The world around us is changing at a rapid pace. COVID-19 has impacted us in innumerable ways and is now paving the path to a new, more hygiene-conscious world. This demand for safety and hygiene will likely be a permanent feature in the new world, and will therefore, fundamentally change the way agriculture, and consequently, all F&B businesses, work.

At this point, nobody is talking about temporary and (maybe) permanent disruptions to our food supply chain and how they can affect the ongoing operations of F&B businesses. At Zomato Hyperpure, our farm-to-fork business, where we source fresh raw ingredients from farmers to supply to restaurants, we have learnt a lot about what’s going on. We are in a unique position to attempt to understand how the entire value chain for the restaurant industry might get affected in the future.

The curious case of Indian Poultry

Around the middle of February, we saw a trend in the Indian poultry market that countered the global trend of increased poultry consumption. Rumours were spreading that eating chicken could cause COVID-19, and countering the trend across the world, the demand for chicken in India decreased dramatically. In any given year, the lowest prices of poultry are usually observed during the months of February and March, since they have the weather conducive to the birds’ growth. However, decreased demand combined with above average supply led to farmgate prices* crashing down to as low as ₹6/kg vs the average wholesale per kg price of ₹80 over the past 12 months (cost of production ranges usually ~₹72-78/kg).

Right now, without any predictability of demand (and pricing), farmers are hesitant to start fresh production batches. Mass selling in a short duration and no fresh batches have led to acute shortage of chicken in India. The current demand across the market is being served by limited fresh chicken production from processor-owned farms and the stocks frozen by processors during the months of February / March. The prices of frozen whole chicken have already gone over ₹150/kg (Delhi and Bangalore) while that of fresh chicken is ~₹180/kg (Bangalore). When the lockdown ends and the demand picks up again, the current supply might not be well equipped to meet the demand.

*pricing data as of mid-April 2020

Adjusting to changes in the short term

Restaurants and others in the food industry will need to re-think and re-calibrate their supply chains to fit into the new reality of our world. The poultry industry above is just one indicator of the kind of changes happening across other commodities. Sourcing commodities from international markets will become harder, and local sourcing might gain more traction in order to balance out this disruption. 

Here are some measures restaurants may have to undertake in the short term in order to adjust to the supply chain disruption –

• Dynamic menus

Restaurants should keep their menus dynamic to ensure that if a key ingredient for any dish on the menu is unavailable or has become unusually expensive due to shortages, the dish is removed and alternatives explored.

The possibility of adding dishes whose raw ingredients become unusually cheap can also be an option (like most restaurants in some countries in Europe have a daily lunch menu – dishes made from freshly sourced ingredients from the market – usually the cheaper produce available in the market).

• Example 1 – Developing basmati rice-based dishes, given the prices of basmati rice are low currently due to export restrictions / bans
• Example 2 – Prices of alphonso mangoes may continue to be low this year and restaurants (especially in the south of India) can experiment recipes centered around this

This might accelerate the need to move away from physical menu cards. Digital menus should help restaurants embrace dynamic menus, and also A/B test a lot of their offerings.

• Reimagining recipes

Chefs can work on changing recipes of existing dishes with substitutes that are readily available in the market or have no supply challenges. For example, A lot of our (Hyperpure) customers have shifted to using frozen chicken instead of fresh chicken and chefs are working hard to recalibrate the recipes alongside training their staff on the correct procedure to ‘thaw’ frozen chicken.

• Reducing wastage

The other key challenge that restaurants will continue to face in the near term is erratic demand. In such an environment, the most prudent means of controlling wastage would be ordering more frequently and in smaller quantities, even if that entails paying slightly higher prices. Protecting against wastage will be key to keeping costs down in an environment where businesses will be stretched to making their ends meet anyway.

Recalibrating in the long term

We foresee increased consumer awareness and therefore, demand for the highest levels of hygiene standards. The F&B industry will need to revisit the existing supply chain to eliminate any weak links which might compromise on hygiene. Following are some of the trends that might shape up the future of supply chains in the long term –

• Reinventing traditional wet markets

COVID-19 originated from a wet market* in China which is very similar to a fish, chicken and meat mandi in India. Tonnes of perishable raw material stacked close along with a large number of people congregating together every day make wet markets a high risk zone to contract infections.

*a wet market is a marketplace selling fresh meat, fish, produce, and other perishable goods

Consumer demand and regulations are going to fundamentally change the way traditional mandis or wet markets function and exist today. Tech-driven innovations around e-commerce and trading of raw-commodities will shape up how these markets will function in the future.

This will affect F&B businesses in very meaningful ways. As a first order effect, we think raw material costs might go up because of stricter and traceable hygiene regulations imposed by governments around the world. In order to offset this increased cost, restaurant menu prices will have to go up – which will lead to a drop in consumer demand. However, with the increase in menu prices, bill values will go up – hopefully making the same amount of revenue for a restaurant, even at lower utilisation rates.

• Farm to fork

Large restaurants will have to invest significant efforts to re-work their supply chains beyond traditional mandis to more organized and predictable suppliers. This would mean leveraging technology to connect with farmers, millers or brands directly, and removing intermediaries. In the long run this will not only bring down costs but also make sure that the bar on hygiene and quality keeps getting pushed.

We are continuously monitoring the market closely and will continue to share our learnings with the partner community so that we are well-equipped to face whatever lies ahead of us.