Good day, welcome to the Kerry Group Q1 2020 IMS conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to William Lynch, Head of Investor Relations. Please go ahead, sir.
Good morning, everyone, and we hope you, your families, and loved ones are safe and well at this time. Given the current exceptional circumstances, we are hosting today's call from different locations, so please bear with us if things are not as quite as smooth as they would normally be. I'm joined in the call by our CEO, Edmond Scanlon, and our CFO, Marguerite Larkin. Edmond and Marguerite will take you through a brief presentation capturing the key points of our Q1 IMS release issued earlier today. The presentation is available on the investor relations section of our website. Following that, there will be a question and answer session, which will be facilitated by the operator. Before commencing the presentation, let me draw your attention to our usual disclaimer regarding forward-looking statements. I will now hand over to Edmond.
Thank you, William. Good morning, everyone. I hope you and your families are keeping well and staying safe. It's hard to believe it's just two months since we presented at CAGNY. Much has changed in the world since then, with the COVID-19 pandemic having such a profound effect on everyone's lives in such a short time. What has remained constant is the need for a safe and consistent food supply, and we at Kerry are proud to play our part throughout this crisis. Before I begin, and on behalf of everyone at Kerry, I just want to express our gratitude to all frontline staff and the amazing work that people are doing all around the world. In Kerry, every day, I'm seeing examples of great work being done by our own people, examples of courage, compassion, empathy, resilience, and enterprising spirit.
Moving, please, on to slide number four. I will take a minute to set the context for the quarter, and Marguerite will bring you through the Q1 financials in more detail later on. At an overview level, we came into the year with really good momentum. With a strong finish to 2019 and strong growth through January and February before the lockdowns and restrictions and movements were introduced. North America had a very good quarter, and our nutrition and wellness portfolio continues to drive performance and business development. COVID-19 has impacted and will continue to impact our business, particularly our important food service channel. We will provide as much transparency as is possible on its impact on our business. As you can all appreciate, we are operating in a highly uncertain environment at the moment. On the strategic front, we made good progress in Q1.
We announced a significant investment at our Rome, Georgia facility, and it will truly be a world-class ingredients manufacturing facility for a wide range of protein applications. I'm also delighted to report that we've moved into our new state-of-the-art technology innovation center in Shanghai. We also acquired Tecnispice, which is a savory taste business in Guatemala. Finally, and most importantly, our people's response to COVID has been truly inspiring. As an industry leader providing food and beverage solutions that are consumed by over 1 billion times a day, we are aware that keeping the food supply intact is more critical than ever. Our purpose and values have served as our guide, and I'm proud of the response of our people, and I'd just like to take this opportunity to sincerely thank them for all their efforts.
Moving on to slide number five and our role and priorities. We've a multi-stakeholder model, and we run and manage our business accordingly. Our three main priorities throughout this crisis are our people, our customers, and our community. From the outset of COVID-19 in China back in January, we've managed our response plans according to these three priorities. Safeguarding the safety and well-being of our people, ensuring continuity of supply for our customers, and supporting our local communities. A large percentage of our employees have been working from home for at least six weeks now. We've increased zoning, segregation, and we've increased the use of personal protective equipment across our entire global footprint of 150 manufacturing facilities. We're ensuring our solutions continue to reach customers and consumers around the world, supporting our customers with real-time insights, and helping them to adapt their offerings to address changing consumer demands.
At a number of our facilities, we've shifted our production to making hand sanitizer. We continue to donate food, PPE, and sanitizer to frontline staff. Through the My Community initiative, we're also pledging 26,000 days and EUR 1 million to support local community initiatives. Moving on to slide six. We've all experienced major changes in how we live our daily lives. When it comes to the world of food and beverage, we're seeing significant short-term shifts in market dynamics right across the end-to-end supply chain. We've shown this slide many times in the past, and I think it's really helpful to frame what's happening across our industry right now. What's really noteworthy for me is the absolute speed of change we're experiencing and the openness to change that exists at present.
Looking first at the consumer on the left-hand side here, how people are purchasing, where people are consuming, and what people are purchasing and consuming have all been impacted. On how people are purchasing, the changes in purchasing and shopping behaviors are clear to everyone. Habits are more like those of 10 to 15 years ago. More people are doing the big shop in local supermarkets. Trips are much more functional and deliberate. We're sticking to shopping lists with a notable decrease in impulse purchases. People are spending less time in the store. They have a planned route, which has seen the center of the store rejuvenated and the heat map from the perimeter significantly reduced. People are also turning to online and home delivery channels, many of which are struggling to cope with the surge in demand.
Where people are consuming has changed, with the vast majority of food and beverage now consumed at home. A really important point that has developed in our industry in recent weeks is the disconnect between what people are purchasing versus what they're consuming. We've all witnessed the panic buying and pantry loading of long-life products, leaving many shelves in supermarkets empty. Previously, retailers could accurately track purchasing habits, what you were purchasing, and when you were consuming it. This almost overnight shift in the psyche of the consumer has had a huge impact on our customers. Needless to say, this disconnect between purchasing and consumption has meant much more volatility for our customers. Interpreting demand now has become absolutely critical, and it's a challenge right across the board.
