WCMA Notes: Cheese Markets Robust in Unsettled Times

Submitted by: John Umhoefer, WCMA Executive Director

Cheese manufacturers are bullish on sales even as tight labor conditions challenge the industry’s ability to make and deliver dairy products at optimal capacity.  WCMA discovered positive trends in recent sales data and in discussions with leading cheese producers and processors.

Foodservice Sales

Cheese sales into foodservice vary by channel, but overall, demand is good.

At the high end of the market, sit-down and fine dining restaurants have seen customers return in recent months, but fewer restaurants are open and for many locations, hours are reduced. The app Open Table offers sophisticated data on the sit-down dining sector. As of September 22, about 84 percent of U.S. restaurants using Open Table were accepting reservations, and looking at data for recent Saturday evenings, restaurants were seating as many patrons as the same day in 2019.

Drilling down, however, the data reveals regional trends that cheesemakers also find in their ordering patterns. For example, cheesemakers cite weaker sales to distributors in the Northeast U.S. and New York state seating through Open Table is at 93 percent compared to the same days in 2019, and only 70 percent of restaurants are accepting reservations vs. 2019.

A loss of restaurant properties, reduced hours and even reduced days open are affecting feta sales and hard Italian styles, which manufacturers describe as down slightly from pre-pandemic levels. These makers say the foodservice sector’s struggle to find labor is the key deterrent to restaurant growth – a larger factor than diners’ COVID concerns.

Manufacturers uniformly report sales to quick service restaurant chains are robust, reflecting this sector’s adoption of takeout and delivery to supplement in-store dining. Natural cheese, process cheese and butter manufacturers all cite solid sales in this sector.

The restaurant arena continues to innovate, driven as much by tightness in the labor market as a consumer base now used to buying restaurant meals to eat at home. In August, Brinker International announced a second virtual brand, Maggiano’s Italian Classics, will be available at an initial rollout of 250 of its Chili’s Grill & Bar restaurants around the U.S. Virtual brands – food lines targeted only for delivery and takeout from restaurant sites – are one wave of change in channels that use both commodity and value-added cheese types.

More than one manufacturer emphasized that foodservice accounts are exploring value-added, specialty cheeses to differentiate their takeout and delivery entrees from competition. Manufacturers are hearing that chains are locking in carryout and delivery as long-term trends with menus and formulations tailored to optimize the quality of the traveling product.

Pizza restaurants, both chain and independent, continue to boom, according to multiple cheese manufacturers contacted by WCMA. These cheesemakers describe the mozzarella market as “solid” and “hot” at this time, and data from the largest chains support their observations.

 In July, Domino’s reported U.S. store sales up 13.4 percent in their first quarter (ending March 2021) and up 3.5% in the second quarter – even higher than strong second quarter growth a year earlier. Papa John’s announced 5.2 percent growth for North American stores in the second quarter – April through June 2021.

Cheese manufacturers note that distributors – key links in the foodservice chain – continue to order on a less-than-orderly basis as differences in regional foodservice markets present challenges in forecasting inventories. Another WCMA member reports some broadline distributors are shorting orders to restaurants, impacting restaurant hours and menu offerings.  An anecdote on the bright side:  One cheese manufacturer learned that key distributors are rehiring regional staff – a sign of restaurant markets returning to normal.

Temporary school closures, upsetting a uniform return to in-class education this fall, are a wild card on the foodservice side, one cheesemaker cautioned.

Retail Sales

Manufacturers report solid sales into retail channels. Data available through Innova (supported by Dairy Management Inc.) finds retail cheese sales volume up a solid 10.3 percent vs. two years ago (through August 8). Compared to one year ago – amid the consumer buying surge – sales are off 2.6 percent.

Mozzarella sales volume at retail is up 16 percent vs. two years ago – pre-pandemic, but down 6.8 percent from a year ago. Cheddar is 3.9 percent higher vs. two years ago, but off 9.3 percent from last year’s buying boom. Parmesan has held strong – up 27.5 percent vs. two years ago and volume this year to date is nearly equal to last year. Hispanic cheese styles are selling at 25.5 percent higher than two years ago and even 2.2 percent higher than last year to date.

Overall, cheese sales opportunities appear strong in markets and channels buffeted by labor shortages, changing eating patterns and a foodservice industry reinventing itself in real time.