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COVID-19 and food supply Contents

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3Foodservice sector

75.Chapters 1 and 2 of the Report have focused on some of the most visible effects of the COVID-19 pandemic on food supply and demand. In this Chapter, we look at the impacts of closing and reopening the foodservice sector.

76.Pre-pandemic, Britons were fond of consuming food out of the home: by June 2019, consumers’ spend on eating out was almost equal to that spent on food and drink in retail.224 The Agriculture and Horticulture Development Board (AHDB) estimated that with almost 52 million adults eating an average of 15.7 meals out a month, the total implied spend was £77.3 billion in 2019.225 The Soil Association stated that “food consumption out of home is significant with close to 30% of meals now eaten in this setting”.226

Closure and reopening

77.On 16 March, the Prime Minister asked the public to “avoid pubs, clubs, theatres and other such social venues”, a message reiterated on 19 March with regards to “pubs, bars and restaurants”.227 On 20 March, he stated “we are […] telling cafes, pubs, bars, restaurants to close tonight as soon as they reasonably can, and not to open tomorrow”.228 The Government stated that planning rules would be relaxed “so pubs and restaurants can operate as hot food takeaways during the coronavirus outbreak”.229 The trade body UKHospitality stated that reduced footfall into hospitality businesses had already begun in February.230 Kate Nicholls, Chief Executive of UKHospitality, provided figures:

You could see during February and into early March that footfall had declined by about 20% over most of our town and city centres. It then accelerated as we ran into the political announcement. It was already down 50% to 70% in the run-up to 16 March. It dropped off to about 90% down in town and city centres after 20 March.231

78.Kate Nicholls stated that “there was no meaningful consultation prior to the decision taken to close premises, prior to the announcement on 16 March that customers were going to be advised not to visit pubs and restaurants”.232 UKHospitality stated in April that “while some venues are utilising the relaxed planning rules to operate as takeaways, or are offering their services up at greatly reduced rates to key and NHS workers, for the majority of hospitality businesses, the Government’s announcement [had] led to their closure until further notice”.233 Kate Nicholls told us that “it was quite clear after that weekend of the 23rd that consumer reaction to the lockdown had meant that there was almost an entire closure”.234 She added that “everybody stopped going to work; everybody did obey the lockdown and stay at home, so coffee shops, takeaway venues, cafés, lots of those business that the Government initially thought may be able to stay trading in some way, shape or form, closed down”.235

79.On 23 June, the Government announced that, from 4 July, pubs and restaurants would “be able to reopen, providing they adhere to COVID Secure guidelines”.236 Businesses were advised to maintain social distancing of two metres if possible, or one metre plus mitigating measures if not.237 The Government also asked businesses to keep “a temporary record of your customers and visitors for 21 days, in a way that is manageable for your business, and assist NHS Test and Trace with requests for that data if needed”.238 The decision came after a month of deliberations in Government over whether to relax the requirement for people to maintain social distancing at two-metres.239 Prior to the reopening of the sector, Kate Nicholls stated that with a two metre rule, outlets would only be able to make about 30 per cent of normal revenues, whereas one metre would increase that to 60–75 per cent.240

80.Regarding the announcement to reopen, Kate Nicholls stated that it was “unfortunate that it took so long to get an answer published, but we have a good answer […] which allows us to move forward with confidence”.241 However, she emphasised that:

It is undoubtedly going to take a longer time for us to recover. Demand will be suppressed. […] We are going to see a continued squeeze on demand in the sector going forward, from a drop in inbound tourists, a restriction on the numbers of people returning to work in town and city centres, and a softening of consumer confidence. We do not think it is forecast to recover until the start of 2022.242

There were also concerns about collecting customer data: the British Beer and Pub Association stated that it posed “significant logistical challenges”.243

81.On 8 July, the Government announced A Plan for Jobs 2020, which set out measures to “support the UK’s economic recovery while continuing to prioritise people’s health”.244 This included a reduced rate of VAT for hospitality as well as support for discounted meals in pubs and restaurants. Because of timing, we were unable to take evidence on these measures as part of our inquiry.

Impact on suppliers

82.The closure of foodservice businesses had an immediate impact on their food and drink suppliers, who saw their market removed overnight. The Soil Association stated that “those processors servicing food service were put into immediate peril, and this was passed rapidly to the farming community”.245 The Country Land and Business Association (CLA) stated that “the collapse of the food service sector” led to “a massive redeployment of produce to the retail sector”, but suggested that “this redeployment has not been quick enough or responsive enough to market signals”.246 The Tenant Farmers Association (TFA) pointed out that “given the growth of this sector over recent years prior to the outbreak of the virus, we had seen a significant amount of investment at both the primary production and processing levels to service this increasingly lucrative market”.247

83.The dairy sector was hit hard by the closure of foodservice: the CLA stated that some dairy producers saw “the milk price fall significantly as their contracts are directly linked to the food service sector, in which demand has evaporated”.248 The CLA concluded that “the supply chain has been unable to cope with the speed or nature of Government decisions to impose the lockdown”.249 On 8 April, the Royal Association of British Dairy Farmers (RABDF) stated that foodservice orders had fallen by approximately 70–80 per cent, equivalent to around 1 million litres of milk being produced every day with no market.250 The AHDB told us that “across April, May and June, the financial impact on GB Dairy farmers as a result of COVID-19 was £41.08m” and that 4,565 out of an estimated 8,580 farmers had “suffered a milk price reduction”.251 Additionally, “455 had milk collections cancelled, 450 had payments deferred, 2,150 were asked to reduce milk output and 610 have had the volume they get paid a full price on reduced”.252 This was despite increased demand from retail (see Chapter 1).253

