bars, indoor dining). Specifically, over the last two week, ten states have slowed down their planned reopening, including: bar closures and reduced dine-in capacity in Florida, Texas, and California; bar closures and public gatherings limited to 50 people in Arizona; bars closures in Colorado, Delaware, and Michigan; and indefinite postponement of dinein services in New York City. In addition, McDonald’s has paused reopening dine-in services, where it’s not currently open, for 21 days.

After declining in April and May, new confirmed Covid-19 cases began to rise again in late May and exceeded 50,000 per day in early July – more than double the rate just two weeks prior and well-above the previous peak of 32,000 in early April. The US is testing more, up to 650,000 daily tests in the last seven days, but the rate of positive results is rising as well, with >8% positives vs. 5% in late May. Consumer anxiety is high, given the lack of a cohesive action plan on reopening, and it could be worsened by mainstream media reporting of an upcoming second wave.

However, a deeper look at state- and county-level data suggests a less troubling outlook. First, there is no Covid-19 resurgence in the initial hotspots (New York, New Jersey, Connecticut, Massachusetts, Pennsylvania), as daily cases in these states have declined from a peak of nearly 19,000 in early April to 1,900 in the last seven days. Hospitalization and mortality rates have also declined significantly, paving the way for further easing of restrictions on non-essential businesses, including foodservice. Second, new hotspots (Florida, Texas, California, Arizona, Nevada) have lower positive rates (measured as positive per million), younger ‘positive’ cohorts, lower rates of hospitalization, and quicker recoveries – possibly indicating that the disease poses a relatively lower threat to public health and the economy in these regions compared to the early hotspots. It may enable local governments in these areas to adopt a more nuanced approach to business/consumer restrictions compared to the blanket shutdown of all non-essential services in March and April.

This recent spike in Covid-19 cases has paused, but not reversed, the broad-based improvement in consumer spending, particularly for foodservice. Total consumer spending in the US has improved from the peak decline of -33% in late March (relative to average spending in January 2020) to -9% in early July, and we expect US foodservice recovery to continue (see our outlook “US Foodservice in the Post-Covid-19 World”). During the same time, foodservice and accommodation spending has rebounded from down -67% at the onset of the national shutdown to down -34% in early July. More encouragingly, foodservice has held on to most of its recovery, even as daily Covid-19 cases more than doubled, likely signaling that the delayed spike in new hotspots has given both consumers and operators sufficient time to prepare for the ‘new’ normal. Specifically, aggregate consumer spending on foodservice and accommodation was down -33.8% on July 1, largely unchanged from -34.1% on June 15, even as average daily positive cases increased from 21,000 to 43,000 during the same period.

The stickiness of foodservice recovery is also evidenced by the absence of a consumer shift to at-home food during the recent spike, unlike the massive shift to food retail during the initial surge in March and April. Specifically, food retail spending is up only mid- to high single digits (vs. January), largely in line with spending patterns in mid-June and well-below the strong 20% to 30% increase in March and April.

The sustainability of foodservice recovery is even more evident in reported spending at the state and city level. The top five states with the sharpest increase in Covid-19 cases in the last two weeks – Florida, Texas, California, Arizona, Georgia – show only a modest decline in foodservice spending from pre-surge levels (ranging from -1% in Arizona to -6% in Texas), even as daily positive cases have more than doubled in California, Arizona, Georgia and have more than tripled in Florida and Texas. Interestingly, larger hotspot cities, such as Miami, Houston, and Los Angeles, are also showing modest impacts on foodservice recovery. At the same time, foodservice spending continues to recover or remains intact in previous hotspots (e.g. New York, New Jersey) or in states with relatively low infection rates.