Foodservice expert Peter Backman FIH takes a closer look at performance in the last quarter of 2018 to see what it tells us about the shape of UK foodservice in all its sub sectors.
Q4 is the Christmas quarter and sales performance is crucial for the ongoing success of high street operators.The last quarter of 2018 was also the quarter when NFL came to London and provided above average sales for hotels. The pub sector recorded high levels of growth, which came on the back of slow growth in the quarter a year ago, so comparable figures were slightly easier. But high growth in the Christmas period has been a feature of the pub sector for the last few years and comes on the back of improving sales during the course of 2018. Much of this increase resulted from improving wet sales, although food also performed quite well, compared with restaurants’ sales.
Quick service operators with a well-established model – Greggs, McDonald’s etc – continued to grow well in the quarter. Casual dining chains on the other hand struggled against overcapacity and many found it difficult to get into positive growth over the festive period.
And Brexit uncertainty weighs on the whole eating out market from schools and workplace catering, uncertain about funding and staff, to pubs and restaurants whose fortunes depend on shaky consumer confidence.
The start of the year is an opportunity to review the “shape” of the foodservice market over the last 12 months and to take a longer view of the future. Understandably, much of the focus of interest over the last three years has been on the casual dining sector as it’s where most of the growth and innovation has been happening. But, there are other sectors that are worth looking at. Hotels, for example, have been growing for most of the period since 2014, especially since the Brexit referendum which lead to a fall in the value of the £ and provided opportunities for hotels to raise prices where foreign visitors make up the majority of the customer base. Meanwhile, the contract catering sector has benefitted from growth in the City of London, although less so in the rest of the country.
And, it is worth revisiting my comments about December trading in the pub sector. This was distinctly positive (especially for drink sales) and suggests that the rebalancing of supply (in terms of numbers of pubs) and demand is bearing fruit. This rebalancing has come about partly as a reduction in capacity which has been painful for operators and owners. Another factor has-been increased premiumisation, resulting in an increased average transaction spend.
There are lessons here for the restaurant sector, which is only now starting to reduce capacity to a meaningful extent, and where premiumisation has not yet been explored in depth. In the meantime, all casual dining operators are having to cope with existing overcapacity. Their sales and profits will be reduced to the extent that overcapacity exists and the impact of this will be felt in the first quarter of 2019 when, as always, big bills come in – and balance sheets become more stretched. I expect some well-known brands to join Patisserie Valerie in becoming smaller, or to even disappear.
Yet, despite all these issues, as I have said many times, the foodservice sector is remarkably resilient and, as ever, it will fight back- starting now…
Peter Backman FIH enlightens foodservice operators, their suppliers and investors. He brings an analytical, data-driven approach to understanding what is happening, why it is happening and what to do about market changes. He invests in new, valuable data and together with his deep understanding of the eating-out market brings challenging views, opinions and guidance to his clients.