US Foodservice Packaging Post-Covid-19

US foodservice has been heavily impacted by the Covid-19 lockdowns, with effects also spreading to foodservice packaging suppliers. Despite a temporary sharp reduction in foodservice packaging volumes, we expect a staged recovery against a broader backdrop of economic recession. Consumer-facing foodservice packaging volume is expected to expand in both limited-service restaurants and full-service restaurants, albeit at a slower rate. As local economies open up and consumers adopt new ways of dining, foodservice packaging should also adapt and innovate to meet the evolving needs of the foodservice industry.

Foodservice: Staged Rebound

Foodservice spans a variety of outlets, including fast food restaurants, steakhouses, cafés, bars, and school cafeterias. Full-service restaurants (FSR), such as steakhouses, and limited-service restaurants (LSR), such as hamburger joints, together make up 87% of the sector’s revenue in the US. We will therefore focus on these two channels and examine the medium-term impact on foodservice packaging from the changing landscape. Our analysis is limited to consumer-facing packaging, mainly plastic or fiber-based single-use containers. Bulk packaging for foodservice is out of scope.

Figure 1: Forecasted four-stage recovery model in foodservice over the next twelve months

Source: company reports, Euromonitor, Rabobank 2020

*Lockdown = all non-essential shutdown; semi-lockdown = open with restrictions; easing out = lift most restrictions

After a disastrous pause caused by the Covid-19 lockdown, Rabobank expects a gradual recovery for the US foodservice industry. In the immediate term, recovery will likely be staged and different channels will experience a different pace of rebound (see Figure 1). Over the next two years, we expect LSR to grow at a 3.5% CAGR compared to 6.9% during 2017-19 (see Table 1). Total FSR sales are likely to experience tougher times, however we expect off-premise sales to continue their momentum with strong double-digit growth over the next two years.


Packaging: Light at the End of the Tunnel

After some immediate pressure and a staged recovery, we expect foodservice packaging volume to grow 1.5% annually in LSR ,and at least 9% annually in the FSR off-premise channel through 2022 (see Figure 3). As consumers adjust to the new normal (post-pandemic and recession), they will be more likely to opt for the more affordable LSR or utilize take-out and delivery of FSR. While both major outlets of foodservice packaging expect volume expansion, the overall growth rate may be slower than before. Especially, LSR, which accounts for most of the foodservice packaging volume, is expected to climb at a slower rate compared to our 3.8% estimate for 2017-19. Packaging volume growth for FSR off-premise remains strong, with large potential upside.

Figure 2: Forecasted foodservice packaging volume growth in select channels, 2020-22

Source: Rabobank 2020

* Data suggests minimal growth forecast.

Foodservice packaging involves various materials, such as solid bleached sulphate (SBS) board, polystyrene single-use trays, and corrugated pizza boxes. While our general outlook takes into account all foodservice packaging materials, it is worth pointing out that the non-sealable beverage cup, often resin-lined SBS carton, is likely to deviate somewhat from the common trajectory.

Covid-19 has led to renewed interest in single-use packaging in formats that were actually turning more to reusable packaging models. Starbucks for example announced a pause in its ‘bring your own cup’ program, while many restaurants offer free disposable cups upon each fountain drink refill. While hygiene may remain a factor in the new normal, we expect changes like this to be temporary and volume influxes to be short-lived. Beverage cups are likely to see slower recovery compared with food containers.

Firstly, consumers are less likely to add beverages to take-out orders, as beverage is often available at home and there are quality concerns for take-out drinks. Some restaurants have started bottling non-alcoholic beverages in sealed PET bottles, further cannibalizing volume in the beverage cup space.

Secondly, we expect the sustainability agenda to return to the top of the priority list and play a significant role in the future of foodservice packaging. The industry will continue to invest in sustainable solutions. Eatery Essentials, for example, is investing USD 19m to make foodservice packaging out of recycled PET, while legislators continue to raise sustainability requirements related to packaging.

Volume Is Only Half the Story

To understand changes within foodservice packaging post-Covid-19, we need to look beyond volume. Mandatory public health guidelines and voluntary measures by restaurants will change how consumers dine. Packaging will become an increasingly integral component of the restaurant experience. We want to highlight some threats as well as opportunities for improvement and innovation that were not previously expected.

- Threat: chain restaurants gaining power. Chain restaurants will likely weather Covid-19 better than the independents. With larger footprints, chain restaurants will demand greater packaging volume, benefiting larger packaging suppliers. At the same time, they will have even higher bargaining power on pricing and payment terms with fewer actors left in the market.

- Opportunity: hygiene is in. Although this trend is more prominent in the short term, we may see a slow but steady focus on packaging that improves hygiene. Single-use packaging, containers with anti-microbial additives, or packaging that reduces human handling may see traction. For example, FSR restaurants may adopt resealable disposable packaging for on-premise dining, so leftovers can be taken home without being repackaged.

- Opportunity: travel-proof packaging. Off-premise sales through take-out and delivery apps are increasingly important post-pandemic. Delivery traffic in the US jumped 67% YOY in March according to NPD. We expect to see improved functionality in packaging and designs, catering to the extended transportation time, such as packaging with an improved temperature barrier, stackability, and ventilation.

- Opportunity: premium packaging to enhance the restaurant experience at home. Current foodservice packaging is mainly optimized for LSR and has difficulty translating to the premium FSR experience. We expect innovation in technologies and materials in the longer term to help enhance the restaurant experience at home. Innovations might focus on improved aesthetics, carefully designed multi-compartment containers, or the adoption of premium materials, such as matte black surface, thicker materials, or disposable bamboo trays. Innovation often comes with a premium price tag. However, we expect better packaging to lead to more restaurant sales, allowing packaging suppliers more opportunity to pass along these costs.