irish foodservice channel insights - bord bia - irish food board
TRANSCRIPT
Irish Foodservice Channel InsightsNovember 2011
Growing the success of Irish food & horticulture
November 2011 3
TABLE OF CONTENTS
Management Summary ............................................................................................ 5
Research Summary ................................................................................................ 17
Background to the research .................................................................................. 19
Glossary of terms used in the report ..................................................................... 23
Trends in the Irish Foodservice Market ................................................................ 25
Introduction to Deep Dive Channel Research .................................................... 39
On-the-go ................................................................................................................ 43
Casual Dining ......................................................................................................... 71
Developments by Channel to 2015 ....................................................................... 99
Commercial Channels .......................................................................................... 101
Quick Service Restaurants (QSR) ...................................................................... 103
Full Service Restaurants (FSR) .......................................................................... 109
Pubs, Cafés, Coffee Shops ................................................................................ 115
Hotels ................................................................................................................. 121
Other Commercial (Leisure and Travel) .............................................................. 127
Institutional Channels .......................................................................................... 133
Business and Industry ........................................................................................ 135
Health ................................................................................................................. 141
Education ............................................................................................................ 147
Other Institutional................................................................................................ 151
Conclusions, Implications and Recommendations ........................................... 155
Conclusions ........................................................................................................ 157
Implications ......................................................................................................... 161
Recommendations .............................................................................................. 163
November 2011 5
Management Summary
November 2011 7
Management summary
1. Introduction
The 2011 Irish Foodservice Channel Insights report has been divided into four
principal sections.
Section One highlights the key trends apparent in and driving foodservice in Ireland.
Section Two focuses on two of the most robust and dynamic segments in
foodservice, on-the-go eating away from home and casual dining. The section dives
deep into both the characteristics of these markets and the factors that have made
them successful.
Section Three documents the performance of the main foodservice channels,
outlines the key dynamics and highlights the main player implications.
Section Four brings all the research findings together and draws out the major
conclusions, implications and recommendations.
2. Deep dive research
In addition to the Irish market, on-the-go and casual dining have been international
success stories over the past few years, with the USA and UK at the forefront of their
development. They have also made significant penetration in France, the home of
high cuisine and set eating occasions.
The reason for examining these two markets in depth is threefold:
They have both been remarkably resilient to the worst effects of the economic
downturn;
They reflect powerful and ongoing consumer trends;
Their growth path is set to continue and they will move centre stream in
foodservice over the next few years.
The success of the two channels has been due to two consumer movements, one
long term and driving the development, the other short term, immediate and acting
as a growth accelerator.
8 November 2011
Key consumer trends driving the deep dive channels
On the back of the momentum created by these two consumer trends, both on-the-
go and casual dining have weathered the recessionary storm far better and emerged
into calmer waters far sooner that other parts of foodservice. They are also
anticipated to grow at several times the growth rate of the total Irish foodservice
market over the next four years.
Forecast foodservice growth rates 2011 to 2015
The key to the success of these two channels, particularly their growth rates, is not
just about consumer trends, it is also market position. They overlap with and take
sales from the more traditional channels – notably white table cloth and quick service
restaurants. In food style and occasion they also encroach on dynamic sectors such
as travel and leisure.
If it were not for the underlying consumer movements already mentioned, these
markets could be suffering from competition on all sides. In reality they are winning
that war and are taking foodservice sales and share from their neighbouring
channels.
Short Term
Price
Long Term
Role of food
• During the economic downturn consumers traded down to lower cost eating
out options – such as on-the-go and casual dining
• Increasing consumer af f luence has led to a changing role for food and
beverages in society. People seek less formal, less structured and more
convenient foodservice occasions
Result• Growth in on-the-go and casual dining away f rom home
0.5%
1.2%
2.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Total foodservice On-the-go Casual dining
November 2011 9
The on-the go/casual dining market environment
It is in these cross-over areas, where the channels overlap and compete that the
most exciting new concepts are likely to emerge.
On-the-go
On-the go away from home consumption is really anytime anywhere food and drink.
It spans two key areas – quick and convenient food for fuel and those little luxury,
relaxation moments when consumers feel they need a treat.
It is serviced by three outlet types:
Coffee shops
Bakeries/sandwich bars
Cafés
Increasingly the offer of these three sub-channels are overlapping, with for example
food increasing in importance in coffee shops and beverages growing in the
bakeries/sandwich bar sector.
On-the-go key data
The on-the-go market was valued at €1 billion in 2010 and has grown by 14.5%
since 2003 It contains 2,641 outlets. Some 42% of sales are with operator chains.
Travel Leisure
Speed & convenience
Ambience & dining experience
QSR
On-the-go
White tableclothCasual dining
10 November 2011
Casual dining
Casual dining is a sub-segment of the full service restaurant channel and is
characterised by restaurant dining in an informal atmosphere, but with table service.
It includes themed restaurants, family restaurants and many ethnic restaurants and
fits between QSR‟s fast casual concept and the more traditional white table cloth
restaurants.
Its current market strengths are:
Its consumer perceived better value offering.
Its greater flexibility in responding to the recession, particularly with price offers.
Its closer alignment to the lifestyle requirements of particularly the younger
generation of consumers.
Although it now accounts for 18% of the sales value in the full service restaurant
channel, it is still an embryonic market and is expected to grow to 30-35% of the
FSR channel over the next 5-10 years.
Casual dining key data
The on-the-go market was valued at €111 million in 2010 and has grown by 30%
since 2003 It contains 450 outlets. Some 18% of sales are with operator chains.
Shared characteristics of the deep dive channels
The success of these two channels has been driven by a number of crucial
characteristics:
They are right on top of prevailing consumer trends.
They are innovation driven in terms of concept and product.
They are flexible and customer responsive.
They sell more than food, the offering includes:
– High service levels;
– Relaxed atmosphere;
– Product and menu flexibility;
– Convenience and speed, but slow occasion options when required;
– Market appropriate price points.
They are close to customers and offer occasion solutions.