Customers are having to be much more agile than ever before, as they need to be able to pivot at pace and at scale in response to this rapidly changing landscape. Moving on to our industry. The knock-on effects from all these dynamics is profound. The robustness of supply chains is clearly being tested. Having scale, being local with experience and established ways of working are key. Redeployment of resources, and more importantly, having the right capability across multiple channels and end-use markets is a big challenge for some companies. The ability to redeploy resources effectively in an expedient fashion requires an organization to have the culture, the ways of working, the flexibility, and the capabilities to make it happen. Customers are looking for suppliers with a full support model to help them address all these short-term challenges.
There is an openness to change now more than ever before. Moving on to slide number seven, and specifically the impact COVID-19 has had on our business and the actions that we've taken to address this impact. As I mentioned earlier, we're giving you as much of a line of sight as possible right up to today. Starting first with our Taste & Nutrition business, and specifically the impact in China. You remember we guided on the estimated impact back in February. Overall, volumes in Q1 were pretty much in line with what we guided back then. Back over 30% in the first quarter. This was weighted towards February and March when the impact of lockdown measures was most pronounced. I am pleased to say that now for April, we're in line with last year.
At a global level, trading in our foods ervice channel in the month of April is back by 2/3 from last year's level due to some form of restrictions being in place during the month of April across the vast majority of our markets. As you're all aware, the retail channel continues to be highly dynamic. In fact, we've set production records in some of our facilities serving the nutritional beverage category while other categories are seeing much lower demand. From an overall taste nutrition retail viewpoint, we're seeing good mid-single digit growth year- on- year in April. With regards to our Consumer Foods business, after seeing a mid-single digit growth tailwind in March, we're seeing volumes back mid-single digits in April. Again, overall, a high degree of variability and volatility by category.
Chilled meals are being impacted by less impulse purchasing, and our snacking products have been impacted by school closures. We're also seeing positives in areas like spreadable butter and our Oakhouse Foods Home Delivery business, which has delivered a huge number of meals to many elderly people who are cocooning. Now moving to the actions that we've taken and are taking to mitigate the impact of COVID-19. In addition to the 8,000 employees now working from home, we've brought in additional protective measures across our entire footprint to ensure safety and wellbeing. We've reallocated resources from some of our facilities servicing the food service channel to other servicing a number of specific retail categories, and we've been able to see a doubling in production in some instances.
We've implemented cost measures, including suspension of all non-essential and discretionary expenditure and targeted short-term cost management initiatives, particularly in impacted business areas. Finally, and what has really impressed me, is how we've been working in new and exciting ways with our customers through this period on a whole range of fronts. Our procurement teams sourcing key raw materials to support our customers. Our integrated operations teams sharing playbooks with our customers on how to put in place measures to ensure their operations can continue safely. Our nutrition and wellness teams partnering with customers to improve the immune functionality of their products. We've seen the pipeline in our wellbeing portfolio alone grown by 400% in the last few weeks. We've also been working with some of our food service customers to pivot their offerings into retail, while also planning for post-COVID-19 product launches.
As I said earlier, this is a really dynamic marketplace. Things that took months are now taking days, and this is where we're seeing our people really stepping up to the plate. I'll now hand you over to Marguerite, who will take you through the Q1 financials in more detail.
Thanks, Edmond. Good morning, everybody. Just to echo Edmond's comments, I hope you and your families are all safe and well. Now to update in more detail on our financial performance for the first quarter, turning to slide eight. At a group level, our reported revenues are up by 3.4%, which is reflective of organic volume growth of 0.2%. Overall, as Edmond mentioned, we had a strong start to the year, which was impacted by COVID-19 in China and more broadly from March across parts of APMEA and Europe. Our underlying volume growth in the quarter would've been 3.7%, adjusting for the estimated net impact of COVID-19 and the impact of the previously reported ready meals contract exit. We maintained group trading margin year-on-year through enhanced portfolio mix and operating leverage, offset by the impact from COVID-19 of circa 30 basis points in the first quarter.
The COVID-19 cost primarily related to three key areas and included costs to ensure the safety and wellbeing of our employees, incorporating zoning, segregation, and other employee support costs. Costs to ensure continuity of supply, including additional labor and distribution costs and manufacturing on-cost implications of reduced volumes in a number of our plants across the globe. Turning to slide nine and taking a more detailed look at the breakdown of our overall revenue growth of 3.4% for the first quarter. Volumes grew by 0.2%, which I'll discuss by division momentarily. Pricing increased by 0.5%, which is mainly driven by higher raw material prices in our Consumer Foods division. Translation currency was favorable 1.3% and transaction currency 0.1% favorable in the period. Acquisitions contributed 1.3% to revenue growth, including the impact of the Ariake U.S. business, IsoAge Technologies, and PEVESA Biotech.
