Over the past week, the Dow Jones has lost nearly $2 trillion in market capitalization due to fear of the Coronavirus. One of the chief concerns related to this virus is its departure from influenza, which will typically subside once winter has ended. However, refer to the cases in Australia and Singapore (seasons are opposite in the lower hemisphere) as examples of the longevity and strength of Coronavirus.
The impact of the virus on foodservice affects not only demand (fears, dropping wealth) but more importantly, access to critical restaurant supplies as factories remain closed from one of the world’s most important trading partners — China.
Coronavirus is a Supply Chain Issue
What makes the Coronavirus most troubling to the global economy is the supply side — not the demand side — is most affected. China’s is the second largest economy and global companies rely on supply from this partner. Over the past two weeks, the virus has effectively shut down factories and production. This impacts everything from disposable packaging, shipping materials, food and equipment.
The Fed Is Not Equipped for Supply-Side Issues
If this issue is uncertainty that is related to inflation or employment, the Fed would have tools in place to stimulate spending. With a virus, the Fed is not in a position to develop vaccines, which raises greater uncertainty and stokes fears. Restaurant patrons concerned about the virus will likely stay home — no stimulus by the Fed will change this.
Changing Supply Chains is Not a Simple Matter
One may think that food companies shift supply from say, China, to Mexico. This is not a simple matter and has been tried before. The term “chain” refers to the interlocking relationship between trading partners, and to “break” the steel link could lead to business interruptions, poor formulations and unvetted partnerships. IN the end, prices for consumers would increase.
The Bottom Line
With the uncertainty of the virus, markets and consumer confidence (two drivers of foodservice growth) will likely take a short-term hit until a vaccine is found. Once this happens, there will be pent up demand for products, yet the supply (factories) will need to play catch-up. Expect some business interruption, at least in the next three months, and refer to contingency planning to muscle through the softness.
Interested in gaining specific insights around the economy for your business? Contact us to learn about a new program designed to equip foodservice suppliers with strategies for weathering a challenging financial climate.