Foodservice Update Q2 2022: Foodservice in Troubled Times - Impact of the War in Ukraine

This is a special edition focusing on the impact that the war in Ukraine may have on the foodservice industry in the immediate and the longer term. Food and energy prices were already rising before the war began, and this conflict has amplified the trend, making clear that high prices will not revert any time soon. Also, foreign brands operating in Russia are exposed to reputational risks, which might have consequences in long term strategies.

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Report summary

The consequences will differ, depending on the market and type of business. Firstly, the operating context before the war was different: Some markets and operators were enjoying solid trading, while others were just exiting lockdowns. Moreover, input challenges were affecting some more than others. Secondly, some operators enhanced their efficiencies significantly over the past two years, but others were still struggling to overcome the impact of Covid-19 on their finances and operations.

Operators with activities in Russia and Ukraine have suffered the first and most direct impact. Most brand owners with activities in Russia wanted to leave the country, but for some, it hasn’t been entirely possible. However, economic losses may be less relevant than reputational risks. From a strategic perspective, the situation has highlighted the relevance of geopolitical risks in international expansion, and it may reshape future strategies.

The war is adding to the already severe input cost pressures, affecting energy and food prices (which in turn affect almost everything). Availability may also be an issue for certain products, with Europe more exposed to such pressures than the US or China. Disposable income is also undermined, as inflation outpaces revenue growth, hitting low-income households particularly hard. In the short term, spending is somewhat protected by pent-up demand, low unemployment, and accumulated savings, but these will not last forever, and demand may soften further if the economic situation deteriorates into a recession. The war is also hitting capital markets, reflecting increased uncertainties related to returns and the terms of payback.

So far, restaurant operators in most countries have been increasing their selling prices. Going forward, the challenge for foodservice is deciding when to take on price increases and when to hold, absorbing prices in the form of reduced margins in the hope of maintaining revenue growth and gaining/retaining market share.

With all this in mind, we expect low-ticket operators such as quick-service restaurants (QSR) to be the most resilient. Their business models are geared toward efficiency, and their lower prices help them benefit from consumers trading down. And chains, which dominate the segment, have come out of the pandemic with stronger operations and finances than their competitors. 

China is not immune to the global context, but it has its own challenges. The strict ‘zero-Covid’ policy and full lockdowns in key cities like Shanghai not only hurt foodservice consumption, they also lead to disruption in production and supply chains.