The Great Grocery Grab of 2020 and the Ongoing Impact to U.S. Animal Protein
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January 2021 The Great Grocery Grab of
2020 and the Ongoing Impact
to U.S. Animal Protein
Key Points:
n 2
020 was the most volatile and, for many, the most challenging year in U.S.
animal protein history. The COVID-19 pandemic drove a historic shift to eating
at home, temporarily closed nearly half of U.S. red meat capacity in the spring,
and lifted retail meat prices to record highs.
n I n
spring of 2020, U.S. food consumption reverted to a level of at home food
consumption not seen since the early 1980s, and with that, the greatest and
most rapid shift in meat and food supplies the industry has ever seen.
n W
hile 2020 may be over and U.S. protein supplies are back to normal, the
Will Sawyer foodservice sector has lost one in five restaurants nationally during the
Lead Economist, pandemic. It could be the back-half of 2022 before foodservice sales return to
Animal Protein pre-pandemic levels as the restaurant industry rebuilds.
n A
s U.S. animal protein consumption slowly returns to normal, the food service
sector will still lag. That means a challenging outlook for food service-focused
animal proteins including high-value beef cuts, poultry produced for foodservice
Inside… specs, and labor-intensive processed meat products that are in short supply.
Introduction........................................1
An Uneven Recovery..........................2 Introduction
An Inconvenient Lack
As COVID-19 spread around the world in the spring of 2020 and restaurants across
of Convenience...................................3
the country closed, the pandemic caused a historic shift in the U.S. to eating at
Flexibility is Key...................................4 home. It upset the long-held U.S. food consumption trend toward restaurants
and other away-from-home outlets. Foodservice sales declined by more than half
Margin Shift to Retailers......................4
in April 2020 as cities and states across the country ordered or requested their
Conclusion..........................................5 citizens to stay home. This drove consumers to empty the shelves and meat cases
in grocery stores to fill their home pantries. During this time, away-from-home food
consumption fell to just one-third of total food expenditures – a level not seen in
the U.S. since the early 1980s. Ultimately, this led to one of the largest shifts in
the U.S. food supply chain as food distributors, processors, and retailers diverted
massive portions of meat and other food originally intended for restaurants into retail
distribution channels and grocery stores around the country.
1
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www.cobank.com
% of U.S. Food Consumption Away-From-Home
EXHIBIT 1: Percent of U.S. Food Consumption Away From Home
Since spring 2020, foodservice
Percent
sales have improved but remain
well below 2019 levels, and its 55
proportion of total food consumption
is similar to the early 2000s 50
(Exhibit 1). This prolonged period of
reduced restaurant foot traffic will
45
cost the restaurant industry over
$240 billion in lost sales and nearly
2.5 million in lost jobs in 2020 alone 40
according to the National Restaurant
Association. Possibly more significant
35
to the outlook for foodservice
demand is the estimated one in five
restaurants that have closed. Making 30
matters worse, foodservice sales this
19 2
19 3
19 4
19 5
19 6
19 7
19 8
99
20 0
01
20 2
20 3
20 4
05
20 6
07
20 8
09
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20
9
9
9
9
9
9
9
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
1
19
20
20
20
20
20
fall have only worsened as COVID-19
Source: U.S. Census U.S. Food Spending ($ billions)
cases have risen, which is a trend
that will likely only continue through
the winter (Exhibit 2). As we look
ahead in 2021 as the availability of EXHIBIT 2: U.S. Food Spending
vaccines improves over the course of
Dollars in Billions
the year, the hole left by the closing
of the thousands of restaurants will 800
mean that foodservice demand will 700
take far longer to normalize.
