Rosanna Caira: How has this pandemic impacted your business?
Steve Kampstra: COVID-19 has had a dramatic impact on the foodservice industry. As most of us know, we’ve had shuttering of dining-rooms across Canada and this means restaurant operators and other away-from-home meal destinations have lost an incredible amount of their revenues. And, with those operators being the primary customer base of Gordon Food Service, this crisis has had that same proportionate impact on our sales. Many of our customers have become creative and innovative, trying to find new business opportunities and survive, either through takeout, delivery, curbside pickup or even by selling groceries to home consumers. So, although the impact has been significant for us, we’re waking up every day and working with our customers on these new and innovative product formats and new channels as we try to help them drive sales in these extraordinary times.
RC: What have you had to do differently to ensure all aspects of your operation are safe?
SK: Under normal operating conditions, we live up to food-safety inspections that are not only self-imposed by Gordon Food Service, but also undergo a multitude of inspections from many of our larger customers that send teams in to inspect our facility. So, living up to a high level of food-safety and cleanliness standards is something we’ve been accustomed to for many years. Obviously, with the onset of the COVID-19 crisis, we have to step that up. The first thing we had to look at was how to stem any human impact of infection that could come into the facility. Like a lot of businesses across Canada, the first guideline we set up is that any team member who has any symptoms at all has to stay at home. Or, if they’ve had a family member who has been infected, they have to stay at home. The second piece is for non-production staff — people involved in the actual picking and delivery of our product. We’ve gone to a work-from-home format to limit the number of employees in our facilities and, on the equipment side — whether in our warehouses or in our trucks — we’ve ramped up our cleaning and custodial regimen, making sure our employees have access to sanitizer and in cases where it’s required, we’re supplying employees with personal-protection equipment. We’re even implementing — depending on location — screening questions that are in line with local provincial health authorities, as well as starting temperature checking at some of our facilities. We know our customers, and the public in general, are concerned and we take that very seriously. Food safety is one of our primarymfoundations we have an obligation to live up to.
RC: With so many restaurants closed, you’re not delivering at the same pace as you were. How many people do you still have working and how much is still being delivered to restaurants?
SK: It’s hard to give numbers, for competitive reasons, and we don’t like to disclose our sales numbers or how many employees we’ve laid off under these very difficult conditions. But you can imagine the dramatic decline in restaurant traffic that has happened and any other away-from-home meeting destinations — whether it be hotels or education. Given that sharp decline, since the middle of March, there’s been a direct impact on our sales as well and we’ve had to make the very difficult decision to temporarily layoff (with benefits) a significant portion of our workforce. But we still have a lot of great operators out there that are open. They’re being innovative, converting to new formats in order to sustain their business and we continue to deliver to those customers on a day-to-day basis.
RC: How is this pandemic impacting our food supply?
Mike von Massow: Our food system has shown some amazing robustness and resilience and we should be pretty proud and happy with how it’s performed. The shortages we’ve seen in the grocery store have been demand-based shortages rather than supply-based shortages. The way the system works is ‘just in time’ and product is produced and packaged and shipped to expected demand. And expected demand has been higher because people have been buying extra. They’re also buying more in the grocery stores because they’re not spending money [in restaurants] anymore. We’re also seeing bigger individual shops as people go to the grocery store less frequently. So, all of those things provided a short-term shock to the system and we saw some shortages on shelves. But, because supply has been good and we continue to see product moving, we’re seeing shelves replenished every day — even though some days they run short — and we’re seeing the system catch up.
RC: So, this really isn’t a supply issue as much as a replenishment issue?
MV: That’s exactly right. It’s not just diverting product from one supply chain to another, which is what we’ve done. It’s also recognizing that some of those products are in a different form. For example, we’ve heard stories about 40-lb bags of flour, which are not usually [available] at grocery stores. Those are the sorts of packages that Steve sells to bakeries. So, we’ve not only had to change the customers, but we’ve also had to change, in many cases, the form. It’s about adjusting the packaging and the nature of the of the products we’re shipping. So, to me, it’s a demand-based issue, not a supply issue.
SK: We’ve had some challenges. If you were to be ordering gloves, sanitizers and disinfecting wipes from us, we’d be scrambling to source those products because there’s been high demand. If you go back to pre-COVID-19 times, we ran fill rates around 99.5 to 99.7 per cent, with customers ordering today for tomorrow, on a regular cycle. Now, if I look at fill rates last week, even with a major change in our demand, we’re still running at about 98-per-cent fill rate — a very minor dip given the enormity of the change. What we’re seeing is a shift as restaurants have moved to takeout and delivery formats, to to-go packaging, plastic spoons, forks and knives, and we’re seeing high demand in areas where we hadn’t seen it before. That’s probably caused a little dip, but we’re catching up very fast.
RC: Has your ability to deliver goods to customers been impacted?
