As high-volume customers like colleges, school districts and entertainment venues close down or severely curtail operations for an indefinite period because of the coronavirus threat, food vendors and foodservice distributors such as Sysco Corp., U.S. Foods and the independent businesses comprising the International Foodservice Distributors Association (IFDA) membership have felt the impact of drastically slowed demand. Meanwhile they remain indispensable links in the supply chain to maintain critical institutions like hospitals, eldercare facilities and even the military.
The major distribution firms that supply the foodservice business have taken a number of steps to deal with the situation.
The largest company in the foodservice distribution market, Houston-based Sysco Corp., has issued a statement to customers outlining the steps it is taking, including implementing its pandemic planning protocols. Among these are procedures for making deliveries that limit contact between Sysco drivers and customer employees, health screenings for customer-facing associates and strict adherence to sick leave and return-to-work policies.
Sysco is also donating 2.5 million meals over the next month as part of its community response strategy to the COVID-19 pandemic. The company is also working with Feeding America in the U.S. and Second Harvest in Canada in support of food redistribution efforts across the supply chain, with efforts focused around product donations, delivery to foodbanks, providing additional storage and supporting development of a mobile distribution platform.
“Sysco is considered a critical infrastructure provider, as defined by the Department of Homeland Security, and we have a special responsibility to maintain our business operations in times of national disaster or emergency,” Sysco President/CEO Kevin Hourican said in a press release announcing the initiatives.
To further support its operations, Sysco has also been making forays into the retail grocery channel, which continues not only to operate but is doing brisk business while its restaurant competition for consumers’ food dollars is hobbled. That is a step also being taken by other foodservice distribution entities, with an ad hoc partnership being formed between the International Foodservice Distributors Association (IFDA) and the FMI-Food Industry Association retail grocery organization. The arrangement encourages foodservice distributors that have excess capacity in terms of products and/or transportation and warehousing services to assist food retailers and wholesalers that require additional resources to fulfill needs at grocery stores, which are experiencing skyrocketing demand.
“Our industries are both committed to the safe delivery of food to consumers and we are equipped to provide service during this critical time in our country,” IFDA President/CEO Mark Allen commented in a release announcing the alliance. “This partnership makes sense and it is in these times of turmoil that we must step up and fill the gaps when we can to help each other where we can.”
Similarly, US Foods, the second largest foodservice distributor in the country, released a statement from Chairman/CEO Pietro Satriano saying, “We are exploring new ways that US Foods can leverage our business capabilities during this challenging time, including starting to sell some of our inventory to retail outlets like grocery stores and temporarily contracting some of our distribution workforce to companies experiencing a spike in demand.”
Satriano also notes that “while the situation is fluid, at this point sales to healthcare and government customers remain strong.”
Meanwhile, IFDA members—mostly small and midsized companies—currently are most concerned with simply staying afloat financially in the face of all the lost business, says Jonathan Eisen, senior vice president of government relations for the organization, noting that the foodservice distribution industry estimates it will collectively lose about $24 billion over the next three months. What may not be helpful, he notes, is the payment model for the Family Medical Leave Act extension recently passed by Congress, which depends on tax credits as the reimbursement mechanism.
“If you don’t have any revenue, getting tax credits to offset wages for paid medical leave really doesn’t help,” he offers. “Our members need liquidity and they need it now,” Eisen stresses, noting distributors typically live on a 2% margin “on a good day.”
“Even though a large percentage of [customer locations] are closed, there are still hospitals, care facilities, nursing homes, prisons, the military, that still need to be serviced,” Eisen notes. “We’re not asking for handout or the government to give us loans [but only to] backstop loans and give us the ability to manage to get through this.”
To date, distributors have met the challenge as product needs for onsite dining programs that remain active are being accommodated with adjusted delivery schedules that reflect reduced volume needs, along with more emphasis on meal components that require less prep work at the unit level and on single-use, disposable servingware.
“Suppliers are being a little more judicious as to how product is being allocated out, but I haven’t heard about any particular supply issues” observes Phil Harty, senior vice president of operations in New England for Sodexo’s Higher Education unit.
One product area that experienced initial disruption was cleaning and sanitizing chemicals, but even these have mostly been rectified, Harty says. “There was an original run,” he notes, “but I know vendors now have plenty of stock.”
Currently, with education accounts ramping down significantly, supplies of these critical products are being prioritized for healthcare venues, he adds. “We want to be sure hospital and senior living get first priority to access them, but I really haven’t heard of a supply issue outside of the precautions that are being taken to ensure supply to those areas.”
Indeed, to ensure a steady supply of cleaning/sanitizing products, some rather out-of-the-box suppliers have jumped into the market.
In other areas, some produce items that are especially dependent on foreign sources might start seeing shortages, perhaps boosting local farmers, as over half of the fruit and about a third of the vegetables consumed in the U.S. come from other countries despite the growing prevalence of farmer’s markets and local sourcing/farm-to-table initiatives.
The shuttering of so many commercial and institutional accounts has also left some distributors with excess perishable product and few outlets. Some are donating the excess to food banks and community kitchens while others are approaching customers still in business, such as hospitals.
“We’ve heard that our main produce supplier’s sales are down about 70%, making it a struggle for them, and we are now their No. 1 buyer,” notes Robin Aufdenkamp, director of nutrition services for Intermountain Healthcare in Utah. “We’re trying to figure out how to keep them operating through all of this, so we’re [doing things like] making fruit baskets to give as gifts.”
As for other products imported in quantity from countries especially affected by coronavirus, supply disruptions could be major. For example, Italy, the country most impacted by the virus other than China, exports major specialty products such as olive oil, pasta and cheeses to the U.S.
One issue yet to be worked out is the pricing formulae that are built into high-volume distribution contracts large institutions typically receive from vendors. With radically smaller volume needs, some of those arrangements may have to be adjusted.