We are very pleased with the performance of these acquisitions, which enhance our authentic taste, nutritional, and clean label technology capabilities. Overall, I would say a good start to the first quarter in terms of revenue growth given the impact of COVID-19. Moving now to slide 10 and taking a closer look at our Taste & Nutrition business. Overall volumes grew by 1.2%. Growth in the period was heavily impacted by the lockdown in China initially, and thereafter by the restrictions on movement from March in a number of countries across APMEA and Europe, which resulted in a material decrease in demand within the food service channel as Edmond referenced. We estimate that volume growth would've been circa 4% excluding these impacts. The retail channel delivered a robust performance of just over 2% with good growth across the snacks, beverage, dairy, and pharma markets.
Our Nutrition and Wellbeing portfolio performed strongly across a number of applications. In particular within beverage, where Kerry's positioning as the nutrition and wellness partner of choice is leading to strong business development opportunities right across the beverage landscape. Volumes in the food service channel declined by 0.7%. Developing markets declined by 0.8%. Both were heavily impacted as a result of constraints in demand from the restrictions in movement. From a trading margin perspective, we delivered good underlying growth, principally through the continued enhanced product mix and operating leverage, which were offset by a 30 basis point headwind from the impact of COVID-19 in the period, as I mentioned earlier. Turning to slide 11. Looking at Taste & Nutrition performance from a regional perspective. Firstly to the Americas, where we had a strong performance with volume growth of 3.2% in the period.
We were very pleased with the performance in North America, where we had excellent growth in beverage and snacks. In LATAM, Mexico delivered strong growth, while Brazil and Central America were solid. We made good progress in expanding our presence in the region with the acquisition of Tecnispice Guatemala, as mentioned earlier, a leading savory taste business. In Europe, the business overall performed well prior to the impact of restrictions on food service demand in March. Meat delivered very good growth, in particular with clean label solutions and plant-based innovations. Good growth was also achieved within meals and snacks, and we are pleased with the continued good performance and development of our business in Russia and Eastern Europe. In APMEA, volumes in the period were significantly impacted by the restrictions on movement in China initially, and thereafter from March in a number of countries in Southeast Asia.
Excluding the impact of COVID-19, we estimate that volume growth would have been at a high single-digit level. From an end-use market perspective, we achieved strong growth in meat, dairy, and bakery in the quarter. We continued to make good progress in expanding our capacity and deploying our technology capabilities in the region, most notably in China and the Middle East. As Edmond mentioned earlier, we moved into our new Technology and Innovation Center in Shanghai. This is a state-of-the-art facility that will further advance our business development and future growth in China. Now turning to Consumer Foods on slide 12. While overall reported business volumes were back 4.8% in the period, reflecting the ready meals contract exit as previously referenced, revenue volumes excluding this contract were up 2.8%.
There was a positive impact in March of circa 1.5% from consumer stockpiling in some categories when lockdown measures were introduced. The categories that benefited most were spreadable butter and frozen meals. Pricing in the period was 2.1%, reflecting increases in input costs and market pricing. Pork input cost inflation was the main driver in the period. We delivered continued trading margin expansion of 10 basis points, with the benefit from efficiencies being largely offset by pricing. Finally, from a Consumer Foods perspective, we are very pleased with the performance of our recent meat-free launches under both the Richmond and Naked Glory brands. Where these have been rolled out to date, they are performing very strongly, achieving category-leading positions. Now moving on to slide 13 and to update on a number of other matters before I hand you back to Edmond.
Firstly, on KerryConnect, our deployment program in North America is on track with the successful deployment in five facilities as planned in the first quarter. Clearly, we will continue to monitor the situation in light of current events, and we may decide to delay some deployments for a short period of time. On raw materials, as mentioned, the overall basket was showing slight inflation, primarily driven by raw materials within Consumer Foods. I would say currently we're looking at the remainder of the year being relatively flat within Taste & Nutrition based on our customer partnership pricing model, with continued input cost inflation within Consumer Foods driven by pork input costs. On currency, based on current rates, the outlook is for a neutral impact on EPS for the full year.
On COVID-19, the actions we are taking aligned to our three priorities are resulting in substantial additional costs, including, as I referenced earlier, costs to ensure the safety and well-being of our employees, costs to ensure continuity of supply, and the manufacturing on-cost implications, including significant operational deleverage as a result of reduced volumes in a number of our most impacted plants across the globe. As Edmond mentioned, we are taking a series of decisive cost mitigation actions as we seek to partially limit the overall short-term cost impacts. These actions include the suspension of all non-essential and discretionary expenditure. In addition, we have a number of targeted short-term cost management initiatives, particularly in the most impacted parts of our business. While the situation is evolving on a daily basis, all costs are being tightly controlled as we seek to minimize the short-term financial implications for the group.