November 2011 11
3. General trends and characteristics of foodservice
Foodservice sales are dominated by the commercial sector, accounting for some
88% of market value in 2010. It has been this part of the market that has suffered so
widely during the recession as consumer confidence evaporated so quickly. While in
downturns consumers generally vote with their feet and do not eat out, it has been
apparent that in this one they have voted with their wallets instead. Consumer traffic
has been down, but not by as much as would have been expected. What has
suffered is spend per occasion.
The silver lining (if there is one in any market decline) is that people have not lost the
habit of eating away from home, they have merely cut the amount they spend and
the frequency to meet their perceived new situation and personal budgets.
Traffic and occasion frequency have in fact increased in the lower priced channels
but the keener prices on offer has hidden this trend and reduced overall sales levels.
In the Institutional segment, while Business and Industry has suffered, the other
channels have performed credibly.
In 2011 the indications are that QSR will replace Pubs, cafés and coffee shops as
the largest Irish foodservice channel. These two between them are responsible for
69% of foodservice sales (by value). As an indication of this level of dominance, the
combined sales of the next four channels contribute a further 26% of the market.
The 5 largest channels by value in 2011
The sixth largest channel is Health with 4% of the market.
QSR
35%Pubs etc
34%FSR
11%Hotels
6%
B&I
5%
12 November 2011
After the traumatic years of market decline induced by the economic downturn, the
foodservice market has turned the corner and is entering a period of near stability.
But for volcanic ash and snow, 2010 would have seen some levelling out in the rate
of decline, however this has now taken place in 2011, with sales value anticipated to
have fallen by “only” -2.9% this year, compared with an average of -6.9% per annum
(CAGR) from 2008 to 2010.
The good news is that the market is anticipated to move back to low growth/stability
over the next 5 years, averaging a 0.5% increase per annum (CAGR) from 2011 to
2015.
While a halving of the rate of decline in 2011 might not seem too much to celebrate,
it does signify an important turning point in the market and that the worst has passed
– barring of course any future, major disasters with the economy. While this cannot
be discounted, there is a general sense of increased optimism among foodservice
players that the situation has bottomed out,
Foodservice sales trends
The 2010-2011 headline sales also disguise the fact that not all channels have
performed equally. In reality the 2011 fall was driven principally by significant falls in
a handful of channels, notably pubs, full service restaurants (FSR) and Business and
Industry (B&I).
Consumers have traded down to lower cost channels and meal options, and the
indications are that this will continue to be a trend until consumer confidence
recovers. The key beneficiaries of this trend have been QSR and the casual dining
and on-the-go sub channels.
November 2011 13
Trends in foodservice sales
4. Route to market
At operator buying prices the market is currently valued at €1.98 billion. The
principal route to market remains delivered wholesale, which handles some 62% of
the distribution value. However, cash and carry has performed very credibly as
operators have sought to manage their cash.
Route to market
1.3%
0.6%
(0.5%)
1.2%
1.6%
0.3%
0.0%
0.7%
0.0%
0.5%
0.3%
0.5%
(20%) (15%) (10%) (5%) 0% 5%
QSR
FSR
Pubs, cafés
Hotels
Other commercial
B&I
Health
Education
Other Institutional
Total commercial
Total institutional
Total foodservice
2011-2015 2011 2008-2010
Delivered wholesale
62%
Cash & carry17%
Wheels only logistics
8%
Direct10%
Retail3%
14 November 2011
5. Conclusions
Over the last three years foodservice has been in a difficult place. However the
indications are that the time of severe market decline is over, and while rapid growth
is not foreseen, a period of relative stability and low growth is forecast. The industry
is emerging from this difficult period leaner, meaner and in many instances stronger.
It is a good time for players – be they operators, wholesalers or suppliers to take
stock of what they have achieved and how they have achieved it. They will have
formed new competencies on which they can build as they go forwards, not least
among these will be the improved ability to manage cost.
The successful players have been those who have stayed close to their customers
and this needs to be a base of competition as the industry moves forward. However,
those supplying foodservice in particular must increasingly think of it as a customer
chain rather than a supply chain. In this context they should increasingly view:
Wholesale as a customer gatekeeper;
Operators as interpreters of end customer demands;
Consumers as those that pay the bills and play the tune to which the entire chain
must listen.
Suppliers must service and add value to each of the links in the customer chain.
Operators need to understand consumers and their changing need and pull the
required products through the system rather than select from what is on offer.
The customer chain
Supplier
consumer
sensitive
Ultimate Target
• Maximise
consumer
satisfaction
Maximise operator
performance
• Increase Traffic
• Spend per occasion
Maximise
operator
satisfaction
Create product
pull on
wholesale
November 2011 15
6. The way forward
Now is not the time for anyone in foodservice to lose their head, it is by using their
head that their business has stayed afloat. It is a time for using intelligence – innate
and gathered – to plan a way forward.
The business strategy chain
The basic elements of business and market focus, of cost management and risk
minimal-isation will remain central as we move forward. To this strategic core needs
to be added the following considerations:
Think mid-term but operate short term;
– Focus on managing today but find time to prepare for tomorrow
Manage the customer chain;
– The mantra must be customers, customers, customers
Add excitement – particularly consumer excitement;
– Differentiated products and traffic magnets will attract premiums, the rest will
be price driven
Reflect customer need;
– Think operators and what they need to drive their business
Reflect consumer wants;
– Think consumers and reflect their wants to pull product through the chain
Add value in the route to operator;
– Wholesalers are there to build their business not yours, identify where your
company can align and assist with this aim
Start to plan beyond the day after tomorrow;
– Develop a mid-term vision.
– Identify the market focus.
– Look at alternatives and the impacts of change.
– Identify trigger points and prepare the ground.
Internal
intelligence
External
perspective
Increased
propensity of
success
November 2011 17
Research Summary
November 2011 19
Background to the research
Study objectives
This research has been undertaken to build on the findings of the 2010 Bord Bia
report “Channel opportunities in the Irish foodservice sector” and as a companion
study to the 2011 “Irish Foodservice Market Directory” also published by Bord Bia.
Its primary aim is to update the understanding of channel scale and development
established in the earlier report while exploring in greater depth the development of
two of the most dynamic sectors in Irish foodservice, namely on-the-go consumption
and casual dining.