84.On 17 April, the Government announced that it would “temporarily relax elements of UK competition law to support the dairy industry through the coronavirus outbreak”.254 This would “enable further collaboration between dairy farmers and producers so they can avoid their surplus milk going to waste and harming the environment”, for example “sharing labour and facilities, cooperating to temporarily reduce production or identifying where there is hidden capacity in the supply chain for processing milk into other dairy products such as cheese and butter”.255 Dairy UK and the AHDB also began “work to bring the industry together to identify spare processing capacity, how to stimulate demand and how production could be temporarily reduced”.256

85.According to Tom Hind, Chief Strategy Officer, AHDB, “the main benefit” of relaxing competition law had been “the sharing of data” which had “enabled us to get a much better picture of the issues in terms of supply and demand from a processor point of view”.257 However, the TFA considered that “whilst the Government suggested that the relaxation would allow retailers, suppliers and logistic services to work together to move more product into retail, there is no evidence that there has been much success”.258 The TFA suggested that there was a role “for Government to step in to fund the purchase of this product for onward distribution through charitable networks such as food banks, homeless projects and refuge shelters which are all under pressure at the current time”.259 The TFA warned that instead, “it would seem that the principal intention of the work that AHDB and Dairy UK (representing the processors) are doing to utilise this relaxation is not in fact to get routes to market, but to find capacity to convert liquid milk into powder, butter and cheese for storage”.260 It stated that “taking product [off] the market through storage will have major implications for the milk market when it begins to return to something like normal”.261 Minette Batters, NFU, also highlighted the long term effects of private storage aid across Europe.262

86.On 18 June, the Government announced the Dairy Response Fund, “to help those dairy farmers most in need in England overcome the impact of the coronavirus (COVID-19) outbreak”.263 Although the NFU welcomed this, it was disappointed “that many affected dairy farmers may miss out on much needed support”, particularly as “many farmers who anticipated Defra assistance for income losses will not qualify for the new scheme, which calculates eligibility based on milk price instead of lost income”.264 We currently have a separate inquiry on the Government’s support for the dairy sector during the COVID-19 pandemic, including the Dairy Response Fund.265

87.Although there had been significant consequences for some dairy farmers, Minette Batters explained that “there is no sector that has not been impacted” by the closure of foodservice and hospitality businesses.266 She explained that:

We have also seen challenges in potatoes. All our fish and chip shops shut overnight, so those who process potatoes that would normally go into that market have been massively challenged. […] There are big problems with carcass balance in the beef sector, […] there is the lockdown in other countries. We saw the lamb market very close to collapse when we lost access into the French market. That is now starting to recover but, of course, for cuts such as lamb shanks that would be eaten a lot in out-of-home eating, there is just no demand […] poultry, of course, 2 million birds lost from the out-of-home market and creating a bottleneck into retail. It is a complex picture and throughout, the one connected theme is perishability.267

88.On 17 June, as reopening of foodservice businesses was being considered by the Government, the Food and Drink Industry Roundtable convened by the Food and Drink Federation (FDF), representing food manufacturers, published a report stating that “food purchasing [in hospitality] is estimated at £1 billion per month alone” and warned that “there has been less focus on the ‘Squeezed Middle’–those manufacturing and supply businesses that sit behind the food and drink provision into these sectors, over 95 per cent of which fall into the small and medium-sized enterprise (SME) category”.268 The report considered that for these “7,400 businesses and the 430,000 people it employs”, there are “concerns that the restarting of the hospitality and food service market could be negatively affected by the inability of its supply chain to restart”.269

89.The Secretary of State told us that the Government had been “closely monitoring the food wholesale sector, where the loss of the service trade has affected certain businesses quite badly” and that its assessment was that “although there has been some financial distress, the largest players have managed to cope by furloughing staff and through increased sales to convenience stores and so forth, and will be well placed to restart”.270 He considered that “for food manufacturers, it will be a further return to business as normal, so we think that they will be fine”.271 However, he acknowledged concerns “around credit and credit insurance” whereby “one of the concerns that the big manufacturers and wholesalers have is that they may restart delivering food to pubs, restaurants and hotels, and end up with quite a large list of debtors and find lots of businesses going into administration”.272 He stated that the Government was “looking at a package to try to help support the credit insurance market, so that those manufacturers can get the cover that they need”.273 The FDF-convened industry roundtable had also called for measures such as the extension of the furlough scheme until the hospitality and foodservice markets “return to commercially viable levels”, as well as other financial support measures.274

90.The closure of foodservice and hospitality businesses was a huge shock for their food and drink suppliers, particularly those providing perishable goods who were unable to find alternative markets quickly. The Government could have done more to anticipate problems that would arise, particularly as it was necessary Government health measures, rather than market forces, that caused severe economic disruption. This was particularly demonstrated by the crisis in the dairy sector, which we are examining in a separate call for evidence.

91.We cautiously welcome the decision to allow foodservice and hospitality businesses to reopen with reduced social distancing, as this will increase the likelihood that they and their food suppliers will survive the economic impact of the pandemic. The Government must ensure that foodservice and hospitality businesses that were thriving before the pandemic remain economically viable. We welcome that extra support for the sector was announced in the Plan for Jobs 2020. In addition, every effort must also be made to minimise the risk of infection and protect customers and staff. The next Chapter explores key workers in more detail.

92.The hospitality and foodservice sectors may take over a year to recover from forced closure and further financial difficulties are likely. The Government should work with producers, processors and wholesalers to understand their concerns and monitor the health of food and drink suppliers, particularly SMEs, over the next 18 months as supply chains restart. In its response to this Report, the Government should include a plan for how it intends to support food and drink suppliers to the hospitality and foodservice sector during this turbulent time.

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