SK: As you can imagine, with the number of restaurants currently closed or moving to a takeout format, and with the volume impacts, we’ve been the ones re-scheduling delivery times to be more conducive to putting more volume into fewer trucks to try to mitigate this large-volume impact. There have been some delivery-protocol changes we’ve had to deal with, but, all in all, it’s been pretty seamless, as we keep good open channels of communication between us and our customers.
RC: Sylvain, as an expert in this area, what are your thoughts on how the food crisis during this unusual time has been handled?
Sylvain Charlebois: It’s hard to plan for something like this. This is probably the first, and last, time the food industry will have to deal with something like this, but I’ve been overly impressed. This massive demand-driven shift has disrupted the system, but the system has responded very well. I’ll be honest with you, I was actually quite surprised to see so many Canadians being nervous or anxious and feeling food insecure. [Now that consumers] understand how the food industry actually works, they should feel confident. It has been strategically well executed.
RC: Based on what we’re experiencing, what should the priorities should be for the food supply chain moving forward?
MV: Given this unprecedented shock to the system, the system has responded profoundly well, so the first lesson is, we’re in pretty good shape. Areas of concern or [priorities] we need to think about are at the processing level. We’re starting to hear about some plants closing and the concentration of businesses at that level are probably cause for the greatest concern. We saw a plant close in Quebec and then re-open two weeks later, albeit with some constrained output. The integration in meat processing across the U.S./Canada border means we’d have to see shutdowns in a significant number of plants for a significant amount of time for us to feel it at the retail or foodservice level, in terms of availability. That’s not to say we won’t see pain at the farm level, because it’s much harder to divert those products. But, I would say the biggest lesson is that our vulnerability is probably at that processing step in the supply chain.
SC: Even before COVID-19, Canada’s weakest link in food distribution was processing because it’s not actually modern enough. But also, it’s not regionalised enough — we’re a very big country with few people so, if you really want to design an efficient distribution model, processing has to be at the heart of it. And, frankly, over the years we’ve undermined the value of processing [and now we’re paying] for it.
RC: What is it going to take to make that shift in mindset about processing and what happens if more plants are forced to shut down because employees are sick?
SC: In meat processing, right now we’re in the middle of the worst of it. COVID-19 is teaching great companies such as Cargill and Maple Leaf that risks have to be managed outside the plant as much as inside. These companies are very good at managing risks when it comes to food safety, internal protocols and workplace safety for employees, but they’ve never really thought about worker mobility and how that could represent a risk. So, you’re seeing now that managers have to think differently about risks as a result of COVID-19.
MV: I’m going to agree wholeheartedly with what Sylvain has just said and it highlights two points. The first is that we frequently have an issue with labour in processing plants and the same is true for big packing plants. In Western Canada, they’re built outside of the city because of water storage and other requirements. But, in order to get people to work at them, they’re bussing people from Calgary for these jobs. So, physical distancing may be practical inside the plant, although it’s not always easy, but it’s very difficult to physically distance on a bus. Those sorts of concerns will probably be what [plants] consider as they come up with protocols to reopen. The other point I’d like to make, relative, to what Sylvain said, is I agree we’d like to expand our processing capacity and that’s independent, frankly, of the challenges we’re experiencing now. It’s important we add value and it does also provide us some buffer, but we shouldn’t do that at the expense of the type of market integration we have now. Because, in addition to the types of risks we’re seeing now, there are other risks in production. And, if we said, ‘oh, we’re going to make a completely regionalized economy and we’re not going to import or export anything,’ then we’d have issues such as weather and production risks. There’s some value in diversifying the processing portfolio, but not at the expense of integration that provides us with some safety net when we see either processing or regional problems arise.
SK: Our job remains to fulfill the needs of our customers through the distribution channel, so, with the current concerns around protein processing, we’re already working with U.S. manufacturers to set up supply lines in case we don’t have the normal Canadian protein supply we’ve have in the past. When I think about integration, from the distri-bution perspective, and I look at what happened in the retail supply chain as we had this massive shift from foodservice, nobody could ever keep that type of latent capacity in their supply chain. But [something] I’ve thought about as we’ve partnered with many retailers across Canada, although there’s a lot of pack-size differences (for example, the 40-lb bag of flour sitting on your shelf at a grocery store that’s pretty tough for someone to carry home), we’ve moved some product through to retail that made sense. But the bigger solution we’ve been able to work out with retailers across Canada is becoming their logistical arm. So, as we’ve had capacity with our trucks and drivers, we’ve been able to go in and become a supplement to their supply chain, pick up the retail products from their distribution centre or have them deliver their products to our distribution centre.