Its ultimate objective is to provide a hard base of intelligence to assist operators and
suppliers in both their operational and strategic development by extending their
foodservice knowledge base and increasing their level of insight into recent trends
and developments.
Irish Foodservice Channel Insights 2011 is designed to be a tool to be used by
foodservice players as they move through the next stage of the economic downturn.
It does not seek or claim to provide answers to all situations, it does however set out
to be a working document that will assist in designing routes to solutions and, as
importantly, sign posts to opportunities.
Foodservice
Trends
Casual dining
insights
Channel
developments
On-the-go insights
Conclusions
Implications
Recommendations
20 November 2011
Study scope
The study examines developments in both the Republic and Northern Ireland.
Though out the document “ROI” refers to Republic of Ireland, “NI” to Northern Ireland
and IOI to the island of Ireland.
While focusing on the key foodservice channels, the essential building blocks of
foodservice market strategy, the study seeks to bring a broader insight into the
importance and workings of the entire customer chain – from supplier to consumer.
We have a tendency to put the links of the supply chain into separate and individual
boxes. However the system works most efficiently for all when those links form a
customer chain with a seamless flow of both product and information.
Research methodology
The research process has combined the collection of both hard data – channel sizes
and trends, with soft data – insights and understanding to present as complete a
picture of Irish foodservice as is possible.
In this process we have combined four principal information sources:
1. Foodservice interviews
In total 27 in-depth interviews were undertaken with foodservice operators,
wholesalers, contract caterers and institutional catering bodies.
2. National Associations
Date was collected from:
RAI (Restaurant Association of Ireland)
BHA (British Hospitality Association)
IHF (Irish Hotels Federation)
NITB (Northern Ireland Tourist Association)
Supplier Distribution Operator Consumer
Product flow
Information flow
November 2011 21
3. Bord Bia consumer research
Consumer research programmes conducted by Bord Bia have been used
extensively in the analysis of trends and developments identified in the channel
insight research process. These sources include:
Feeling the Pinch: The Consumer Outlook – June 2011
Consumer Lifestyle Trends
PERIscope 5 and 6 – Irish Consumers & Their Food
4. Other published sources
Industry surveys from companies such as Euromonitor, CHD, Datamonitor and
Mintel have been utilised where relevant and adding value.
The channel insight research process
Quantification of foodservice is notoriously difficult due to its fragmentation and lack
of universal agreement on definitions and parameters of channels within the industry.
However we believe the multi source methodology used in this study allows data to
be cross checked and differences accounted for, and as a result maximises data
accuracy. Pro-Intal policy in studies such as these is to develop data based on a
variety of sources.
All values for channels are at foodservice operator selling prices (OSP) unless
otherwise specified. In cases where food has no retail price (e.g. hospitals for
patients), or is subsidised, a fair notional market value is ascribed.
Trade interview
programme
Association data
Consumer data
Foodservice
surveys
Channel insights
2011
22 November 2011
Summary of foodservice definitions
There are a variety of definitions of what is foodservice and what is covered by it. In
this study it is all food and beverages consumed away from home. It can be further
defined as the following nine foodservice channels:
Commercial channels
QSR: Quick Service Restaurants, also called Fast Food.
FSR: Full Service Restaurants, where orders are taken at the table.
Pubs/Coffee shops: Pubs, bars, cafés and coffee shops.
Hotels: catering in hotels and guesthouses.
Other Commercial:
– Leisure: catering at venues for sport, entertainment or other events.
– Travel: catering at stations, airports, in-flight or on trains.
– Retail: store restaurants, particularly department stores.
Institutional channels
B&I: (Business and Industry) catering to the workforce in offices and factories.
Health: catering in hospitals and the care sector
Education: catering to pupils in schools, colleges and universities.
Other Institutional: catering for prisons and armed services.
A full channel definition is supplied within each
channel section of the study
November 2011 23
Glossary of terms used in the report
In addition to the channels highlighted above, the following terms and acronyms are
used in this report:
`
AFH: Away from home (food consumption) as opposed to Retail which is bought in shops for home preparation and consumption.
Broadline distributor A delivered wholesaler who carries all foodservice supplies rather than specialising in one product category.
CAGR Compound Annual Growth Rate: The average sales increase over a specified number of years incorporating compound growth
Cash and carry A large outlet where foodservice operators and small retailers can come to purchase supplies.
Commercial foodservice
Channels where catering for profit is the prime motive.
Contract The direct supply of products to chains of outlets who buy centrally. Also known as “wheels only” in view of wholesalers who provide logistics support (delivery), but do not buy or sell.
C Store or CVS Convenience store where hot food or food on-the-go is sold to eat and take away.
Customer The person to whom the supplier sells, usually the wholesaler or the operator, although the ultimate customer is the consumer.
Delivered wholesale Supply of product to outlets via wholesaler delivery vans, often on a daily basis.
Direct Where operators buy from markets or farmers direct rather than through intermediaries such as wholesalers.
Foodservice channel The acknowledged grouping of foodservice outlets by type (each of the main channels is defined separately).
Institutional foodservice
Often known as cost catering, channels where catering is a service provided free or with a subsidy.
Occasion The meal reason for visiting a foodservice outlet, eg breakfast, lunch, dinner, coffee, snack etc. An occasion can include one or a group of people.
Operator The company or business running the foodservice outlet or chain of outlets.
RTM Route to Market; how to get the product to the end consumer. To whom the potential suppliers ultimately sell. Involves distribution and logistics.
Spend per occasion The average spend per foodservice visit.
Traffic The number of consumers visiting a foodservice outlet. Also known as footfall, it is a key operator metric.
WTC
White table cloth restaurants, a sub segment of the full service restaurant channel representing the more traditional and more premium restaurant outlets.
November 2011 25
Trends in the Irish Foodservice Market
November 2011 27
Market dynamics
Historically, wherever one looks in the world, the market for foodservice follows, with
a variable time lag, national economic development. Ireland is not exempt from this
golden rule. As the affluence of the general populace increases, so does their
disposable income, lifestyle and free time. They seek greater convenience from food
and better utilisation of their leisure time. In this process there is no greater
convenience in food than having someone else prepare, cook, serve and clear-up
afterwards. In this situation eating becomes a leisure as well as sustenance activity
and foodservice scores on two fronts. As an added bonus it also bites into two key
elements of the household budget – food and leisure spend.