We continue to maintain a very disciplined approach to investments, focused on ensuring sustained growth aligned to our strategic growth priorities. Finally, and importantly in these times, we continue to have a very strong balance sheet with Net Debt at the end of March of EUR 1.9 billion, with an average maturity period of just under six years and committed undrawn facilities of EUR 1.1 billion. To wrap up, overall from a performance perspective, we continued to deliver solid performance in the first quarter, considering the significant impact of COVID-19. The Americas in particular, delivered strong growth, and importantly, we continued to make good progress in advancing our strategic priorities to underpin sustained growth in the future. With that, I'll turn you back to Edmond for the outlook.
Thanks, Marguerite. Moving on to slide 14 and looking specifically to our outlook for 2020. Firstly, as outlined in our release this morning, due to the uncertainty around the duration and impact of COVID-19, we're withdrawing our full year 2020 guidance. Overall as a group, we're very focused on managing the short-term challenges to emerge as an even stronger customer partner. Our global team is mobilized to meet the challenges and opportunities this situation presents to our customers. Across the world, we're demonstrating and reinforcing the value add that Kerry can offer. Within Taste & Nutrition, if we look at our business by channel, starting with food service, clearly this channel remains challenged while restrictions and movement are still in place. We're supporting customers to manage these challenges in a variety of different ways, focusing on opportunities in more resilient areas of the channel like delivery.
We're also forward planning with customers for the removal of restrictions and how we will roll out new menu launches later in the year. The retail channel continues to deliver good growth across a number of categories as our full support model enables customers to react at pace. We've a strong innovation pipeline to drive growth post-crisis, as customers are looking to add functionality and better nutritional attributes to our products. Our Consumer Foods business continues to see challenges and changes in consumer behavior, which is driving significant volatility across categories. Overall, we will continue to invest for growth, both organic investments and continue to pursue M&A opportunities aligned to our strategic growth priorities. I believe that our unique business model, broad Taste & Nutrition portfolio, and our integrated solutions capabilities are more critical now than ever before.
Our purpose to inspire food, nourish life, continues to guide us on this journey, and we continue to be focused on fulfilling our role as our customers' most valued partner. With that, I'd just like to thank you all for taking the time to dial into our call this morning, and I now hand you back to the operator for any questions you might have.
Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please signal by pressing star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, to ask a question today, please signal by pressing star one on your telephone keypad. We will pause briefly to allow all questions to register.
Cathal [Davy], please go ahead with your question.
Good morning, all. I have two questions from my side. Firstly, to Edmond. I'm just interested to know how the current dislocation you're seeing in the food service market kind of informs your medium-term to long-term strategy around that channel. My second question is for Marguerite on margin. Obviously, you've called out some substantial costs associated with COVID-19 and also the impact of negative leverage. Would it be possible to translate that into some parameters around margin, either for the first half or for the full year? Thank you.
Thanks, Cathal, good morning. I just might spend a little bit of time on the food service one, Cathal, because I'm sure a lot of people have a lot of questions on the channel. What I might do is just talk about the channel in the context of maybe the macro elements, then maybe how we're positioned as Kerry, and then what we're seeing right up to today from a customer perspective. I would say firstly, from an overall macro channel perspective, we feel that demographics are very much on our side, whether it's growth in the middle class, urbanization, and people continuing to be time poor. Obviously, I'm talking about here beyond restrictions and what have you. I would say, though, that the channel will evolve. The dine-in experience will be different. Things like curbside pickup, takeout, delivery will be a bigger factor.
I would also say that from a macro perspective, hygiene, trust, and clearly nutrition, wellness, and functionality will be much more important, I think, in the channel. From a Kerry perspective, in terms of how we're positioned, I mentioned a couple of times in the presentation that full support model, I think that's even more relevant now than even it has been in the past. As we've said before, with respect to this channel, we've a really strong capability, expertise. We've got really strong customer relationships right across the channel, this channel is made up of multiple sub-channels, whether it's chains, fast casuals, QSRs, convenience, distributors, and contract caterers. It's a complex channel made up with many elements. We've a strong expertise and capability right across each of those sub-channels.
The other point I'd like to make from a Kerry perspective is that we have still only a small fraction of our technologies deployed into this channel. We feel quite positive from that perspective as well. Just looking at it from a customer perspective and what we're seeing and what type of activities and how we're engaging with customers right now, the reality is that customers are looking for help in so many areas. Again, it's really leveraging what we can bring and leveraging our full support model. We have really strong customer engagement right now. Customers are looking for help, I would say, first of all, with the nutritional aspects of their menu. What we're seeing is they're not just looking at tweaks now. They're looking at re-innovation.
With a recent webinar we had with our foodservice customers, it was primarily around nutrition, and it was just a huge level of interest in terms of looking at real nutritional step change on the menu. That's really exciting for us. I would say we've had huge multifunctional engagement with customers in foodservice. If you just reflect a little bit on that channel, it's not a channel that has a huge amount of product development and kind of resources in that area. We've been working a lot with customers in terms of their operations and things like social distancing and logistics. We've also been helping them out with things like sanitizers and PPEs and things like that. We've seen a huge amount of multifunctional touch points, I would say more than we've ever seen before.
