The eating out market is on the up, but consumer confidence is still very fragile and foodservice operators must be cautious in assuming the sector is in full-term recovery.
This was the conclusion of Horizons’ managing director Peter Backman speaking to an audience of over 80 invited foodservice operators, analysts and suppliers at the company’s Annual Briefing, held yesterday.
Real growth of 3.8% in 2014
With the theme Return to growth: Myth or Reality, Backman said that while 2013 saw the sector nominally grow by just under 1% to £44.9bn, this year it was likely to return to 2006 levels, showing nominal growth of 1.8%, which taking inflation into account means a real growth of around 3.8%.
“It’s been a long time since I have been confident enough to predict real growth in the foodservice market,” he said. “In the recent past the margin squeeze that operators have experienced has eased and for the last couple of months we have been moving into positive territory – this is good news for businesses in the sector.”
Clear winners, but continued investment necessary
With clear winners – namely pizza delivery operators, pub restaurants, managed branded pubs, sandwich shops and coffee shops, all of which had seen over 10% growth over the past 12 months – Backman cautioned operators not to take recovery for granted and to continue to invest in their business.
“There are inherent risks in believing the market is now in recovery; consumer confidence is still fragile; weather events can have a huge impact; political uncertainty, particularly surrounding the referendum in Scotland; international uncertainty in the Ukraine and in Syria; and of course the unexpected. No one could have predicted horsegate!
Backman outlined the importance of developing a loyal band of customers who can accept price increases more easily, as the pub sector had successfully done. “Winning in the market is not just about being the lowest cost operator,” he said, “It’s about creating an experience that consumers want.”
Retaining and recruiting good staff problematic
However, several panellists at the briefing, while optimistic about trading, expressed concern that as the UK’s productivity improved, real wages would rise along with it making it harder for the hospitality industry to retain and recruit good staff. The recovery was also criticised for being consumer-led rather than led by business investment. Growing employment means that the UK’s productivity has gone down, rather than up.
ASK Italian managing director Steve Holmes said that while ASK was investing millions of pounds into the business – with one refurbishment completed every five days – retaining and recruiting staff was currently a challenge. Margin squeeze, he said, was still an issue because they had to pay more for good staff, as well as coping with rising costs of ingredients such as wheat and seafood.
Mitchells & Butlers CEO Alistair Darby agreed that staffing was a key issue, terming it an ‘overheating problem’ as employment grows in other sectors. “The challenge is trying to recruit good people. We have to change our mindset on training, working hours and salaries in this sector,” he said.
Another panellist, Stefano Fraquelli, CEO of Metropolitan Restaurants, a boutique chain of central London Italian restaurants, pointed out that now, more than ever, it was important to focus on what you do well, even if it means placing limits on growth.
Panellists agreed with Horizons’ conclusion that there are grounds for considered optimism, but the consumer must remain at the heart of everything the sector does.
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