The announcement by Swiss-Irish bakery firm ARYZTA it now expects a “material impact” on its business this year from the coronavirus outbreak will be worrying to other major suppliers to the foodservice channel.
Aryzta, which has hardly had a trouble-free couple of years, today (24 March) told investors it is reducing capital expenditure, with all future capex projects suspended. Two smaller plants have closed in Europe and ongoing evaluation of the further shutting of plants and lines is taking place.
“It is now clear that Covid-19 will have a material impact on group performance in FY [fiscal year] ’20,” the company said in a statement. “We cannot reasonably gauge what consequences will result from the situation as neither the duration nor the depth of this issue can be fully assessed at this point in time.”
Two weeks ago, Aryzta chief executive Kevin Toland had said the impact of Covid-19 on its business was so far concentrated in the out-of-home segment in Asia, particularly in China, where the virus first erupted in late December.
However, with cafes, restaurants, school and college canteens, supermarket in-store bakeries and a vast number of other foodservice outlets being closed across the world to help stop the spread of the Covid-19 virus, it is inevitable major suppliers to this channel will be facing extremely difficult circumstances and will have some big decisions to make about future strategy. This morning, UK newspaper The Guardian reported how around a fifth of the world’s population were under lockdown. Within the last couple of hours, India has announced a complete lockdown of that country for 21 days from midnight local time tomorrow.
Aryzta is not the only publicly-listed food manufacturer with significant business with the foodservice market to have issued a sales warning this week. Yesterday, US-based J&J Snack Foods warned investors about the impact on its sales as more and more local foodservice outlets close. J&J Snack Foods said two-thirds of its sales to restaurants, schools, stadiums and arenas, movie theatres and amusement parks could be affected based on annual revenues of $1.2bn, compared to a previous estimate of one third, as more venues close their doors.
Meanwhile, Sysco, the US foodservice distribution giant, yesterday revealed it had been forced to look again at its business model and has turned its focus onto the retail grocery market.
With the uncertainty surrounding the Covid-19 outbreak and no indication of when the foodservice channel will be back up and running, a strategic re-think of that kind has to be the order of the day for those companies that can do so.
But there must be real fears for the future of foodservice suppliers that can’t readily change their business model.