600
An Uneven Recovery 500
The importance of individual 400
foodservice channels varies greatly
by animal protein species and 300
by producer (Exhibit 3). Some
200
foodservice channels have rebounded
from spring 2020 lows to actually 100
achieve sales growth, as indicated by 0
positive comparable-store sales since
20 21E
20 22E
E
19 92
19 93
19 94
19 95
19 96
19 97
19 98
20 99
20 00
20 01
20 02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
20 11
20 12
20 13
20 14
20 15
20 16
20 17
20 18
20 19
20 20
23
19
the summer for a number of fast-
Eating and Drinking Places Grocery Stores
casual and quick-service restaurants
(QSR). Meanwhile, full-service Source: U.S. Census
restaurants continue to face double-
digit declines in sales. In November,
full-service restaurant sales were
down 36% versus last year while total
© CoBank ACB, 2021 Prepared by CoBank’s Knowledge Exchange Division • January 2021 2
www.cobank.com
EXHIBIT 3: U.S. Animal Protein Foodservice vs. Retail Volume in 2019
This is the primary reason consumers
have found a significant increase in
the amount of prime graded beef
38.2% available at retail. At points during the
50.3% 53.5% 53.5% summer when full-service restaurants
58.9%
71.6% were especially stressed, the spread
between prime and choice graded
beef contracted to unusual levels. We
view this as not only evidence of the
61.8%
challenges in the industry but also the
49.6% 46.5% 46.5%
flexibility available in certain areas of
41.1%
U.S. animal protein.
28.4%
An Inconvenient Lack
BEEF CHICKEN PORK TURKEY SEAFOOD EGGS of Convenience
Retail Foodservice As consumers have shifted to an
unusual level of at-home food
Source: Urner Barry Consulting
consumption, they have also found
fewer value-added and convenient
foodservice sales were down 17%. In-restaurant dining will meat products at grocery stores. This is especially true
be vulnerable as long as consumers remain wary of dining in the value-added meat products that are manually
indoors and many cities and states restrict or prevent processed by hand. Since last spring, meat plants have
indoor dining this fall and winter while COVID-19 cases experienced significantly higher rates of employee
remain elevated. absenteeism, which has continued throughout the year.
Weekly livestock slaughter has returned to at or above
These differences in the performance of the various year-ago levels, which has been accomplished by shifting
foodservice channels is especially evident in U.S. beef the meat plant workforce out of secondary processing
consumption. While ground beef makes up the majority (where these value-add and convenience products are
of beef volume through foodservice, it makes up only produced) and into primary processing.
about one-third of the value due to its low price point.
Ground beef in the limited-service restaurant channels This shift in meat plant workforce has been especially felt
has performed quite well, but the beef sector continues in the pork sector where the vast majority of its products
to be hurt by the full-service, hotels, and education sold at foodservice are value-added and further processed
channels that remain depressed. The high-value steaks items. Items like bacon, breakfast sausage, deboned
and roasts that are primarily sold in these channels only (boneless) hams and others make up the bulk of pork at
make up a quarter of the volume of beef sold through foodservice. The more stable prices of bone-in ham over
foodservice but nearly half of beef sales. Many fine the course of 2020 reflect the ebbs and flows of pork
dining establishments – especially those that are exports to Mexico and China where the majority of bone-in
independent and privately owned – closed during 2020, hams are exported. Meanwhile boneless ham values have
and in the months to come will leave a significant hole shot up and held a historically large premium over the
in beef demand. bone-in product.
As a result, approximately a quarter of the high-value The lack of these convenience products has impacted
steaks and roasts for full-service is finding its way to retail. the profitability of pork processors as these products are
© CoBank ACB, 2021 Prepared by CoBank’s Knowledge Exchange Division • January 2021 3www.cobank.com
Retail Share of Revenue Per Pound of U.S. Animal Protein
EXHIBIT 4: Retail Share of Revenue Per Pound of U.S. Animal Protein
generally more profitable than the
Retail Price Per Pound
basic whole muscle cuts that the
$7.00
industry has had to focus on during $6.54
the pandemic. The labor environment $6.04
$6.00
since last spring is far from normal,
and in some cases, has become more $5.00 $3.01
$2.75
challenging for the U.S. animal protein
$4.03
industry this fall and winter. It may $4.00 $3.84
be many months before convenience
$3.00 $0.57 $0.98
meat product prices and availability
$2.69 $2.88
are what meat processors and $2.00
$1.50 $1.56
consumers have come to expect.
