Cautious consumers change eating habits during a tough 2011 for food industry. But Australian foodservice market expected to grow once again after five years in decline
JULY 18, 2012 – Consumers are now demanding red meat more often while swapping three courses for two; café chains are on the increase while independent cafés are falling; and retailers are now cooking from scratch more often to save on costs as 2011 again proved to be a difficult year for the foodservice industry.
According to BIS Foodservice’s Australian Foodservice Market 2012 report, consumers continued a trend to trade down in their choice of outlet, and while they are still dining out for lunch and dinner, they are not doing so as often nor do they spend as much money.
“Many foodservice operators are finding that their customer base has shrunk significantly, with meal services as a whole much quieter,” says Sissel Rosengren, Head of BIS Foodservice. “Consumers are watching their money now and are much more frugal in attitude and spending.”
In the 12 months prior to June 2012, the number of food service outlets in Australia declined by one per cent overall, driven largely by a 1.1 per cent decline in commercial outlets. Café chains grew by 5.2 per cent in 2011, while independent cafés and bakeries with cafés declined. Fast food chains grew by 3.8 per cent in 2011, but a further decline in independent fast food outlets – combined with a significant decline in snack food chain outlets – led to an overall fall in the Quick Service Restaurant (QSR) channel of 1.7 per cent. Restaurant numbers declined by 2.6 per cent last year, and function caterer numbers declined 7.3 per cent.
Overall, these numbers reflect the current economic times and fluctuating consumer confidence. And while Australians have continued to eat out since the GFC, they do not eat out as much and there has been an evident trade down effect among consumers in terms of where and what they are eating, and how much they are spending when they do.
“In short, pasta and risotto is up while steak is down, for example,” says Rosengren. “People might still buy an entrée, but now it’s usually a cheaper item such as a soup or a salad. There hasn’t been a noticeable change in portion sizes, but people are generally eating two courses when they used to have three. There has also been a return to ‘comfort foods’ with demand for fish & chips and bangers and mash on the rise.”
Overall, food service operators experienced a growth in demand in terms of food and non-alcoholic beverages served in their outlets in seven different product categories in 2011.
Consumers are demanding red meat more often with 21 per cent of outlets reporting an increase in demand for the product. Coffee demand continues to rise, and poultry also was in high demand among consumers.
Operator trends and business confidence
Many restaurant operators believe 2012 will be another “lean and trim” year in which it will be vital to watch costs in order to stay in business. As such, operators are minimising costs where possible.
“Restaurants are now keeping staff numbers at a minimum, with those staff expected to multitask,” says Rosengren. “Chefs in some places are now expected to take orders, wash dishes and make coffee.”
Operators are now preparing more food from scratch in order to reduce food costs. This trend is also influenced by an increased preference for fresh produce among consumers, as well as locally sourced products.
“Flavours in QSRs are back to basics and we are seeing a return to more traditional foods,” says Rosengren. “However, the channel will continue to experience pressure to change its menu offerings due to Australia’s high level of obesity, particularly among children. There is also an expectation that demands for vegetarian offerings will increase in this channel over the coming years.”
Confidence among foodservice operators continues to fluctuate. Although the BIS Foodservice Confidence Index – which measures general business confidence among various foodservice operators – showed that confidence among operators had improved prior to Christmas, Rosengren expects that this confidence will continue to fluctuate in the coming months.
“It is important to remember that current economic conditions are uncertain and as such consumer and business confidence will reflect economic sentiment,” says Rosengren.
Foodservice market since the GFC has been “volatile”
Retail turnover of restaurants, cafes and takeaway services proved to be extremely volatile in 2011, as it was during 2010. Turnover fell by 1.3 per cent in January 2011, during the only peak season on the Australian foodservice market. It rose one per cent in February and flatlined in March, before an unexpected decline of two per cent in December 2011 was offset by a 4.2 per cent spike in January this year.
Profit margins among outlets have been hit hard, with some operators reporting that profit is down by up to 50 per cent as consumers continue to be cautious in spending.
“The volatile nature of the market at present makes it incredibly hard for operators to predict what will happen next year, let alone two or three years down the track,” says Rosengren. “These operators can’t pull out a diary from two years ago and plan what is going to happen. The market conditions that operators are facing are unprecedented.
Cafés also experienced a difficult 2011. Lunch quieted down and, while some experienced an increase in takeaway sandwiches and salads, most were affected by an increase in people bringing a packed lunch to work.
Independent QSRs have been steadily in decline for the past three years, but QSR Chains on the other hand continue to benefit from a strong trade-down effect in consumer spending habits, and BIS Foodservice forecasts that this channel will continue to grow over the next five years.
Foodservice market outlook to 2015/16
But it’s not all doom and gloom for the industry. According to BIS Foodservice, the market is expected to grow year-on-year for the next five years. The report found that confidence among foodservice business operators was up despite the total number of outlets – as well as overall turnover – declining last year.
“The market as a whole is forecast to grow steadily over the next five years following declines over the previous five years,” says Rosengren. “Businesses are now adapting to evolving consumer demand and understand the need to offer the full service to customers in order to retain regulars.”
The “Foodservice Dollar” – determined by the percentage of Australian households’ food and non-alcoholic beverage budgets were spent eating out – is showing signs of rising after years of decline since the GFC.
This decline was driven by the trade down effect in consumer eating and spending habits, falling from a peak of 36 per cent prior to the GFC – it had risen steadily year-on-year since the early 1960s – to just over 30 per cent in 2010.
However, the dollar is expected to remain steady this year before rising in the coming years. This rise, although slow, will depend on overall economic, consumer and business confidence which continues to be impacted by developments overseas.
“Driving this rise is an expected improvement in consumer sentiment, which will come largely from continued employment and disposable income growth as well as the likelihood of lower interest rates persisting for some time,” says Rosengren. “Sentiment and confidence dipped markedly following the GFC, but recent good news regarding the GDP combined with continued economic growth should see that sentiment return, albeit slowly.”
Overall, after having fallen 0.7 per cent per annum in the previous five-year period, retail expenditure on food service is expected to grow by 1.7 per cent per annum over the next five years.