The global outlook for the foodservice sector

Posted by Daniel Palmer on 2nd July 2009

The global outlook for the foodservice sector is relatively stable for the years ahead, although strong growth for restaurants is not expected until 2011.

“Consumers are cutting back on eating out and this is particularly hurting full service restaurants and cafe/bars,” Elizabeth Higgins, Euromonitor International’s expert on consumer food service, noted. “We are seeing some trading down but in some cases lower income consumers are choosing not to eat out all together and in many countries this was the group that was really boosting value for foodservice.”

One of the key advantages during a downturn for any lower-priced operator is the ‘trading-down’ effect – many consumers remain unable/unwilling to cook many meals at home, yet increasingly look for ways to cut back on spending, often by eating at lower-priced fast food and takeaway locations. While trading down is quite apparent in some markets, in others this is not always the case:
– In Italy, consumers are expected to eat out less often in times of a crisis, treating themselves occasionally to a mid-priced meal rather than trading down to a lower quality fast food meal;
– In other countries consumers have returned to cheaper and familiar foods, in some countries this might be turning to street stalls and kiosks.
– Other sectors that have benefited to date, include the 100% home delivery/takeaway sector.

Operators across all sectors have responded by emphasising their value positioning:
– Starbucks introduced their own value offering, advertised as “something good to eat for less than $4” in a response to McDonald’s – who ran a campaign highlighting that their McCafe beverages were cheaper than the $4 amount for the average Starbucks drink.
– Full service restaurants are also offering a range of promotions, including a ½ price bottle of wine, free entrees and even some independents in the UK and Australia asking consumers to name their own price for a meal. In Mexico, full-service restaurants such as VIPS, operated by Wal-Mart are offering meal combinations for less than the price of a Big Mac Meal at McDonalds. However, restaurants need to ensure that what they are doing is sustainable to their business. Cutting prices by a third for a few months might bring people in but it hampers margins and can devalue the brand (depending on its positioning).
– In the Philippines, fast food operator Jollibee launched a new lower priced concept, called Manong Pepe which offers home cooked meals similar to those offered by street stalls /kiosks.

Outlook
Overall, the foodservice industry is not expected to pick up again until 2010 with a stronger recovery projected for 2011 and 2012 – although a lot still depends on each country’s recovery and the effectiveness of the various stimulus plans that have been passed, Euromonitor advised. The research firm predicts that consumers will be slow to return to previous eating out habits. Fast casual chains could receive a sales boost from lower-income families who may choose to forego the occasional luxury of a full-service restaurant for a less expensive fast casual meal.

A positive for the industry, which has driven the fast-food sector in the downturn, is that the convenience trend hasn’t subsided. Further, the latest data in Australia suggests the foodservice industry has picked up in the wake of stimulus payments, although a number of fine dining restaurants have reported that, despite the number of customers holding up quite well, the spend per customer has taken a hit.

“In more developed markets operators that can provide a convenient meal solution or those that can provide a unique experience will be the true winners as consumers become increasingly more sensitive when it comes to spending money on non-necessities,” Ms Higgins concluded.