$2.72 $2.55
$1.00 $0.81 $0.93 $0.17 $0.26
Flexibility is Key $0.68 $0.63 $0.98 $0.89
0
The beef and pork sectors have 2019 2020 2019 2020 2019 2020
Chicken Pork Beef
flexibility because major packers sell
their products to a variety of retail, Producer Processor Retailer
foodservice and export customers.
Source: USDA AMS, CoBank Estimates
In the poultry sector, however, many
poultry integrators and poultry plants
focus either on retail or foodservice, not necessarily Margin Shift to Retailers
both. Under normal market conditions, the retail channel The historic shift in food consumption during the
accounts for approximately 40% of U.S. chicken COVID-19 pandemic lifted margins for grocery retailers
volume but is 60% to even 80% for some U.S. chicken as they have been able to increase prices of animal
companies. This was a fortunate channel mix during the protein and other food products over the course of the
COVID-19 pandemic, but it made for a very challenging last year (Exhibit 4). In 2020, retail beef prices climbed by
year for those producers who sold their products with just 8.1%, pork by 4.8% and chicken by 4.5% according to
as much focus on foodservice. the USDA. This isn’t the highest level of retail meat price
inflation U.S. consumers have seen, but as livestock prices
Making matters more complicated is that the chicken
were overall lower in 2020 it does indicate that grocery
grown for one channel is very different than for the
retailers are seeing higher returns in the meat case than
other, and that can also be said for the plant where it
before. With the foodservice sector expected to experience
is processed. The smaller bird needed for the chicken
a continued uphill battle in 2021 and for years to come,
sandwiches that have become the must-have menu
grocery retailers look to be in a favorable position to
items at QSR is quite different than the big birds
capture margin and pricing.
processed in other plants. As many of the foodservice
channels that big bird producers focus on have been Some packers and processors, especially beef packers,
pressured in 2020, many of these companies are looking realized higher margins in the last year due to their limited
to cut costs and supply until foodservice demand returns processing capacity. But for all animal protein processors,
and possibly shift their business models for the long-term. costs of livestock harvesting increased significantly during
© CoBank ACB, 2021 Prepared by CoBank’s Knowledge Exchange Division • January 2021 4www.cobank.com
the pandemic as processors increased wages, invested and multi-location limited-service restaurants. For beef,
heavily in personal protective equipment, and experienced that could very well mean a long-term shift in high-value
significant idle time in the spring. As a result, while there steak consumption to retail as the upscale restaurants
are examples where price spreads for processors have have been especially hard hit and seen a significant
increased relative to 2019, the bottom line profitability has number of closures. The pork sector will need to bring
not increased to the same degree. back the value-added meat products that not only provide
convenience for their retail and foodservice consumers,
Conclusion but also boost processors’ bottom lines – but they will
need to invest in automated processing equipment.
The trends in U.S. consumer demand for at-home
Poultry producers that focus on retail and fast-food
and away-from-home consumption are central to the
chains have fared reasonably well during the pandemic
profitability and viability of the animal protein supply
but others will need to continue their focus on cost and
chain. As the U.S. foodservice sector climbs out of the
supply reduction until foodservice demand normalizes,
hole left by 2020, the U.S. animal protein sector will need
which may very well be one or two years away.
to realign itself with the survivors of the last year. In many
cases that includes the large, publicly traded, franchise
CoBank’s Knowledge Exchange Division welcomes readers’ comments and suggestions.
Please send them to KEDRESEARCH@cobank.com.
Disclaimer: The information provided in this report is not intended to be investment, tax, or legal advice and should not be relied upon by
recipients for such purposes. The information contained in this report has been compiled from what CoBank regards as reliable sources.
However, CoBank does not make any representation or warranty regarding the content, and disclaims any responsibility for the information,
materials, third-party opinions, and data included in this report. In no event will CoBank be liable for any decision made or actions taken by
any person or persons relying on the information contained in this report.
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