This was the situation that existed in Ireland in the decade to 2008. The Irish
economy boomed, affluence and disposable income increased and with it so did the
foodservice market – particularly the commercial foodservice market. This is the
natural sequence of events.
On the back of plentiful credit and an expanding demand new foodservice outlets
proliferated – particularly in hotels and full service restaurants, but also in new outlet
types such as coffee shops and QSR:
In the 5 years to 2008:
Foodservice traffic increased
– More newly affluent consumers entered the foodservice market on a regular
basis.
– Existing foodservice consumers ate out more regularly.
Lower priced and new style outlets (QSR, coffee shops, casual dining) –
designed to cater to this new foodservice consumer, gained increased footfall.
More traditional outlets (hotels and white table cloth restaurants) benefited from
increased prices.
The institutional market was largely stable.
In 2007/8 the world changed and with it so did consumers. Confidence in the future
which had been sky high, overnight fell to rock bottom and foodservice trends
reversed. People suddenly felt less affluent and the statement that life always got
better suddenly seemed a false hypothesis. Consumer confidence went the same
way as perceived affluence and disappeared. Into this equation a new dimension
has been added – consumers with a social conscience. Those who still felt flush
enough to dine out, felt guilty doing so in a time of national hardship and chose not to
frequent the more up-market outlets. Small treats rather than expensive occasion
have become the flavour of the times.
28 November 2011
The results have been more than evident to everyone:
Foodservice traffic fell dramatically;
With traffic loss sales value declined;
To try to retain and attract back traffic operators reduced prices;
Falling traffic and falling prices led to ever increasing falls in sales value – the
ultimate vicious spiral.
Downward sales spiral
Whichever country and whichever recession is examined, the same set of
foodservice circumstances and the same dynamics are found, and again, Ireland is
not exempt.
The reason for looking back is to better appreciate why we are here, and when we
know why we are here, to better plot a path forward.
Foodservice outcomes
The result of these dynamics is that having ridden the crest of the wave, foodservice
has now entered a very hard place. Having increased in value by 21.6% in the 5
years from 2003 to 2008, foodservice fell back by 15% in the two years from 2008 to
2010. It is now just slightly larger (3.5%) than it was in 2003 – but of course after
inflation this is a real decline.
Sales
fall
faster
Sales fall
Customer
traf f ic falls
Reduce
price to
attract
traf f ic
November 2011 29
Irish foodservice sales trends (€bn @ consumer prices)
The market is currently bumping along the bottom of the trough. It is predicted to
have fallen back a little further in 2011 and then will increase slightly to 2015.
The important message is that there is no golden rainbow in sight. But at the same
time we have seen the worst the recession can throw. The industry must adjust to
these new conditions and restructure and rebuild accordingly.
In today‟s new foodservice world:
The market rules without a doubt;
Foodservice needs to be sharper, more focused and more cost effective – there
are no easy wins to find, just some softer hard places;
The value-quality-price relationship is the key determinant to both success and
survival;
There is no longer “one size fits all,” foodservice is a coat of many colours,
containing many channel variations and player types – all with their own needs –
the most crucial of which is to differentiate to attract custom;
Innovation will be needed in products, concepts and strategies as consumers
have to be led back to dining out more often and increase their per-head spend.
Excitement needs to re-enter the offer;
There will be more foodservice exits than entrances as operator and supplier
capacity balances with demand.
However, despite the challenges, foodservice in Ireland, valued in excess of
€6 billion at consumer prices is a very large market containing major opportunities as
we move forward, for those players with the skills and competencies to realise them.
More importantly, as and when strength returns to the economy and confidence to
consumers, foodservice growth will accelerate to former levels. There is much to
play for.
This section of the report sets out to quantify and characterise the market by channel
type.
5.9
7.2
6.2 6.0 6.1
0
2
4
6
8
2003 2008 2010 2011 2015
30 November 2011
Main market breakdown: Foodservice IOI 2010
Breakdown by channel overall
Breakdown by outlet ownership Food/beverage split by value
Irish foodservice is one of the least consolidated markets in Europe, the independent
operator serviced by the traditional broadline wholesaler still dominates and operator
loyalty to wholesaler remains high. Product choice tends to be made from, and is
largely restricted to, the wholesaler portfolio.
Chains account for 14% of outlets;
Sales value per chained outlet is double that of independents for the Pubs/Coffee
shops and 2.4 times in the QSR channel;
Chains are unimportant in FSR and Pubs – two of the largest market segments;
Route to market is gradually becoming consolidated.
Commercial channels account for 88% of overall foodservice value and historically
provided the engine for growth where restaurants sprang up to service demand as
the economy expanded.
Institutional channels account for just 12% of market value, but closer to 25% of
volume. Contract caterers have a significant share of the institutional market – with
the three leading international players – Sodexo, Compass and ARAMARK the major
contract caterers in Ireland
Commercial88%
Institutional12%
Organised14%
Independent86%
Food73%
Alcoholic beverage
14%
Soft Beverage13%
November 2011 31
Foodservice market (IOI) dimensions in summary
From 2003 to 2008 the market grew by an average of 4% per annum. Commercial
channels lead the way with QSR and hotels the strongest performers. Business and
Industry performed well and dominated the institutional channels. In 2008 the
market was valued at:
€7.2 billion at consumer prices (€2.3 billion at operator purchasing prices).
