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April 24, 2020

Food & Beverage Opportunities in the Midst of COVID-19

MHT Partners  | Consumer Investment Bank

COVID-19 has certainly created challenges and pain in a host of industries.  That said, adversity often breeds opportunity, and it is no different for the consumer packaged goods (“CPG”) industry. With respect to the food & beverage side of things, below are a few observations:

  • With respect to food & beverage, the direct-to-consumer (“DTC”) model, while benefiting in an outsized manner presently due to “pantry stuffing,” will nonetheless capture gains due to permanent shifts in consumer behavior, increasing their share of consumers’ buying trends and wallets.
  • U.S. consumers spend approximately 10% of their disposable personal incomes on food; split roughly 50/50 between at home and away from home, with the scales tipping slightly towards eating out. From a dollar perspective, U.S. consumers spent approximately $1.6 trillion on food & beverage in 2019. As of this moment, most of that approximate $900 billion of “eating out” spend is “up for bid.”
  • Given the dislocation in the market, an opportunity for a brand discovery presently exists as consumers rethink family food budgets, what they are eating, and the nutritional choices they are making. In particular, DTC models, already on the rise, have an opportunity to further accelerate their traction. Food & beverage eCommerce sales, while a small ~2% of total food & beverage sales, were already growing approximately 20% annually prior to COVID-19.  While only one data point, Unilever reported DTC sales of its products (approximately 6.5% of its total sales) grew 36% in the quarter. Shelf-stable products (particularly those in non-glass lightweight packaging) stand to benefit most, as they are conducive to efficient, cost-effective pick-and-pack shipping.
  • One would expect to see eCommerce penetration increase across all cohorts (Gen Z, Millennials, Gen X and Baby Boomers) but in particular, on a relative basis with Boomers, and to a lesser extent Gen Xers, given the unique COVID-19 age risks at hand.
  • Male purchases, which lag female purchases, may see an upsurge related to an apparent higher COVID-19 infection risk within males.
  • Premium food & beverage products have held up decently thus far and are likely to continue to do so, though the longer a return to “normalcy” takes, the more “in focus” these products will be in the cost-benefit analysis of consumers. Continuous adherence to a rational and attractive price value proposition will be key for these companies as they reflect upon their distribution channels, price points and content.

To date, we have seen numerous examples of consumers investing in themselves during this period of social distancing . . . exercise equipment, outdoor products that can be used in a solitary context, supplements, and food (for themselves or their pets) – and let’s not forget alcohol (for mental well-being!).

MHT Partners, a leading consumer investment bank, is very active in the food & beverage space and will keep its finger on the pulse during this global pandemic. If you would like to learn more about MHT’s consumer advisory practice, please e-mail Craig Lawson, clawson@mhtpartners.com; Patrick Crocker, pcrocker@mhtpartners.com; Gavin Daniels, gdaniels@mhtpartners.com; Tara Smith, tsmith@mhtpartners.com or Tom Gotsch, tgotsch@mhtpartners.com.

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