Saputo Inc. sees demand shift from food service to retail amid COVID-19 pandemic

Demand for dairy products at retail stores has spiked amid the COVID-19 outbreak while orders from food-service operators have fallen, said executives at dairy processor Saputo Inc.

"We're really seeing a shift, moving away from food service more into retail," said CEO Lino Saputo Thursday during a call with analysts to provide an update on the company's operations through the novel coronavirus outbreak.

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"Our retail plants are running hard," he said.

The situation is changing rapidly, noted Kai Bockmann, chief operating officer, and much of the recent demand could boil down to consumers stockpiling food amid instructions to limit social contact.

"We're going to have to wait a couple of weeks to figure out what the normal buying patterns are going to look like," he said.

In Canada, the Montreal-based company has seen a boost in retail fluid milk and cheese sales, in part because consumers can no longer cross the border to access cheaper gas and groceries.

People also seem to be craving snacks and comfort food, he said, as evidenced by strong sales in string cheese along with ricotta, which Bockmann speculated comes down to many folks cooking lasagnas at home.

Food service, on the other hand, is almost halted, said Saputo, aside from quick-service restaurant outlets that continue to serve meals for takeout.

"Orders are being cancelled," he said.

Some demand remains from industrial clients, such as frozen meal manufacturers, but those that service restaurants, including salad-dressing makers, have shut down.

The company is looking to see if it can repurpose the inventory it has for scrapped orders by checking if retailers will accept products of a certain size, format or that are otherwise different from the norm.

If that doesn't pan out and the product nears the end of its shelf life, Saputo will find a way to get them to people for consumption, he said.

"We will try as much as possible ... to get that food to food banks where we can, so we don't have to dump it."

Still, Saputo will likely have to write down some expired inventory in the future, he said.

Another challenge, he said, is keeping its food-service and industrial plants running at reasonable capacities when the company can't get the product out the door.

As the company grapples with surplus inventory, Saputo said he perhaps sees a "silver lining" in the COVID-19 situation on the merger and acquisition front where there may be increased opportunity after the pandemic subsides.

"Coming into this crisis, some of our competitors were already on very thin ice. Perhaps this might just take them over the edge."

This report by The Canadian Press was first published March 26, 2020.

Companies in this story: (TSX:SAP)

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