Irish Foodservice: ROI and NI 2003-2010 (at consumer prices)
Sales
2003 (€m) Sales
2008 (€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
QSR (Quick Service) 1,651 2,187 5.8% 2,110 (1.8%)
FSR (Full Service) 824 957 3.0% 662 (16.8%)
Pubs/Coffee Shops 2,257 2,548 2.5% 2,148 (8.2%)
Hotels/Accommodation 333 505 8.7% 369 (14.5%)
Other Commercial 170 193 2.6% 142 (14.2%)
TOTAL COMMERCIAL 5,235 6,390 4.1% 5,431 (7.8%)
Business & Industry 347 425 4.1% 320 (13.2%)
Health 206 241 3.2% 241 0.0%
Education 128 140 1.8% 135 (1.8%)
Other Institutional 38 40 1.0% 38 (2.5%)
TOTAL INSTITUTIONAL 719 846 3.3% 734 (6.9%)
TOTAL IOI 5,954 7,236 4.0% 6,165 (7.7%)
ROI 4,415 5,390 4.1% 4,306 (10.6%)
NI 1,539 1,846 3.7% 1,859 0.4%
CAGR: Compound Annual Growth Rate
From 2008 to 2010 the market fell on average by nearly 8% per annum. The pain
was felt equally in commercial and institutional but the main channels to suffer were,
in commercial: Full Service Restaurants and Hotels and in institutional: Business and
Industry.
Sales value overall fell to €6.2 billion at consumer prices. (€1.85 billion at
operator purchasing prices).
Sales in up-market and middle outlets declined most.
Lower cost operators experienced lower decline as they could better absorb
discounts.
Chains have generally performed better than independent outlets within the
same channel.
The state sector maintained volumes, but tightened margins.
32 November 2011
From 2010 to 2011, the market is estimated to have fallen further by just under 3%.
Even QSR fell in value as heavy discounting by operators was necessary to maintain
volumes and traffic. In 2011 the island of Ireland foodservice market is estimated to
be valued at €6 billion at consumer prices. (€1.8 billion at operator purchasing
prices.)
Irish Foodservice: ROI and NI 2010-2015 (at consumer prices)
Sales
2010 (€m) Sales
2011 (€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
QSR (Quick Service) 2,110 2,101 (0.4%) 2,211 1.3%
FSR (Full Service) 662 647 (2.7%) 663 0.6%
Pubs/Coffee Shops 2,148 2,043 (4.9%) 2,003 (0.5%)
Hotels/Accommodation 369 367 (0.5%) 385 1.2%
Other Commercial 142 136 (4.2%) 145 1.6%
TOTAL COMMERCIAL 5,431 5,294 (2.5%) 5,407 0.5%
Business & Industry 320 287 (10.3%) 290 0.3%
Health 241 237 (1.7%) 237 0.0%
Education 135 132 (2.2%) 136 0.7%
Other Institutional 38 37 (2.6%) 37 0.0%
TOTAL INSTITUTIONAL 734 693 (5.6%) 700 0.3%
TOTAL IOI 6,165 5,987 (2.9%) 6,107 0.5%
ROI 4,306 4,165 (3.3%) 4,256 0.5%
NI 1,859 1,822 (2.0%) 1,847 0.3%
CAGR: Compound Annual Growth Rate
Looking to 2015, the market is forecast to recover overall, but slowly at an average
of only 0.5% per annum. QSR and other commercial will drive the revival together
with a revival in hotels on the back of a more buoyant tourist trade.
€6.1 billion at consumer prices. (€1.9 billion at operator purchasing prices).
Sales in up-market and middle outlets will continue to suffer.
Lower cost operators and those in “value” channels will experience most volume
growth.
“Grazing” and casual dining will perform well.
Chains will continue to perform better than independent outlets within the same
channel.
The state sector will continue to focus on cost reduction.
November 2011 33
Route to Market Breakdown: Foodservice IOI 2010
Purchase value at operator purchasing prices
Route to Market: two patterns in 2010
Traditional supply chain Emerging supply chain
The traditional supply chain, heavily dependent on delivered wholesalers to the
independent trade is slowly being replaced by more direct negotiation between
operators and suppliers. This however is moving slowly and it is only the larger
chains that have the buying power to merit direct supply from the manufacturer.
The traditional wholesaler is still key in this new arrangement as their role is now to
provide purely logistics (“wheels only”) rather than buying and selling themselves.
€1.85 billion
Delivered
Wholesale
62%
Cash & Carry
17%
Contract
“wheels only”
8%
Direct Retail
10% 3%
Suppliers
Delivered
Wholesale
72%
Cash &
Carry
16%
Contract
“wheels
only”
3%
Direct Retail
5% 4%
Dominant route in FSR, Pubs,
Independent Operators
Traditional supply chain
(c.85% supply)
Suppliers
Delivered
Wholesale
38%
Cash &
Carry
15%
Contract
“wheels
only”
40%
Direct Retail
6% 1%
Emerging Supply route in QSR, Hotels,
Health, Chains and Contract Caterers
Emerging supply chain
(c15% supply)
34 November 2011
Summary: Foodservice product by value
(Operating buying prices) 2010
The Foodservice market in IOI was worth about €1.85 billion at operator purchase
prices in 2010. This is an average figure and many manufacturers are having to
discount further in order to assist operators and wholesalers cope with reduced
demand in the market.
At supplier selling prices the price received is less when they sell though a
wholesaler who require their own margin, which varies from 10%-35% depending
on the product category.
Fresh product tends to have the lowest wholesale margin.
Meat, the largest individual product category accounts overall for 40% of
purchases by value.
This product mix is driven by menu content and therefore broadly applies to
foodservice operators across most commercial channels (except coffee shops
where bakery and dairy are very important). It applies across all institutional
channels.
Food/drink splits are broken down by individual channel in the relevant sections
of this report.
Meat/Poultry40%
Bakery20%
Veg/Fruit20%
Dairy10%
Fish5%
Others5%
€792m
€393m
€393m
€196m
€105m €100m
November 2011 35
Summary: Meat breakdown by value 2010 (operator buying prices)
Operating buying prices
Beef dominates the Irish foodservice market, but there are indications that operators
are turning to chicken as an alternative on the grounds that:
Chicken is cheaper and represents better value to hard-pressed consumers.
Chicken is considered a more healthy alternative.
The difficulty in this scenario is that most chicken is imported and therefore Irish
suppliers would need to revisit prices to benefit from this trend.
Poultry (chicken specifically), is rapidly growing its share in the recession. While
only accounting for 27% of value in Irish foodservice, it makes up nearly 40% of
volume purchase by operators.
Beef prices rose in 2010 and operators in price competitive areas such as FSR
are switching even more emphasis to lower prices to maintain competitive “meals
deals” for price- conscious consumers.