When you talk about integration, one of the [initiatives we could launch] between retailers and foodservice is advanced planning in case the industry is faced with this type of crisis again. Although it sounds easy, there are a million things you need to get right to ensure you don’t make a mistake, so with advanced planning, we could create a roadmap of how we could accommodate a crisis in the future. The other thought that’s coming to mind is not just integration, but maybe a distance-integrated supply chain. If you think about food supply going to restaurants and consumers right now, we’ve distance-integrated some of those retail channels already. We’ve seen the growth in meal-kit concepts such as HelloFresh and we’ve seen groceries being delivered direct to home from restaurants, so one of our companies, Fresh Start Foods, which is a products company owned by Gordon Food Service, has taken protein products from our meat company, Inner City Packers, and combined them with the Fresh Start produce items to create new meal kits, which we’re delivering to restaurants for pickup and delivery. [It’s about] different ways to get product to consumers. [We also had a] pop-up store at our Milton, Ont. distribution centre to do retail sales to consumers in the community. [The first time we ran it] we had 173 grocery orders and delivered them to the trunks of cars as they pulled up.
RC: Would you consider doing those pop-up stores in different parts of the city?
SK: We haven’t gotten that far. Right now, the kind of the pop-up store that’s close to our distribution centre is the easiest and lowest cost for us to start. If early indicators are that there’s a pent-up demand for products to consumers, then maybe we’d look at doing pop-up stores in other geographies. We don’t have a plan today, as we’re launching this across Canada at our distribution centres first, but it’s a pretty easy model to launch at other locations once we get our format established.
RC: We’ve also seen a lot of farmers selling direct to the consumer during this time. Do you think this is a trend that will continue post-COVID-19?
SC: At our lab, we partnered with Angus Reed and have been monitoring perceptions since the beginning of the crisis, looking at what people are doing, as well as what people intend to do once the pandemic is over. Obviously, online shopping is the big [trend] we’re monitoring closely and grocers have [been moving] into the e-commerce space, reluctantly, since 2017 when Amazon acquired Whole Foods and they didn’t necessarily embrace that concept. And, frankly, eight weeks ago, most Canadians felt buying food online was a far-fetched idea, let’s be honest. Now, when we ask Canadians if they intend to buy food online on a regular basis, that’s up to 29 per cent compared to three per cent five weeks ago. That’s huge and while I don’t think it’s going to be 29 per cent, once we’re done, it’s not going to be three anymore. Once e-commerce becomes a reality in people’s minds, you can actually see the entire supply chain being more democratized and it won’t be just about Sobey’s and Metro — anybody has a shot. And, to Steve’s point, you can create that channel between yourself and a consumer much more rapidly and efficiently.
RC: Do you think the local-food trend will get stronger post-COVID-19 or has this crisis shown us some of the dangers of relying too much on local?
MV: There will continue to be interest, on behalf of consumers, in where product comes from, what the attributes are, where and how it’s produced and local has been an important part of that. That will likely continue, but we have to balance it, obviously, with costs, particularly based on time of year. Some things work and some things don’t. One thing we need to remember is, as a country, we export a significant volume of our agriculture and food production and perhaps we should be adding a bit more value to it — celebrating, enjoying and supporting local foods, but not at the expense of closing our borders and not looking broadly. One of the real benefits of having a broad-based food supply chain is the diversity of foods we get to enjoy. So, we’ll continue to see people look at, as Sylvain called it, the democratization of the supply chain and we’ll see closer linkages between some producers and people. We’ll also see companies talk more about where and how the product is produced and celebrate locality, but while still offering the full range of options.
SC: I share Mike’s concerns. In fact, going back to the monitoring we do at Angus Reid, the number-1 thing people intend to do after COVID-19 is buy local. In Quebec, they’ve started a campaign called The Blue Basket to encourage people to buy local. And, it’s great, but to Mike’s point, we have an open economy here where most of our wealth comes from trades, including agri-foods, so we have to be careful. In the case of this year, in terms of the planting season, farmers should be starting to plant as we speak, but with everything going on, that’s obviously going to be impacted in a big way, which is going to put our produce at risk for the next two months as we get into the warmer season.
MV: I spoke to a dairy farmer the other day and she said to me, ‘you know, Mike, the cows don’t notice that there’s anything different at all.’ And if anything, there are fewer salespeople coming into the yard, so [farmers are] even happier. She said, ‘Mike, we’ve been social distancing for 100 years on the farm.’ To me, where the pinch point is, and we’ve heard a lot about this in the news, is with the temporary foreign workers and the fruit-and-vegetable industry — getting people on the ground doing the planting. We’re hearing that we’re falling behind in Ontario’s asparagus harvest because [foreign] workers aren’t here or there’s not as many here. So, to me, food production is, for the most part, proceeding as normal, with the exception of us being sure we get these temporary foreign workers in to get crops in the ground and begin harvesting the early season crops. And I would say we’re seeing progress towards that goal. So the onset of Canadian produce may be delayed a little bit because the planting is get getting delayed a little bit.