The way customers are looking at it is through a short-term lens, a medium-term lens, and a long-term lens. I touched on some of the medium-term and long-term lenses already, but right now they're also preparing for the bounce back and the rebound. There's a lot of pent-up demand out there. People have been locked down for a long period of time, and there's a huge amount of preparation in terms of how do customers speed up food preparation? How do they quickly serve customers? We're working with them in terms of various types of innovations in terms of how they can quickly serve customers. There's a huge amount of activity going on. I do see ourselves emerging even with stronger and deeper and more embedded relationships with our customers in that channel. Overall, we feel really optimistic about it.
Thank you.
Cathal, I might just take your question on margin for a moment. Cathal, firstly, as you can appreciate, and as Edmond has referenced, there just is a lot of uncertainty right at the moment. So it's quite difficult to be precise in terms of a view of the margin forward. I guess to give you some context, firstly, as you know, we've a very broad portfolio right across all food and beverage end-use markets. It's fair to say that we're seeing a high degree of variability within end-use markets right now and over the last number of weeks, really as customers seek to interpret consumer demand. I would say that the level to which orders are changing daily really is abnormal and unprecedented, as is the uncertainty on the duration of restrictions and consumer behavior post restrictions.
To give you some context, it is fair to say the margin impact from the lower Q1 volumes is a good starting place. The associated margin impact we had from those reduced volumes was circa 30%, primarily due to operating deleverage from reduced volumes in a number of manufacturing plants, and also the on-costs incurred associated with safety and well-being of our employees. The second quarter is just more complex as the costs I referenced earlier on are more significant as we manage our way through the short-term volatility and uncertainty. The margin impact in Q1 gives you some perspective right now, appreciating that the Q2 impact should be greater. Cathal, I hope that gives you a better line of sight.
Great. Thank you.
Thank you. We'll now go to our next question from James Targett, from Berenberg. Please go ahead.
Hello. Good morning, everyone. Couple of questions from me. Just coming back on food service, another question on the retail side. You mentioned, I think you said volumes are down 2/3 in April, food service channel. Please do correct me if I'm wrong. Your view is that that level of volume decline will simply continue during however long lockdown continues. You're mentioning all the work you're doing, the engagement with your customers. Do you expect any of that to provide an offset to that during that period? Is it simply a question of waiting for the lockdown to ease? Are there any capacity redeployment opportunities for you in food service towards the retail customer side? That's my question on food service.
More generally on your retail-based customers, you talk about a huge openness to change and looking to engage more with you. Could you just highlight what is it that they're really valuing from your proposition right now? Do you expect ultimately to emerge from this crisis with significantly higher shares than you had previously? Thank you.
Good morning, James. Thanks for the questions. Yes, you touched on a couple of good points actually, James, on the food service area. You're right, yeah, we did call out that April, as we stand on the 30th of April, from a food service perspective is back about 2/3. Maybe just to flick to China for a second because it is an important point. Obviously, the pandemic hit China first. In the month of April, we're in line with 2019. As we stand today at the end of April, our performance in China is in line with 2019, which is really positive. Now, food service as a channel in China in our business is still in the zone of 10%-20% back from last year and has obviously been offset by the retail channel in China.
I think that China situation, where we are today in China certainly gives us confidence and gives us a line of sight of how this thing might play out globally. I'm not going to say it's going to follow it exactly, but certainly it does give us a view. Your point in terms of redeployment of resources or manufacturing capacity, that's a really important point that I probably should have brought up in the first question. The reality is that we are seeing food service customers, in many instances, they're trying to find ways of co-branding with retailers, actually. They're trying to find ways to, how do they keep their brands in focus for consumers.
We are seeing examples, especially in North America, where I would say maybe the medium-sized chains are trying to work with retailers, and we're enabling that to help them to bring brands or co-branding opportunities with retailers to consumers to make sure that their brand continues to remain top of mind. The reality is, from people perspective, we're redeploying resources, and from a manufacturing standpoint, we're redeploying resources. That is an important factor, I would say, that we're seeing in the food service channel, and it's quite interesting. On the retail side, what we're seeing actually is that retailers are looking at the food service consumer as a new battleground for them, actually. It's kind of really interesting. Having conversations with retailers, engaging with retailers, and they're talking about that out-of-home consumer being the new battleground for them.
They're really working hard, and we're working with them to try and come up with creative ways of how do they actually gain market share here. This is a new opportunity for them. It's an exciting opportunity for them. It's probably the most exciting opportunity they've had in quite some time because this is a new consumer cohort that they didn't believe they had access to before. There's a huge amount of work going on, ideating and developing new ways of how to engage with that new consumer cohort. I don't know, William, do you want to add anything to anything I said there? Okay. We're having some technical difficulties there.
Sorry. Excuse me.
James, you back over? Oh, sorry, William, go ahead.
Sorry. Excuse me. No, listen, on the food` service side of it, the reality is there's restrictions in place. We've seen the benefits of when the restrictions kind of move, how things move at pace. The question we have as a business, James, going back to the outset is, how long are the restrictions in place, and how is that going to evolve? Listen, that's a moving piece for us and hence, the withdrawal of the guidance. I suppose on the retail, what clearly is transcending across a number of categories is that underpin of that wellness and the nutrition and wellness, and the view that as things go forward into the medium term, in addition to all the things that Edmond is saying, that there is going to be a heightened focus in terms of people's wellbeing that will actually be more elevated.
