5 Ways Food & Bev Firms are Fighting the Coronavirus5 Ways Food & Bev Firms are Fighting the Coronavirus

As the novel coronavirus COVID-19 spreads across the globe, food and beverage manufacturers are facing a complex range of issues from the factory floor to retail shelves. Economic activity in China has been significantly hindered by the respiratory illness (also known as 2019-nCov), but the ripples are also being felt elsewhere. 

The number of reported coronavirus cases reached about 90,000 on Tuesday. Looking at uncertainty in the months to come, some of the world’s top food and beverage firms are taking measures to mitigate the impacts of the outbreak on their operations and balance sheets.

A recent timeline published by Powder & Bulk Solids traces how some major food & beverage industry players are responding to the disease. To elaborate further, our editors compiled this list of five ways that top food and beverage firms are working to fight the impacts of the COVID-19 outbreak. 

1.) Pausing or Reducing Operations in China

Many food and beverage companies operating in China – including Anheuser-Busch InBev, Kraft Heinz, and Mondelez International – temporarily closed or reduced operations at their production facilities during the Chinese Lunar New Year holiday period, but quarantines, transportation issues, and restrictions on movement have slowed workers from returning to their posts. 

“There is a general shortage of labor, interruption of logistics, as well as a reduction of demand and supply. Consequently, this is negatively impacting the production, distribution, and inventory levels across the F&A spectrum,” banking and financial services firm Rabobank said in a report published in late February. 

PepsiCo CEO Hugh Johnston told Yahoo Finance in mid-February that five of the company’s six manufacturing plants were operational. The company’s one closed plant is located in Wuhan. Around the same time, food firm General Mills told the Minneapolis Star-Tribune that about half of its Häagen-Dazs ice cream shops in China are temporarily shuttered as a result of the outbreak. Food Ingredients firm Ingredion said in a February 11 earnings call that one of its two manufacturing plants in China was closed. 

2.) Issuing Travel Restrictions

Most major food and beverage companies restricted work travel for its employees in some way by March. American agribusiness Cargill asked its workers to delay or cancel plans for business travel to Wuhan in late January, and then ordered employees in late February to halt all non-essential international business travel for a two-week period. 

A Kraft Heinz spokesperson told The Wall Street Journal in late January that the company banned its employees from traveling to and from China to minimize the risk of exposure or transmission of the disease. 

Swiss food and beverage giant Nestle put a moratorium on business travel until March 15 for more than 290,000 workers across its global footprint.

Unilever told CNN at the end of February that its workers were asked to only to travel for “business-critical” purposes and avoid traveling to and from Northern Italy and other countries where the coronavirus has been reported.

3.) Diversifying Supply Chains

China is a substantial source of fruit and vegetables, spices, and food ingredients for North American food and beverage manufacturers. The U.S. imported $4.9 billion of agricultural products from China during 2018, including $1.2 billion in processed fruit and vegetables, $167 million in spices and $160 million in fresh vegetables, according to information gathered by the Office of the U.S. Trade Representative. 

Kraft Heinz CEO Miguel Patricio told Bloomberg last month that the firm’s supply of ingredients made from raw materials imported from China may be impacted by COVID-19. “It is prudent for everyone to find possible alternative suppliers,” Patricio said in the February 13 article. 

CNN reported at the end of February that beverage maker Coca-Cola’s annual report noted that the company is facing sourcing issues with certain artificial sweeteners that are predominantly made in China. “We have initiated contingency plans and do not foresee a short-term impact due to these delays,” the company wrote in the document. “However, we may see tighter supplies of some of these ingredients in the longer term should production or export operations in China deteriorate.” 

Bob Gamgort, the CEO of beverage manufacturer Keurig Dr. Pepper, said in a February 27 earnings call that the company doesn’t “anticipate any disruption” because of the outbreak because of rapid changes KPD made to its supply chain. “The first thing that we did was geo-diversified our supply chain for our brewers outside of China,” the executive told callers. Most of the company’s business is in North America.

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4.) Adjusting Earnings Estimates

While companies whose business is primarily in North America will likely be spared from severe financial disruptions from the outbreak, food and beverage firms that have a significant presence, or supply chain reliance, on China are bracing for impact in the first quarter and possibly beyond.

Beer brewer Anheuser-Busch InBev said in late February that it anticipates its revenue will drop by $285 million during the first two months of 2020 because of “a significant decline in demand in China in both on-premise and in-home channels.”

Coca-Cola expects organic revenue to slip by one or two points in Q1 2020 because of the coronavirus, as well as a two- to three-point slip on unit case volumes, the company said in a February 21 statement .

Food ingredients manufacturer Kerry Group said in mid-February that COVID-19 will cause its revenue in China to decline by 30% during the first quarter, coverage by Reuters said. 

5.) Delaying or Diverting Shipments

Chinese ports became clogged with shipments as the coronavirus spread because trucking has been hindered by quarantines across multiple cities and a pause in operations during the Chinese Lunar New Year holiday period. 

“The reefer plugs are all taken at Chinese terminals, [and] domestic China restrictions on movement of persons and vehicles are severely limiting ability to move reefer and dry containers off the terminals to inland destinations,” Peter Friedmann, the executive director of the Agriculture Transport Coalition (AgTC) stated in an interview with trade publication FreightWaves.  

Tyson Foods Chief Executive Officer Noel W. White said in a recent earnings call that the company is experiencing some issues with shipments and domestic production in China due to the virus. However, he expects sales to eventually rebound because of an ongoing pork shortage in the country caused by an African swine flu outbreak. 

“There’s been some disruption at the ports. So that has skewed shipments receivables,” White said in the call. “I would expect that we get – once we get past the coronavirus incident, whenever that might be, that I do think that there’s going to be a very strong demand coming out of that.” 

Trade group USA Poultry & Egg Export Council said in a Reuters article published February 13 that shipments of chicken from the US to China are being redirected to other ports in Asia.

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