“The prevailing view in the industry is that total cheese demand is down,” Matt Gould, editor and analyst of Dairy Market Analyst, said.
But while full-service restaurants have been restrained due to the coronavirus pandemic, cheese consumption is growing through retail and limited-service restaurants, he said.
Retail demand for cheese has been consistently higher by 20% to 30% year over year since the COVID-19 lockdown, and sales are up at limited-service, or fast-food, restaurants, he said.
Full-service restaurants, such as steakhouses, don’t use a lot of cheese. But limited-service restaurants, such as burger and pizza chains, do, he said.
The pandemic has caused unusual behavior, kind of telling people they can only go to restaurants putting cheese on a lot of menu items, he said.
Limited-serve restaurants, already set up for drive-thru and delivery, are doing well, he said.
Papa Johns, a chain of pizza shops, reported May sales in North America were up 34% year over year, and Domino’s Pizza reported its May sales grew 21%. In the last week of May, Wendy’s global same-store sales were above a year earlier and Taco Bell reported slightly positive comparables.
“As we reopened the country, we didn’t reopen equally, he said.
When the pandemic hit, all restaurant demand went away over night. In the first phase of reopening, delivery pizza did well. In the second phase, full-service restaurants are still at a disadvantage, he said.
Black Box Intelligence, which tracks sales at chain restaurants, has reported limited-service restaurants were performing 45% better than full-service chains. Open Table has reported only half of sit-down restaurants in the U.S. have opened and their customer numbers are down 65%.
“Consumers are going out to eat again but are disproportionately spending their hard-earned money at cheese-loving restaurants,” he said.
Together with the growth at retail, the increase in demand at limited-service restaurants is why cheese prices reached record highs, he said.
But those high prices are making the cheese supply chain uncomfortable. When cheese prices get up to record levels, there’s a fear they aren’t sustainable and will decline significantly, he said.
“Record-high prices don’t last forever. And just like giants — the bigger they are, the harder they fall,” he said.
Cheese processors are reluctant to make cheese in excess of orders. If prices crash, they’ll lose money on cheese in storage because they paid higher prices for the milk to make it, he said.
“As cheese prices rise, the cost of milk rises,” he said.
Class III milk prices are the highest since 2014, with June futures at $20.65 a hundredweight on Monday, he said.
Higher milk prices will eventually lead to more milk production, but “the farmer’s bank account has not rebounded yet,” he said.
April milk checks had the lowest average price since the 2009 recession. The price was also extremely low for May. The first decent milk check will be for June but not paid until mid-July, he said.
