Coronavirus (COVID-19): UK food-to-go chains close stores; Leon’s Ocado-style delivery service

Nicola Knight
Senior Analyst - Food-To -Go
@IGDShopperNews

Date : 23 March 2020

The situation for the UK foodservice industry has progressed rapidly since Friday when the government asked all pubs, restaurants, theatres and gyms to close.  

Food-to-go store closures

Over the weekend many of the country’s leading food-to-go operators, including McDonald’s, Starbucks, Costa, Pret and Nando’s  have closed stores – for takeaway, delivery and drive thru as well as dine-in.  This is over and above government recommendations which still allow restaurants to stay open for takeaway and delivery services, but the operators (many of whom had previously announced a temporary switch to a takeaway and delivery model) feel this is necessary to protect their staff and customers.

Greggs announced today that it will also close its 2,050 stores at the end of business tomorrow (24 March).  It said in a statement that like-for-like sales had fallen from +7.5% for the nine weeks prior to 29 February to -9.9% for the week to 21 March. The rate of decline has been increasing each day as more and more customers heed the Government advice on social distancing.  

Last week the UK government announced schemes to cover up to 80% of wages for furloughed staff (capped at £2,500 per month) where businesses are temporarily not able to pay them.

Short term capital investment projects on hold; other financial measures planned

Greggs, which announced record-breaking results for 2019 only three weeks ago, released details of the financial changes it is putting in place navigate the unprecedented situation.

It stated that to protect its financial position it intends only to complete existing shop projects, whilst deferring new shop openings and planned refurbishments.  The major automated cold store project, which is strategically important, will continue, however.  Overall, Greggs expects to remove £45 million from this year's planned capital expenditure programme.

In further financial measures, the business will also not now pay the previously-announced final dividend for 2019, due to be paid on 21 May 2020, and has stopped the programme of share purchases by the Employee Benefit Trust - avoiding around £40 million of cash outgoings this year.  Assuming that there continues to be material disruption, it stated that it will also be asking landlords to accept a monthly, as opposed to quarterly, payment basis from June.

Whilst the outlook during this crisis remains uncertain, with these measure in place Greggs reassures investors of the resilience of the business and that it is confident it will return to growth when the economy recovers.

Support for NHS workers

Although its stores are closing, Costa is aiming to keep hospital sites open to serve key healthcare workers.  In a statement, Costa said: “At Costa Coffee our number-one priority is the safety of our store teams and customers. As the need to support social distancing increases, we have taken the decision to temporarily close our stores from this evening. We will do our best to keep Costa stores open in hospitals, where we will continue to provide free takeaway coffee for the next two weeks to the NHS workers who are at the forefront of this crisis. Wherever possible, we will also keep our Costa Express machines available.”

Japanese food-to-go operator Itsu has also closed stores but founder Julian Metcalfe said that his teams had spent their last day making up boxes of sushi and salad using up all the ingredients they had and delivering them to NHS staff.

UK could follow Germany retail/foodservice partnerships

In Germany, McDonald’s is partnering with Aldi to help the retailer deal with the rush of customers triggered by the coronavirus crisis.  McDonald’s staff affected by limited operations will temporarily be deployed to Aldi stores and will then return to McDonald’s as the situation settles down.  The new partnership was announced by Aldi and McDonald’s in a press release on Friday.

We could see partnerships between retailer and foodservice businesses in the UK being announced during the coming week, as the food industry tries to balance shifts in demand.

Leon will launch “Ocado-style” delivery service

Healthy food-to-go specialist Leon  has transformed its 65 UK stores into mini-supermarkets and plans to launch an “Ocado-style” delivery service selling groceries and takeaway meals.

The chain will launch an e-commerce site on Wednesday (25 March) that will initially sell Leon groceries and ready-meals made by two of the chain's biggest suppliers.  Meals that are currently served in boxes in-store will be placed in ready meal-type plastic pouches which are refrigerated and can be heated, stored or frozen at home.  Customers can pick up their order in store or have it delivered by Uber Eats or Deliveroo.  Food from other restaurants and suppliers will also be welcomed on the site making it “the Ocado of the restaurant industry”.

Also, last week retail landlord Hammerson offered Leon a free site in London’s Brent Cross shopping centre. Leon has already started converting the 8,000 square foot site (previously occupied by retailer Mothercare) into its flagship shop.

Leon’s founder John Vincent said that these moves will save 1,500 UK jobs, prevent 70 suppliers going out of business and help “reignite” the wider industry. Vincent added: “We have to act positively to save jobs and save the supply chain.” 

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