Making a Full Recovery

This article appears in the January 2022 issue of Potato Grower.

The pandemic had an unprecedented impact on restaurants and the foodservice industry. Restaurant decisions over the past year-plus have been driven by external pressures and survival strategies, and while every industry is facing issues in the “new normal,” virtually everything that touches a restaurant has required adaptation to move past the pandemic.

Today, food is more expensive to produce, manufacture, transport, menu and buy, and the availability and cost of labor magnifies these problems. Away-from-home food has the highest rate of inflation, and restaurants already have notoriously low margins and make even less with fewer customers. Costs are adding up, whether from third-party takeout apps, delivery, packaging, transportation, or new safety restrictions, and these costs can’t always be passed along to consumers. Supply chain disruptions are rampant, not only for products themselves, but also for packaging, pallets, and new procedures.

Operators across all segments report seeing price increases in almost all product categories over the last three months; 11% report experiencing a “big price increase” in fresh vegetables alone (35% report no change). About a quarter of respondents report experiencing a shortage of fresh vegetables in the past three months, in which case they are finding new suppliers, substituting other ingredients, or simply dropping these items from their menus. More than two-thirds of operators expect the situation around prices to only get worse as they look at the data through the end of 2021, and many are looking at totally new offerings. For potatoes, this serves as an opportunity to ensure supply and provide menu inspiration to operator partners.

Sales of potatoes and potato products to the foodservice sector suffered from the declines in foodservice sales, but at a level that was less than that of total declines. For the July 2020 to June 2021 marketing year, the volume of potato sales to foodservice declined 7.1%; the value of sales increased slightly due to increases in prices. Volume sales actually increased to limited-service restaurants as that sector saw full recovery during the year. Sales to full-service restaurants declined by 7%, led by a 24% drop to fine dining establishments.  Sales to the beyond restaurant sector was down 25%, with travel, business and industry (B&I); colleges and universities (C&U); and K-12 schools impacted the most.

From a product perspective, frozen sales suffered the least (only down 3.9%), with whole fresh down 10.1%. On the other end, refrigerated potato sales were down 21.7%, with chips off 18.7%, and dehy down 16.6%. All products saw growth in sales in the last quarter of the marketing year as the foodservice industry continued to recover.

Datassential has been tracking consumer and foodservice operator sentiment throughout the pandemic. As of October 2021, 31% of consumers are still avoiding eating out, which is 2% higher than September 2021, and 11% higher than March 2020. A third of consumers say they are nervous but will still eat out, while 37% report having no concerns with dining out at restaurants. Looking to foodservice operators, according to data from August 2021, a slim majority (51%) of operators across all foodservice segments think they’ll likely survive the ongoing COVID crisis, and renewed concerns are strongest among casual-dining operators and the lodging segment, which have been hit harder than many other sectors. Optimism is highest among healthcare foodservice, convenience store, and C&U operators, while B&I operators continue to worry most about recovering from this crisis.

The pandemic forced operators to make many pivots, such as turning to off-premise strategies: Today, more than three-quarters of foodservice locations (78%) offer takeout and carryout, up from 69% in July. The availability of curbside pickup and delivery also continues to grow. Menus shrank by 10% during COVID, with three out of five operators streamlining their menus to save costs, make menus more “delivery-friendly,” or react to supply chain issues and ingredient availability. Operators streamlined appetizer, dessert, and alcoholic beverage menus most, leaving entrée menus more intact. Fine dining, the segment most reliant on dine-in traffic, made more menu cuts than any other segment, while quick-service resetaurants were able to maintain their menus, assisted by the availability of drive-thrus that were already set up in many cases.

Pre-pandemic, 55% of items were becoming more prolific on menus year over year, including potatoes. The pandemic interrupted this trend, where very few items increased in menu penetration in 2021, and a whopping 82% of all items decreased in menu penetration. Within the fresh vegetable category alone, 11% of vegetables increased on menus in 2020, and almost 90% decreased in menu penetration. Potatoes declined on menus by 0.5% from 2019 to 2021, yet grew in penetration in a few key delivery-friendly categories, including pizza and fried appetizers. Today, potatoes are a menu staple, found on more than four our of five menus (83%) and expected to grow in penetration over the next four years, with the trend-forward fast-casual segment driving much of this growth.

For the first quarter of the current marketing year (July to September 2021), potato sales to foodservice have continued the recovery, and in some cases are starting to reach pre-pandemic levels. Frozen sales are up 29% compared to 2020, led by 41% growth to the full-service sector and 21% growth to beyond restaurants. Fresh potato sales are up 13% from 2020 and only down 7% compared to 2019. Beyond restaurants were up 38% and full-service up 31%.

So, what does the future look like for foodservice—and for potatoes? A lot depends on how our population deals with the ongoing issues around new COVID-19 variants and regulations. Consumer spending at foodservice is projected to get back to (and exceed) 2019 levels by 2023. And even with operational concerns driving menu cuts, the most enduring trends persisted during the pandemic, including plant-based/plant-forward cuisine and global flavors, both of which are great news for potatoes. Innovation is now more important than ever, and trends are expected to continue to grow as operations are restored. Pent-up demand post-lockdown will drive cravings (and foot traffic) as people look to foodservice to remedy more than a year of “same-old” with craveable, imaginative fare that can only be found at the restaurants they love.