If you aren’t in over your head, how do you know how tall you are?*

Over the last month, we spent some time thinking through and evaluating the possible implications of the COVID-19 pandemic on multiple industries. We wanted to dig deeper into some of the sectors we think will be the most transformed, starting with Food & Beverages (F&B). 

Earlier this week, we hosted our first webinar with a stellar line-up covering a spectrum of the F&B value chain from cultivation through to virtual brands and restaurant operators. The panel included; Sky Kurtz from Pure Harvest Smart Farms, Hashem Montasser from the Lighthouse, Marwan Tarabay from The Leap Nation; and discussed ways the intersection between F&B and technology is being accelerated by current events – from sourcing to plating. I wanted to highlight some of the themes that stood out, but we highly encourage you to watch the full video below.

Unlike other sectors, F&B seems to be sending mixed messages about the impact the lockdowns and the accelerating economic dislocation are having on the movement of food. The initial expectation was that consumers would increasingly rely on food delivery. But as the situation unraveled, the numbers showed a much deeper and more complex reality. 

The pandemic has put players across the industry to the test and exposed multiple inefficiencies that have historically undermined F&B. Although the industry had already been on a transformational bend, current events have exposed as well as accelerated a serious need for it to recast itself for a new reality, with a new generation of innovators in F&B leading the pack. 

The more traditional F&B operators are in danger and will need to operate in an extremely efficient and nimble way as they navigate measures they can take to keep their businesses afloat. And those who did not focus on building an online or omnichannel strategy early on run the most risk – Khaled discusses some of our earlier observations on this in his piece.

It’s a smaller pie, and everyone is fixating on it

Players across F&B are now looking at a pie that has considerably shrunk. As safety and sterilization measures have been implemented across the region, consumer behavior has more or less been flattened to one dimension: that of a consumer who is staying at home and looking for convenience. 

The lockdowns and subsequent shifts from offline to online have exposed some additional choices that are not typically available in normal circumstances. As they spend more time at home, people also have the option to cook as well as the convenience to compare the cost of groceries or food delivery and trade down if needed.

Consumers won’t “unlearn” convenience

The change in consumer behavior has forced players across the industry to shift their strategies. Those who weren’t thinking digital have had to put complete and sudden shifts in immediate effect, while others are doubling down on their online channels and finding new revenue streams.

The hospitality industry has taken a hit and is operating at a much-reduced capacity. This means that a number of players who have not traditionally serviced customers directly, now have to bypass the multiple intermediaries and target the end-customer as a means for survival. Traditional F&B operators, cloud kitchens, wholesalers, and grocery suppliers are competing for the same customer, either through a direct-to-consumer approach or via aggregators. 

As we slowly edge towards a new normal (and even before we do), many businesses will have to put in rigorous effort to win back their customers. 

The Aggregator debate

The debate around aggregator margins eating at operator revenue has recently come to a roar, with some restaurants opting to build proprietary direct channels and others uniting to work on a better option for everyone. It will be interesting to see what types of transformation will come out of it and if the current events will bring about better partnership models across the board. These new types of partnerships could offer operators more visibility into their data and aggregators the ability to provide a better, more integrated experience. 

But before this happens, we are likely to see operators focus on building their direct channels in the short term.

New models

A second-order effect of the pandemic will be in the form of the emergence of new models. Operators may look to leverage their facilities during their downtime to test virtual brands, whether or not these will be their own creations. 

While Quick Service Restaurants and casual outlets could still satisfy their customers by creating a solid online food delivery experience, fine dining establishments will need to rethink how they fulfill their brand’s promise completely. They will need to find alternative ways to deliver a similar, in-brand experience outside of their locale, whether it is through customization, booking experiences with chefs, or finding creative ways to generate revenue from leasing out their physical space for curated sessions.

Some of the largest operator costs are tied to rent and personnel. Traditional leasing agreements between restaurants and landlords could change and perhaps evolve into true partnerships, aligned on mutual interests and adapted to a new reality.

Additionally, the F&B industry is human resource-intensive, and addressing the current frictions associated with hospitality employment could benefit both employee and employer. The UAE has recently introduced measures to allow for temporary salary cuts and unpaid leaves to curb potential downsizings. 

Labor laws will need to continue to adapt to the changing business landscape. We’re currently taking a deeper look at how employment as we know it will change – more on that soon from Nuwa Capital. 

The case for localizing food supply

Pandemic aside, food crises have been steadily intensifying. The number of people suffering from malnutrition and inadequate access to food is increasing globally, driven by economic instability, conflicts, or extreme weather conditions brought on by climate change. The World Food Programme reports that the population in ‘crisis or worse’ rose from 112 million in 2019 to 123 million in 2020 across a set of 50 observed countries (Global Report on Food Crises, World Food Programme). 

While the current events may push us to rethink the movement of food across the value chain, it may also accelerate the transition towards more sustainable means to produce food and to do so locally, thereby reducing cost, increasing accessibility, improving food security, and creating jobs. Global supply chains are demonstratively fragile, and we are likely to see an increased effort to localize food supply and sources – similarly to what we’ve already seen in the UAE. 

Consolidation

In the last few days, news of UberEats pulling out of Saudi Arabia and Egypt and transferring its UAE operations to Careem has somewhat rattled the industry. But as in previous downturns, businesses will be quick to make decisions on what is or what is not working. Panelists pointed at Careem Now and Uber Eats, now both effectively Uber products, vying for the same piece of the pie. 

Consolidation will become a recurring trend, and this will be true across multiple industries. Over the course of the last few years, there has been a surge in aggregators for food delivery and e-groceries across multiple geographies in MENA and the GCC, and they all compete for the attention of the same consumers. Perhaps, as some of our panelists posited, there may be even too many of them.

Players who have managed to build direct or seamless omnichannel experiences and who can leverage deep data and operational expertise are at an advantage. They can spot trends early on and adjust accordingly. These may be in a better position once consolidations become possible (and once the affected businesses are ready for them).

As we dig deeper into what this new reality means for industries we at Nuwa Capital are active in, we will be hosting more of these conversations where we bring together founders and other stakeholders. If you haven’t done so yet, make sure you sign up for our mailer to receive the next invite.

*T. S. Eliot, poet, essayist, and playwright.

– Stephanie Nour is partner at Nuwa Capital, managing the company’s network and operations.

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