Across the board, operators are looking for value and considering cheaper cuts if
it will aid them in lowering prices to attract custom.
Beef37%
Poultry31%
Bacon21%
Pork10%
Lamb1%
€285m
€245m
€174m
€80m€8m
36 November 2011
Commercial sales by channel 2003-2015
Outline performance (Sales €m at RSP)
QSR FSR
Pubs/Coffee Shops Hotels
Other Commercial
Key implications for suppliers
Pubs and QSR are the key channels.
Only QSR shows some growth over the whole period 2003-2015.
0
500
1,000
1,500
2,000
2,500
2003 2008 2010 2011 Est 2015 Est0
200
400
600
800
1,000
2003 2008 2010 2011 Est 2015 Est
0
500
1,000
1,500
2,000
2,500
3,000
2003 2008 2010 2011 Est 2015 Est
0
100
200
300
400
500
600
2003 2008 2010 2011 Est 2015 Est
0
50
100
150
200
2003 2008 2010 2011 Est 2015 Est
November 2011 37
Institutional Sales by channel 2003-2015 (in € million at notional rsp)
Business & Industry Health
Education Other Institutional
Business and Industry (B&I) and Health are the key channels. B&I has been
very hard hit by the recession and will be slow to recover.
Health and Education channels tend to have more stable volumes, but margins
are under pressure as costs are reduced across the board.
0
100
200
300
400
500
2003 2008 2010 2011 Est 2015 Est0
100
200
300
2003 2008 2010 2011 Est 2015 Est
120
125
130
135
140
145
150
2003 2008 2010 2011 Est 2015 Est
36
38
40
42
2003 2008 2010 2011 Est 2015 Est
November 2011 39
Introduction to Deep Dive Channel
Research
November 2011 41
An introduction to the “deep dive channel research”
Why on-the-go and casual dining?
There are a number of reasons why we have selected the on-the-go and casual
dining (sub)channels for detailed investigation in the 2011 Irish Foodservice Channel
Insight report. Without a doubt, the most important is that these two foodservice
markets have been the most resilient to the worst aspects of the economic downturn
and as we bump along the bottom, are displaying the first indications of an upturn.
But also it is to introduce a new perspective on the foodservice market segmentation.
When we think foodservice we tend to think of operators and outlets, and for
suppliers it will almost certainly be foodservice distributors. We almost always leave
out the most important player in the away-from-home value chain – and that is us,
the consumer.
It is consumer desires and needs that drive foodservice occasions and consumption,
yet when we look at the foodservice market we segment from an industry
perspective, by outlet type – Full Service Restaurants, Hotels, Business and
Industry.... This approach makes sense as these are the organisation forms that
translate consumer needs into demand streams. And they are the classifications we
have used in our updated overview of foodservice trends. However, sometimes
taking a different perspective can help deliver new insights. We have therefore
asked, “what are consumers doing differently in foodservice terms?” and the answer
is that they are eating out less formally/more casually and they are grazing.
To understand why, we need to look at both the long term and more recent
consumer trends.
To start with the long term, 40 years ago across Europe and North America families
spent circa 40% of their income on food. It was the single most important item of
expenditure and it was almost ritualised into strictly set meal times and whole
families eating together. Today, as incomes have increased, that proportion has
come down to 12-16% in most countries – including Ireland – and with it the
importance of food has diminished. Once life was built around food occasions, now
food has to fit into life and lifestyles. Formal meal eating and formal occasions have
diminished in importance and in their place concepts such as QSR, casual dining
and on-the-go have emerged. Convenience has replaced conformity. These
consumer movements have more recently solidified into new foodservice channels.
The impacts of the recession have added fuel to this fire. Bord Bia‟s report “Feeling
the Pinch: The consumer outlook – June 2011” identified three new consumer
groups in Ireland and used nautical terms to classify them.
42 November 2011
These are:
The plain sailing group: Those least affected by the economic downturn, who
seem to be carrying on much as normal. In May this year this sector accounted
for 17.8% of people – down significantly from 22.9% in September 2010.
The choppy waters group: These are those who are surviving reasonably well,
but have lost confidence. They are prioritising purchases and trading down, but
also spending on the “little treats” they feel they deserve. This group accounts
for almost half the populace (48.1% in May 2011) and is growing (41.5% in
September 2010):
– These are the core people trading down to casual dining from white table
cloth restaurants on both economic and lifestyle grounds. They are not
dispensing with eating-out, but making more considered decisions about
where they spend their money.
– They are also taking a sandwich from on-the-go rather than a restaurant
lunch, but balancing this with a coffee and muffin as a compensating treat.
The all hands on deck group: Accounting for one-in-three Irish consumers
(34% May 2011). These are the ones who have suffered most from the
recession. These are the ones who seek out deals and discounts, who seek to
make savings. They are attracted to the meal deals in the lower ticket priced
casual dining and on-the-go channels. They cut back, but have not given up on
life or foodservice.
The recession has driven these last two groups – a combined 82% of the population
– into, at the very least, a greater consideration of the casual dining and on-the-go
channels.
If we look at the split of commercial foodservice, 81% of consumer foodservice
spend is in channels such as QSR and pubs/coffee shops where convenience, cost
and informality are the key magnates attracting customers. At the forefront and
benefiting most are the casual dining and on-the-go channels profiled in the following
two sections of this report.
November 2011 43
On-the-go
November 2011 45
On-the-go channel trends
Channel size
What is grazing and what is the on-the-go channel?
As consumer affluence has increased and time become more valuable in busy lives,
eating habits have become increasingly de-structured. Originally a US phenomena,
the trend migrated first to the UK and then increasingly to the rest of Europe. Initially
the movement revolved around convenience and was exemplified in the
development of QSR as a major channel. More recently it has been driven by three
major trends:
The concept of anywhere, anytime food and beverage consumption;
The provision of “time out” occasions where relaxation, socialisation and
ambiance are as important as product consumption;
The development of grazing as an accepted eating style and alongside it
“nomad” consumption.