We're seeing that with a heightened level of activity that Edmond referenced to earlier in the presentation in terms of our Wellness portfolio and how we can help customers pivot their offerings with added functional benefits. That's all I would add. Thank you.
I guess one of the points I was trying to ask was, are you seeing engagement with customers that you wouldn't normally have engaged with, for whatever reason? If so, do you expect that sort of business to be kind of sticky going forward and therefore kind of drive share gains for you?
Yes, James, I might come back in there. I would say what we're seeing is where our customers are committed to make a change, they're making changes and launching products really quickly. We had an example in the last few weeks in Europe on the plant-based side, where a customer made a decision. They wanted to see products quickly, they made the decision to get products into the market. They made that decision in a week. They were putting in orders for trial products within seven days. I think what we're seeing is that our, I suppose, ability to quickly move to where the opportunities are and to engage quickly with customers and get products to them, the right products to them that can enable them to take something to the market really quickly.
I think they're really appreciating it now. I think it's that full service model that we're holistically able to work with them. Whether it's on things like contract manufacturing partners, whether it's things like processing, whether it's insights. We've had a huge amount of engagement with customers around taking insights from what we've learned in China, taking insights from what we learned in our Consumer Foods business, taking that to customers, then working with them to come up with some new ideas. That particular example, it was actually in France. We saw things move at a pace that would, in the past, would have taken months. It took days. That's really exciting for us. We wouldn't have seen that happen in the past. That's the reality.
Thank you.
Thank you. We will now go to our next question today from Jason Molins from Goodbody Stockbrokers. Please go ahead.
Yeah. Hi, good morning, guys. I guess I'm just trying to get a sense of innovation and how you see that unfolding. I guess it might have been a bit of a concern, given how CPG companies might have reacted, et cetera, that maybe they paused that and innovation pipeline and discussion. I guess from this call I'm hearing maybe that's not necessarily the case and you're getting a lot of engagement right across the piece, even into the food service channel. Maybe some color on that because clearly that's been a margin driver for your business in the last few years.
Then just in terms of food service, can you maybe just give us a bit more granularity in terms of your channel exposure, whether it's the QSRs that you talked about and the various chains that maybe can benefit and maybe return to the marketplace a bit faster than some of the more in casual dining outlets? That would be helpful. Thanks.
Thanks, Jason. Good morning. I'll touch a little bit and spend a little bit of time on the innovation one, because I think it's really important. I touched on it a little bit already in food service. What I would say that it is varying a lot on a customer-by-customer basis. We certainly have seen in certain instances, developments being slowed down. There's no doubt about that. On the other side of it, again, it's back to that point that we're seeing things happening in days that were taking months. We've seen customers making really quick decisions. A customer jumps to mind on the whole frozen category, and they're planning to launch a new range of products in the frozen category by the 1st of September. The only thing slowing him down is things like packaging and artwork and things like that.
We're seeing a huge amount of, I would say, variation from customer- to- customer. There's a heightened sense of nutrition, wellness, and functionality amongst customers. They're looking for creative ways to impart functionality and nutrition into their products. I mentioned in the presentation that our Wellmune technology, which is a yeast beta-glucan technology that helps strengthen immunity, the pipeline has grown by 400% over the last four weeks. Again, there's a huge amount of activity. It is very varied from a customer-by-customer basis, but I'm quite encouraged about the level of activity and the level of innovation. I would say that we have seen a cohort of customers cut the tail. What I mean by that is, cut down a huge number of SKUs, reduce complexity from their manufacturing operation standpoint. Certainly we've seen that.
At the other side of that, we've seen customers say, "Okay, we're cutting all these SKUs, but now we want to come with some real innovation." A lot of those SKUs were minor flavor extensions or minor tweaks. Let's rethink now, and let's really start thinking about a set of products that can replace that huge tail of SKUs that we have with products that have more meaningful functionality or more meaningful nutrition and wellness attributes. That's really exciting for us as well. Then I would say from on the food service standpoint, in the short- term, certainly we're seeing things like LTOs being postponed and delayed. That said, customers are still looking at launches later in the year. LTO launches, they're looking back at launches they've done in the past that were super successful.
We're bringing that type of insight to them that we're saying to them, "Hey, look, these are really nostalgic type offerings. Maybe you might consider bringing some of these nostalgic type offerings back later on in the year." That's some insight that they're really responding positively to as well. Does that cover it, Jason?
Yeah. I just had another follow-up, if you don't mind, in terms of inventory. I guess if we look at potential impact on consumers and the economies, et cetera, to what extent is or maybe do you think you could see some pressure on sort of reduced inventories in the marketplace that people try and manage working capital, et cetera, that maybe sees a bit of a slowdown and impact on volumes? Is that something you're thinking about at the moment or something that is a concern?
