A Long & Dark Shadow. by Dr. Clive Black

April 13, 2020 9:40 am
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The news is very harrowing. The news is incredible. The equivalent of a small village each day in the United Kingdom (UK) is in effect being lost to a virus few, if any, had heard of six months ago; a  biological entity that, if we believe perceived wisdom, mutated from bats for human consumption bought in wet markets in and around Wuhan. A failure of the food system, a bio-security malfunction, is literally causing global grief.

‘Coronavirus’ is the word of 2020. It may turn out to be the word of this third decade of the twenty-first century. It will take some weeks and months to know whether or not the UK will be emerging from the dramatic lockdown policy of the Government and in what state. In the meantime we must hope and pray that the fatalities level off and fall back as soon as possible and that a mix of mass-testing plus the race to treat and vaccinate truly means that this virus is beaten down.

Pride in public servants

In the meantime, our NHS has been a triumph, once again. The bravery, commitment and kindness of its front-line workers is something that may just need to be re-appraised by society – that thing that Prime Minister Boris Johnson suggests exists in stark contradiction of the conservative thought-leader of days gone by, Margaret Thatcher – Government and taxpayers. Social care workers may also need to be reassessed at a societal level too, folks who also have shown immense courage in looking after the basic needs of the elderly and vulnerable day in, day out, often in this crisis with little or no viral protection.

It is easy to criticise the Government for policy and outcomes through this crisis. Some, like the BBC, have all to often been mouth pieces for the noisy self-publicists with few solutions to palpable problems. Whilst so, constructive criticism has its place and it is clear that some public bodies and servants have struggled with this crisis, even taking into account the incredible speed and magnitude of developments.

In the main patience and support remain the order of the day though as testing regimes, protective equipment, ventilators and the search for the vaccine emerge; we should perhaps reflect that a lot has been achieved in a short period of time and the delivery side of matters now seems to be coming through, to the credit of all involved.

 

Applause for the British food system

Another band of heroes in the midst of the crisis is the UK’s food retail system, which has moved mountains, literally in volume terms, to serve the public, to feed the nation as the Government decreed. In this respect, appreciation also needs to be expressed for its front-end workers, exposing the welfare of themselves and their families to the public day in, day out.

The speed with which the supermarkets raised distributive capacity and introduced protective policies and structures, such as check-out screens, has been amazing. Nielsen recorded a c45% increase in trade in the week to the spring solstice; a quite amazing achievement for events no one knew of a month earlier (especially for an industry running at a prior growth rate of c1%).

The grocery supply chain has also proved a wonder in meeting the demands of a worried public first craving household medicines and loo roll before moving onto lines across the store, noting the considerable step-up in demand for frozen over chilled foodstuffs in particular. Production programmes have been rationalised as the manufacturers have focused upon output and unit efficiency.

“Another band of heroes in the midst of the crisis is the UK’s food retail system, which has moved mountains ……. to serve the public. ….appreciation also needs to be expressed for its front-end workers, exposing the welfare of themselves and their families ………day in, day out. “

A thought for F&B

Whilst the grocery retail segment has risen to the challenge of the step up in demand, the domestic food & beverage (F&B) segment has massively contracted. From supplying 35-40% of the calories consumed in the UK, the F&B segment has disintegrated down to the institutional element of the market, so hospitals, homes and prisons, which is maybe 10-15% of national intake.

So, whilst the supermarkets have been seeking to safely accommodate a step up in the demand for calories to be consumed at home, the F&B trade is in crisis. Indeed, with the days brightening, the industry is going to lose out, more or less, on the second biggest family gathering event and so food consumption peak of the year, with the near cancellation of Easter; literally millions of chocolate eggs are searching for an expedient home at this time whilst the freezers will also be full of lamb’s legs.

Accordingly, chains like Greggs have closed their 2000+ stores, many thousands are being furloughed through the Government’s amazing news support mechanisms, whilst those businesses that can are exploring liquidity support; somewhat unedifying though are the likes of JD Wetherspoon, which is seeking not to pay its suppliers in stark contrast to Morrisons, which is paying its small suppliers immediately. The scale of the Government support is eye-watering, but so very much appreciated and necessary at this time.

 

A seismic economic jolt

The cost to business and the wider economy of the Coronavirus crisis is, of course, quite enormous. In fact we cannot imagine the length and depth of the shadow that the Coronavirus shut down means for the British economy. There will be a collapse in Q2 Gross Domestic Product (GDP), something record making, and that hit may last for sometime still. Whilst the new Chancellor of the Exchequer is justifiably acclaimed with much praise for his many helpful and imaginative policy actions, it remains the case that Coronavirus is going to cause enormous collateral damage to the economy, including, perhaps most particularly, F&B.

Many businesses, like households, live from week to week, and so the steps already announced by Government and the retail banks are unlikely to prevent much collapse with corresponding distress thereafter. Accordingly, one has to hope that policy can be grand and flexible enough, incorporating the major banks and other lenders, to show enough patience, forbearance and care to also nurse the British F&B sector, and the wider economy through this crisis.

The numbers involved in stabilising the economy redefine telephone directories. The consequences of the crisis for Government finances, future business activity, welfare support and taxation are at this time simply mind blowing. However, just weeks into the Johnson political era a virus from inland China is perhaps going to characterise his parliament. Let us hope that on the other side of the crisis that the lessons are learnt and the economy can show commendable ‘bouncebackability’.

When that time comes, Coriolis Consulting, with its structured, focused and pragmatic approach to meeting business’ operating challenges, will be more relevant than ever in assisting food businesses on how to be best prepared to face into the challenges and opportunities posed by the market.

In the meantime, I simply wish everyone and their families safety and wellness at this difficult time.

 

Dr Clive Black

Senior Advisor to Coriolis Consulting

 

April 2020