This consumer evolution has resulted in the emergence of three distinct types of
outlet servicing the “on-the-go/grazing” need:
Coffee shops are casual restaurants without table service that emphasise coffee
and other beverages. Typically a limited selection of cold foods such as pastries
and perhaps sandwiches are offered as well. Their distinguishing feature is that
they allow customers to relax, work and socialise on their premises for long
periods of time without pressure to leave promptly after eating, and are thus
frequently chosen as sites for meetings. They are characterised by the
Starbucks, Costa Coffee formats.
Cafés are informal restaurants offering a range of hot meals and made-to-order
sandwiches. Coffee shops, while similar to cafés, are not restaurants due to the
fact that they primarily serve and derive the majority of their revenue from hot
drinks. Many cafés are open for breakfast and serve full hot breakfasts. In some
areas cafés offer outdoor seating.
Bakeries and sandwich shops offer light beverage refreshment, some seating (a
growth sector for many traditional bakeries) plus a substantial offering of sweet
and savoury bakery products – including traditional sandwiches, filled panini,
wraps and bagels, plus pastries, muffins, cakes and buns. Typically here the
food offering will be mainly cold, perhaps with the addition of hot soup.
46 November 2011
However the boundaries between these outlet types are becoming increasingly
blurred and they are competing for similar food and beverage occasions. For
example either a quick refuelling pit-stop or a brief leisure moment.
The more traditional categorisation of foodservice (as used in Bord Bia‟s 2010
Channel Opportunities in the Irish Foodservice Sector report) considers
bakeries/sandwich shops as fast food (speed and convenience being key segment
drivers) and includes it in the Quick Service Restaurant (QSR) channel. Coffee
shops and cafés on the other hand are generally seen as heavily beverage
influenced (drink being a key traffic motivator) and are included with pubs and cafés.
In other sections of this Channel Insights report we have retained this traditional
classification, while in our deep dives into the impacts of grazing consumers on
foodservice, we have extracted the relevant data to form the on-the-go channel.
How big is on-the-go in Ireland?
The annual revenue in this new on-the-go channel grouping is valued at
€1,009 million in consumer prices and €350 at operator buying prices. However this
includes hot food consumption in cafés – which strictly speaking is not grazing food.
Removing this element brings the total channel value down to €854 million at
consumer prices (and €302 million at operator buying prices).
On-the-go sales in 2010 (at consumer prices)
Sales 2010
€m @ rsp Sales % Chains
Outlets 2010
Avg. Outlet Sales pa
Chains €’000s
Avg. Outlet Sales pa Independent
€’000s
Coffee Shops 98 82% 286 365 185
Bakery/Sandwich Tea Rooms
716 41% 1,543 567 298
Cafés 195 5% 812 280 230
Total 1,009 42% 2,641 441 213
ROI 699 41% 1,851 376
NI 310 44% 790 392
Trends within the channel
The channel has clearly suffered from the economic turbulence experienced since
2008, alongside the rest of Irish foodservice. However, it has been more resilient to
the extremes of the downturn and has recovered faster than other parts of
foodservice.
November 2011 47
Annual growth rates in market value
Breakdown by channel overall
This has been driven by three key consumer trends:
The continued de-structuring and greater informality in eating habits and meal
occasions
– “There is a move away from the formality of things, for example eating
dinners out with a number of courses.”
– “Most of the things doing well in Dublin are informal.”
Consumers trading down to lower cost eating out:
– “People are thinking they shouldn’t be in a restaurant whereas if they come
in for simple scone and jam it’s OK and they get quality and value.”
– “If they go to a restaurant it’s 50 euro spend per head, you can get out of
here for 8 euro a head.”
– “We see it every day, consumers are more price focused, they are more cost
conscious.”
Consumers feeling they need a low cost “treat” – be it a cup of coffee in a decent
environment or a cake – to compensate for other sacrifices being made:
– “It is a little luxury. They are not coming in for lunch but are coming in for a
coffee and a cake as a treat.”
– “They still want to be able to treat themselves to a little bit of whatever it may
be – even if it is just a coffee and a scone.”
– “Having that thing for themselves – a treat – is still very important.”
3.9%
(2.8%)
0.0%1.2%
4.0%
(7.7%)
(5.6%)
0.4%
(9.0%)
(6.0%)
(3.0%)
0.0%
3.0%
6.0%
2003-8 2008-10 2010-11 2011-15
On-the-go channel Total foodservice
48 November 2011
At the same time as these three key dynamics have impacted on the market,
operators have broadened their product offering to maximise the sales potential
presented by each consumer foodservice occasion:
Coffee bars have introduced more foodstuffs – particularly savoury foods.
Bakeries and sandwich bars have improved and widened their hot beverage
offering – particularly coffee.
Cafés have seen the writing on the wall and introduced more sandwich options
and snacks.
The combination of all these driving forces has been that the grazing/on-the-go
foodservice channel increased by 3.9% per annum (CAGR) between 2003 – 2008
(5% in the ROI) and fell by just 2.8% during the worst impacts of the recession, from
2008-10.
On-the-go sales 2003 to 2010 by segment (at consumer prices)
Sales 2003
(€m) Sales 2008
(€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
Coffee Shops 48 103 16.5% 98 (2.5%)
Bakery/ Sandwich Tea Rooms
650 769 3.4% 716 (3.5%)
Cafés 183 196 1.4% 195 (0.3%)
Total 881 1,068 3.9% 1,009 (2.8%)
ROI 600 764 5.0% 699 (4.3%)
NI 281 308 1.9% 310 0.3%
Even allowing for the severe impacts of the recession, coffee shops and
bakery/sandwich outlet sales in particular have increased substantially since 2003.
In 2003 their combined sales were €690 million but by 2010 this had become
€814 million – an increase in market size of €116 million in just 7 years (3 of which
were hit by economic downturn and saw sales decline).
Channel structure
Outlets
There are 2,641on-the-go outlets on the Island of Ireland, which is 21% of the
commercial foodservice universe – representing a phenomenal growth in the
penetration of this relatively new form of foodservice.
