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. 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. The Soil Association stated that “food consumption out of home is significant with close to 30% of meals now eaten in this setting”.
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”. 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”. The Government stated that planning rules would be relaxed “so pubs and restaurants can operate as hot food takeaways during the coronavirus outbreak”. The trade body UKHospitality stated that reduced footfall into hospitality businesses had already begun in February. 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.
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”. 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”. 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”. 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”.
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”. Businesses were advised to maintain social distancing of two metres if possible, or one metre plus mitigating measures if not. 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”. 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. 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.
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”. 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.
There were also concerns about collecting customer data: the British Beer and Pub Association stated that it posed “significant logistical challenges”.
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”. 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.
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”. 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”. 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”.
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”. The CLA concluded that “the supply chain has been unable to cope with the speed or nature of Government decisions to impose the lockdown”. 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. 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”. 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”. This was despite increased demand from retail (see Chapter 1).
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”. 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”. 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”.
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”. 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”. 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”. 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”. 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”. Minette Batters, NFU, also highlighted the long term effects of private storage aid across Europe.
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”. 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”. 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.
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. 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.
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”. 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”.
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”. He considered that “for food manufacturers, it will be a further return to business as normal, so we think that they will be fine”. 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”. 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”. 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.
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.
224 Agriculture and Horticulture Development Board, Eating-out review 2019, November 2019, p 1. Part of the reason is that there is a lower volume of food eaten out of home, but it tends to be more expensive.
226 The Soil Association ()
227 “Prime Minister’s statement on coronavirus (COVID-19): 16 March 2020”, GOV.UK, 16 March 2020; “Prime Minister’s statement on coronavirus (COVID-19): 19 March 2020”, GOV.UK, 19 March 2020
228 “Prime Minister’s statement on coronavirus (COVID-19): 20 March 2020”, GOV.UK, 20 March 2020
229 “Government to grant permission for pubs and restaurants to operate as takeaways as part of coronavirus response”, GOV.UK press release, 17 March 2020
230 UKHospitality ()
233 UKHospitality ()
236 “PM announces easing of lockdown restrictions: 23 June 2020”, GOV.UK press release, 23 June 2020
237 GOV.UK, , accessed 15 July 2020
238 GOV.UK, , accessed 15 July 2020
239 Oral evidence taken before the Liaison Committee on 27 May 2020 HC 322, ; “Coronavirus: 2m review to be completed in the ‘coming weeks’”, BBC News, 15 June 2020
240 “Coronavirus: Boris Johnson launches review into 2m social distancing rule”, BBC News, 14 June 2020
243 “Pubs reopening from 4th July is a welcome first step on long road to recovery”, British Beer & Pub Association, 23 June 2020
244 GOV.UK, , accessed 15 July 2020
245 The Soil Association ()
246 The Country Land and Business Association () paras 3–4
247 Tenant Farmers Association () para 3.1
248 The Country Land and Business Association () para 4
249 The Country Land and Business Association () para 4
250 “Q & A: Getting To Grips With The Impact Of Covid19 On Milk Supply Issues”, RABDF, 8 April 2020
251 Written evidence to inquiry on Government support to the dairy sector during the COVID-19 pandemic (HC 598), (DAS0003) para 5
252 Written evidence to inquiry on Government support to the dairy sector during the COVID-19 pandemic (HC 598), (DAS0003) para 5
253 [Tom Hind]
254 “Dairy industry to join together to manage milk supply”, GOV.UK press release, 17 April 2020
255 “Dairy industry to join together to manage milk supply”, GOV.UK press release, 17 April 2020
256 “Dairy industry to join together to manage milk supply”, GOV.UK press release, 17 April 2020
258 Tenant Farmers Association () para 4.4
259 Tenant Farmers Association () para 4.4
260 Tenant Farmers Association () para 4.4
261 Tenant Farmers Association () para 4.4
263 GOV.UK, , accessed 15 July 2020
265 Environment, Food and Rural Affairs Committee, , accessed 15 July 2020
268 , Food and Drink Federation press release, 17 June 2020; Food and Drink Industry Roundtable, UK Food and Drink: Maintaining Post-Covid-19 Capacity in Hospitality and Food Service Supply Chain Businesses: ‘The Squeezed Middle’, June 2020, p 2
269 Food and Drink Industry Roundtable, UK Food and Drink: Maintaining Post-Covid-19 Capacity in Hospitality and Food Service Supply Chain Businesses: ‘The Squeezed Middle’, June 2020, p 2
274 Food and Drink Industry Roundtable, UK Food and Drink: Maintaining Post-Covid-19 Capacity in Hospitality and Food Service Supply Chain Businesses: ‘The Squeezed Middle’, June 2020, p 4
Published: 30 July 2020