Absolutely, Jason, we're keeping a very close eye on it. I think we've built up some experience in China where I suppose we did see some, let's say, delay in some payments. Again, we've worked with customers along in those lines. When stores are closed, when shops are closed, when there's full lockdown, we collaborated with our customers here and worked with them with inventories. It's been really collaborative and I touched on it there earlier, there has been a significant increase in the level of cross-functional engagement, a huge level of collaboration around logistics, supply chain, inventory levels, ordering. Marguerite mentioned earlier that we've seen one day of the week we see a doubling or a tripling of the orders. The next day we're seeing cancellation. The next day we're seeing another change.
There's a huge amount of volatility, and that means we have to stay really close to our customers, and we're aligned here. We're aligned with our customers in terms of managing some of the issues that you just mentioned.
Okay. Thanks very much.
Thank you. We'll now move to our next question from Heidi Vesterinen from Exane BNP Paribas. Please go ahead.
Good morning. You talked about planning for post-restriction product launches. Aside from the nutrition aspects that you highlighted, are there discussions about lower price points or reducing costs given that consumers are likely to be economically challenged? What does that mean for you? Maybe you could talk about the types of technologies that you offer to help customers achieve this. Thank you.
Good morning, Heidi. Thanks for the question. I would say the short answer is we're not seeing that yet, but we do expect to see it. That is the reality. I think we do see a situation where there is going to be pressure on pricing. We are going to move into a phase of some economic hardship here for a large cohort of people. There will be an element of trading down. From a Kerry perspective, again, if you think about the breadth of technology that we have and the process technology, this is a really important lever that we have within our organization. That process technology, innovation and capability that we have is a key lever that we pull when it comes to these times of pricing pressure. We've seen pricing pressure come many times before, back from the market, back through customers.
We've thrived, I would say, during the ZBB phase, during various phases in the past. All through this period, we've not only been able to defend our margin but actually expand our margin. I would say, I'm not saying this in any disrespectful way, but I would say that change for us and that kind of need for customers to relook at their formulations, be it for taste, be it for nutrition, be it for functionality, or be it for cost. Frankly, we see that as an opportunity for Kerry. We've had times of economic hardship in the past, and as I said, we've thrived through those times.
Thank you. We will now go to our next question from Graham Hunt from Morgan Stanley.
Hi. Just two quick questions from me, thanks. How should we think about operational deleveraging in the food service channel if you're seeing volumes down significantly the rest of the quarter? Also, what are your thoughts on the M&A landscape at the moment? Are you seeing additional opportunities coming up? Thanks.
I might take the M&A, and I might ask Marguerite to come back to you, Graham, on the operation deleverage. From an M&A standpoint, Graham, I suppose maybe standing here today on the 30th of April, I would have probably said if we're having this conversation in the middle of February, we probably would have expected ourselves to have maybe two or three other transactions completed by now. The reality is, just from a pure practical standpoint, whether it's site visits or different things like that, we haven't been able to get those transactions over the line. That said, I would say from a pipeline standpoint, the pipeline is still robust. There's a lot of engagement. You're aware of the way we engage with potential targets and continue to build relationships with these targets.
I feel that from an overall pipeline standpoint, I feel pretty good about where we're at. As always, it's hard to predict timing, but I'd be pretty confident that we will continue to do some bolt-on transactions in this time. I think also going through a time like this, I think some of the larger, I would say, private companies, I think they will take stock at a time like this and decide what they're going to do. I don't see any letup in M&A activity. I think M&A activity will continue during this phase. Certainly from our perspective, we don't see any change in our strategy from an M&A standpoint.
Good morning, Graham. I might just take your first part of your question. As we've referenced, given the food service reduction in volumes, there will clearly be a significant short-term impact from an operating deleverage perspective in a number of our factories. I think just referencing some of the comments I made earlier, if one starts with Q1 as a starting place, the associated margin impact, as I mentioned from the reduced volumes was circa 30%. That was due to the operating deleverage impact from reduced volumes, but also the on cost associated with the safety of our employees and the various measures that we've taken. That is a sense of, it's a good starting place to consider how we're thinking about operating deleverage currently.
Thanks very much.
Thank you. We'll go to our next question now from Arthur Reeves from Barclays.
Good morning. Thanks for taking questions. There's two. They're both about Taste & Nutrition, and they're looking for a bit more clarity on the numbers, please. First of all, could you give us some of the reconciling factors between the 1.2% volume that you delivered in quarter one compared to the 4% you would have done otherwise? That's my first question. My second question is looking for a bit of clarity on trying to reconcile how a 0.7% reduction in food service equates to a 1.2% growth across the Taste & Nutrition business as a whole. My calculation suggests that means that outside food service, we've only seen a 2% growth. Is your business outside food service being negatively affected because of COVID-19, as well as your food service business? Thanks very much.
