The key question in the potato market is how quickly French fries sales will recover. Where in recent years the demand for chips has always been greater than the processing capacity, that is...
The global lockdown has caused a significant drop in demand and resulted in overcapacity for processing in combination with built-up inventories. Something that could ultimately degenerate into a chip price war. For now, the drop in the price of chips seems not to be too bad, but in percentage terms the raw material price has fallen much faster.
Roughly 3 segments
The recovery of demand for fries clearly distinguishes the different sales segments. We can roughly divide sales of fries into 3 segments:
1. Retail (supermarkets)
2. Catering/fast food
3. Food service (events/canteens)
It is clear that the 'retail' segment has benefited from corona rather than suffered from it. Due to people staying indoors, consumption at home has increased, causing sales to even grow by 5 to 10%. Processors who are active there therefore experience the least pain.
McDonald's mostly open
The blow was bigger for the catering/fast food sector. The lockdown caused a drop in turnover in the period March-June of sometimes more than 70%. There is now talk of recovery. Figures show that in America the demand for fries in restaurants has now returned to 85% of before corona. A good indicator is world leader McDonald's, 95% of all McDonald's in the world are now open again and the demand for fries has now recovered to 90%.
America is leading the way, because it has the highest density of drive-thru restaurants. Consumers experience eating out as safe and therefore flocked there when it reopened. In other parts of the world, such as Europe and Asia, the recovery is less, because many more McDonald's restaurants are located in cities and the coverage of drive thrus is much lower.
The reopening of restaurants has also led to a recovery in demand, but it is clear so far that the 1,5 meter rule ensures that sales will not return to the old level for the time being. The food service sector has been hit hardest within the sales segments of the processing industry. Major events are not being held (such as the European Football Championship, the Olympic Games and music festivals), canteens are closed, cruise ships are not sailing, so there is no question of recovery for the time being.
Sales decline for Lamb Weston
Global player Lamb Weston reported in a message last week that turnover in the second quarter was 16% lower than at the same time last year. It was reported that sales to supermarkets and other stores had increased by more than 50%. Dutch processors also report that they have now returned to 85% of the processing before the corona, but that the last 15% is very difficult.
It is interesting to compare this with how the French fries market in China is recovering. This was the first continent to become unlocked again after corona. Figures show that China has not yet returned to the old level and remains at 85% of the processing before corona. This while the corona rules have been relaxed earlier.
The greatest concern is about a possible new outbreak of corona. We are already seeing local lockdowns being imposed again in major cities such as Barcelona, but also in countries such as Croatia. If there were a new total lockdown, this could have disastrous consequences for a number of processors, but especially for their customers.