SK: GFS has always been a strong proponent of the local trend for foodservice operators. It’s already entrenched into specific menu offerings they have and that’s going to continue. Mike and Sylvain have pointed out some of the growing-season challenges in Canada, but operators are still going to be looking for innovative local offerings for their menu. One of the things we’re doing right now on, the innovation side, is partnering with a company called Square Roots to create ultra-local urban farming by converting sea containers into modular hi-tech farming environments. So, imagine a sea container that’s completely mobile — you can place it anywhere, maybe even in the back premise of a restaurant — where we’re able to grow herbs and greens in them. We’re piloting creating these high-tech farming environments and selling them to local restaurants and communities. The bigger [concern] is if international trade was to ever shut down, Canadians would be in a tough spot when it comes to local supply, particularly for produce items at certain times of the year.
RC: What will this crisis do to food prices? Once the pandemic is over, should we expect a huge increase?
SC: In December, we actually predicted a food inflation rate of four per cent, with meat showing the biggest increase at six per cent. We released a COVID-19 update two weeks ago and we’re sticking to our forecast, for a couple of reasons. One, retail prices are going to go up and they’ve gone up already since January. But, on the foodservice side, we’re expecting, based on our models, a bit of a price war on the other side of the pandemic. In fact, we’ve already seen discounting across the country if you order takeout, as much as 15 to 20 per cent sometimes. If we only order takeout once a week as a family and every time there’s a discount, you can see the industry will get aggressive, probably by the end of this year at least. We’re expecting food and pleasure to be higher than average, but we’re not talking 710 per cent.
MV: I agree wholeheartedly with everything Sylvan said. The one thing we need to be aware of in the restaurant sector is, first, the restaurant sector may be the slowest to rebound in terms of demand, just because people may have concerns about gathering and dining-rooms. And so, we need to be aware that might actually push some of the competition that Sylvan spoke about, but we also know restaurants are relatively low-margin businesses and if they have to implement lower densities in dining rooms, we’ll see costs go up and so those things will have to be balanced. It’s not clear to me, particularly with some of these delivery companies that were bleeding money even before COVID-19, if some of these discounts are sustainable.
RC: How can suppliers work more effectively with operators through possible operators through possible price increases?
SK: It’s going be a tough path post-COVID-19 for restaurateurs and foodservice operators. From our perspective, we have a lot of tools we provide to operators. The best resource we have available to operators right now is our coast-to-coast sales force, who can help in areas such as menu re-engineering — what items on your menu are making a profit, what items are making the highest profit, what items may not be as profitable or on creating to-go menus. What is the best packaging and delivery methodology for getting those foods to consumers as hot and palatable as possible? How do you reduce labour costs inside your restaurant? So, there’s a lot of areas within the restaurant model that our team can work with our restaurant operators on in order to figure out how we get more efficient within our business as we look at a post-COVID-19 recovery. The one piece that I would bring up is that this focus on cost savings is only one part of the issue. And for me, it’s the last part of the issue. The real problem is restaurateurs and operators have never gone out of business because of costs; they go out of business because they don’t attract enough [customers], there’s not enough revenue. For me, it’s about how we use the marketing effort, the educational effort, to get people coming back to restaurants? If I was an operator today, my number-1 focus would be how am I going to get those consumers to beat a path to my restaurant versus going somewhere else? Because that’s the reality of success. The cost is only one element of it. I would start with the consumer, how are we going to get them into our operators, and then focus on cost at the same time. And I would say that coming out of COVID-19, the restaurateur’s greatest competition will be our own kitchens because we’ve spent a lot of time in that kitchen and now we’re getting comfortable. We’re saving money and that’s an attractive proposition, so for restaurateurs to get us out of there is going to be very difficult.
RC: What advice would you offer to restaurant owners and operators?
SK: We’ve been dealing with thousands of customers throughout this challenging crisis and the one thing we’ve observed at GFS is that the restaurants who had a strong digital and social-media strategy have fared better than those that [didn’t]. And those that were already pivoting to new customer trends around digital ordering, and had a website with digital-ordering access for their customers and already had delivery formats were able to move faster into the new environment that we faced. If I had one piece of advice, it’s that foodservice operators must really think about having a more robust digital strategy, [including] marketing digitally, digital-ordering space a takeout, pickup or delivery model that can augment their traditional in-house dining experience.
MV: I know it’s really tough and these people are struggling right now, but this is probably the first time many of them have been out of the weeds of the day-to-day pressures of running a restaurant and getting their head up and looking around. In addition to thinking about their digital footprint, they should think more broadly about what is it they do, who their customers are, who or what their community is and what they’re going to do to make sure they’re the best business that they can be once they reopen.
SC: You have to think about your business broadly and, instead of just waiting for the money to show up, you have to go to the money. Some operators don’t have that in them and they need to think differently about the marketplace.