Thanks, Arthur. Good morning. I might just kick off here and let Marguerite come in. I would say, looking at the month of April, which I think is really important because it's really the most up-to-date and the most transparent that we can possibly be with you is that we're seeing the retail channel, in April, T&N business overall growing at mid-single digit. I think that's an important context. That is an acceleration. It's an acceleration from 2019. It's an acceleration from Q1, and that's something that I would expect to see continuing for the foreseeable future. Maybe Marguerite, you can put some more color on that.
Yeah, absolutely. Good morning, Arthur. Just in the context of giving you some greater visibility on the estimated 4%. Taking T&N, we've estimated that the impact of COVID-19 was a headwind of 3% to volumes in the quarter. That breaks down to just over 2% in China. Very much in line with how we guided earlier in the year, and just under 1% due to the impact in the food service on restrictions on movements that really occurred from March in certain geographies in Asia and in Europe. That's really the rec on the overall movement.
Okay, was there no pickup in non-food service in the first quarter?
No, a lot of moving parts, Arthur, I would say. I think clearly there's been a lot of pluses and minuses in the quarter. Obviously, we had the China impact in the quarter as well, that didn't just impact food service, it also impacted the retail channel. I think April probably gives a better visibility on how we're doing from a retail channel standpoint.
Sorry to push on this, but I need to understand it. In April, we're saying that 70% of your business is up mid-single digit and 30% of your business is down 2/3.
Correct.
Yes.
Okay. That's what we're saying.
Correct.
On the retail side, there, Arthur, I think the 2% that we've referenced as the impact, sorry, as the growth rate that you referenced there in terms of Q1.
Yeah.
That was impacted as well within China, because every geography, how this plays out as a country-by-country story in terms of how categories are playing out. Overall, we're seeing that benefit in April in terms of how that is a mid-single digit figure, a good mid-single digit figure. In the first quarter, it was just above the 2%. There was an impact from China. It would have been probably 3% outside of that. Looking forward, you need to be maybe at this juncture from April's perspective, thinking of it as good mid-single digits.
Good mid-single digit in 30% of your business and down 2/3.
No, good mid-single digits is the 70%.
Yeah. Then down 2/3 in 30%.
Yeah.
Okay, thanks. Thank you.
Thank you. We have time for one more question from Faham Baig from Credit Suisse. Please go ahead.
Hi, guys. Thank you for the question. I just have a couple of very quick ones. One's a follow-up with regards to your innovation and commercialization perspectives. Just physically, how is that possible at the moment, given you have these lockdown restrictions, and I would imagine a lot of your sales force are working with customers, going to customer factories, meeting customers. How are you managing to communicate with customers, et cetera? The second one is, I gather there is this health, nutrition, and wellness trend that is seeming to transpire post-COVID and within COVID as well. Could you just remind us what proportion of your sales would be in the health and nutrition segment? Thanks.
Thanks, Faham. Good morning, and thanks for the question. I would say on the innovation side, firstly, I would say that in Kerry, the vast majority of our technology innovation people, our R&D people, are working. They are working in our facilities with proper social distancing and processes and procedures in place. That's point number one. The second point I would make is that from a customer engagement standpoint, we have seen, I would say, immense creativity in terms of customer engagement. Leveraging digital technology, leveraging teams and different things to engage with customers, whether they're at their home, whether they're working, or regardless of where they're at. We have participated, or I personally participated in sessions where we've had chefs cooking. We have already sent samples to our customers. They're tasting samples. We're cooking samples. We're giving the insights.
There is a continuous feedback loop through various voting systems that we've set up digitally. There is a lot of connectivity, and people are stretching their imagination to the limit in terms of that connectivity. Frankly, I've asked myself, is this going to be the new normal for us? My sense is that we will move more and more to this digital engagement, virtual engagement. I think it will take some time for face-to-face customer meetings to happen in particular customer locations or even in our own locations. I think that's going to take some time. In the meantime, there's a huge amount of creativity. We've even seen customers auditing our lines where we've used cameras to take them around our facility, talk them through our manufacturing lines.
I think where there's a will, there's a way, and I think customers are challenging their own processes and procedures. A lot of our engagement with customers is not the typical process. The typical, let's say, our traditional briefing process is being bypassed. That is not a process that is really appropriate for times like this or for this moment in time. That process is being abandoned, and there's a far more, I would say, intense, creative, and collaborative engagement with customers. I would say traditional ways of working are being challenged, and that's really exciting for us. I think it's that full-service model that's really coming to the fore now where customers can see that we can do just so much more for them, and they're really leaning into that. We can help them with insights.
We can help them on the development application side. We can help them on the process side. We can help them with contract manufacturing side. Whatever it is, we can help them with so many areas. They're really leaning into all that capability that we have at our disposal. I would say coming out of this crisis, I think our relationship with our customers will be even stronger. Our relationships will be even more embedded. That's an exciting prospect for us.
Thank you. As we have no further questions at this time, I'd now like to hand the conference back over to William Lynch for any additional or closing remarks.
Yeah. Listen, I'd like to thank everyone for joining us on the call today. As is usual, if there are any further questions, please don't hesitate in reaching out to us. Thank you very much.
Thank you, everybody.
Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.