November 2011 49
The on-the-go outlets break down into;
Number of outlets % of outlets % of revenue
Coffee Shops 286 11% 10%
Bakery/Sandwich Tea Rooms 1,543 58% 71%
Cafés 812 31% 19%
Total 2,641 100% 100%
However, as previously mentioned the distinctive characteristics of these three types
are blurring as operators have sought to maintain customer levels and revenue over
the past few years.
The food offering in coffee shops has become more significant as operators have
tried to maximise the sales potential of existing footfall:
– “We want to serve good coffee, but excellent muffin.”
Coffee and hot beverages are added to sandwich shop portfolios to attract new
traffic.
Improved coffee is offered in cafés to counter customer dilution and improve
profitability.
Outlet segmentation
Increasingly, a new channel segmentation is evolving in the coffee/food-on-the-go
segment built around the actual foodservice occasion and purpose
Beverage led on-the-go outlets:
– In these outlets food accounts for 40% of revenue and beverages 60%.
– In these outlets beverages tend to be the traffic magnate and food an add on
sale.
Food led on-the-go outlets:
– In these outlets food accounts for 70% of revenue and beverages for 30%.
– In these outlets food is generally the reason for the visit with the beverage
the add-on sale.
– “People do not come to us for coffee only, it’s coffee and something else and
it’s the something else they come for – especially the younger market.”
50 November 2011
For outlets in similar locations, generally the higher the proportion of revenue derived
from beverages, the lower the outlet turnover. However, it must be remembered that
the gross margin (profit made after the cost of ingredients) made by an operator on
the sale of a cup of cappuccino can be as high 90%. Beverage driven outlets
operating from a low cost base and with reasonable traffic levels can be very
profitable.
Key Players
As with all relatively new and dynamic sectors it takes time for significant scale
players to emerge. At this time a large on-the go chain would be any with over 20
outlets and mid-sized would be 10-20 outlets. The major players within these scale
rankings include:
Key operators within on the go include:
Bagel Bar
Bagel Factory (AIL Group)
BBs Coffee and Muffins
Brambles
Butler‟s Coffee
Costa Coffee?
Esquires Coffee Houses
Insomnia
Itsa
Kays Foodhall and Coffee Shop
Kylemores Cafés
Munchies Coffee Shops
O‟Brien‟s Sandwich Bars (AIL Group)
Starbucks
Streat Cafés
Zumo International
Further information on many of these players can be found in Bord Bia‟s
Irish Foodservice Market Directory.
Operator insights
Profitability in all foodservice outlets is driven by three key elements
Traffic – operators seek food and beverages that attract customers and enhance
traffic.
– Within coffee bars for example, coffee is a key traffic magnate and Italian
coffee and an espresso machine a value-adding coffee magnate.
Occasion – the longer an outlet is open, the more they seek foods that build
traffic at under-utilised time.
November 2011 51
– Traditionally a foodservice outlet would be open just twice a day – for lunch
and an evening meal. Higher rents and changing consumption patterns
have reshaped the meal occasion, with on-the-go food at the forefront of that
trend.
– Operators are looking for food and drink offerings that enables them to
leverage the outlet costs over longer periods.
Spend per foodservice occasion – once the customer has been attracted into
the outlet the operator is looking for food and beverages that maximise consumer
spend at each occasion. For example:
– A different sweet treat to encourage a coffee drinker to eat with their drink in
a coffee bar.
– A speciality coffee to encourage a sandwich buyer in a bakery to take a drink
to go with his sandwich.
– “The average spend per occasion has come down. Now at lunchtime they
are having a coffee and a muffin as opposed to a coffee and a sandwich and
a muffin. Or they are sharing more – something between them.”
The on-the-go channel operators, in the main, excel in the understanding and
application of these three basic elements. As a consequence, we see that
innovation and new product introduction is a key base for competition. It allows them
to create excitement around their offering and to differentiate their outlet with the
result that they have increased traffic, increased occasion moments and increased
spend.
This is a key area of opportunity for suppliers and perspective suppliers to the
channel. Operators need and seek support from their suppliers as they look for new
solutions to the above three challenges. Solutions that will give them an advantage
in today‟s increasingly competitive environment.
It is worth noting that despite the much lower average bill in on-the-go when
compared to Full Service Restaurants, the average revenue per outlet in the on-the –
go channel is higher despite the smaller outlet size and lower cost base. This
comparison might be unfair in that it does not take into account location, which is a
key driver in outlet sales scale. On-the-go outlets tend to focus on prime urban
locations while many FSR are in rural/small town areas with lower volume potential.
However it does highlight which type of outlet has the better chance of survival in
troubled economic times.
52 November 2011
Customer demand maps
A supplier‟s life is never easy and in foodservice they need to consider two levels of
decision making:
What drives the on-the-go operator‟s decision making?
What drives the operators‟ customers (i.e. consumers) decision making?
To achieve the first part of this process, when approaching or considering operators,
at a preliminary strategic level, suppliers need to apply the trinity of profitability
builders outlined above to their product lines. They need to understand where their
products fit within the prospective customer‟s business and build their sales pitch
and customer relationships around these roles.
For example, at a strategic level they need to consider where their products fit in the
following map of these three profitability drivers and how they enhance an operator‟s
business:
Operator demand drivers
Traf f ic Builders Occasion BuildersSpend per
Occasion Builders
Two levels of consideration
1. Is it fundamental to the
outlet type and
differentiates it from other
foodservice. Is it a
Signature product line, as
for example coffee in a
coffee shop which builds
basic identity and traffic.
2. The second level pulls
traffic into a specific outlet.
For example coffee and a
bagel. A meal deal. Within
this products that fit with the
outlet ambiance, service
levels and customer types
are important.
Products that build traffic at
under-utilised times, for
example:
• Day of the week could be
price offerings and meal
deals
• Breakfast foods
• Mid morning snacks
• Mid afternoon treats
Typically these will be a mix of :
Enhanced (value added) generic
products: for example muffins,
sandwiches, sweet treats.
Speciality products differentiated
on aspects such as:
• Provenance
• Health
• Taste
• Convenience
November 2011 53
Having decided where their product(s) provide the maximum customer benefit a
supplier must then match the key criteria sought by the operator‟s customers
(consumers) in selecting an on-the-go outlet, namely:
Quality of the offering
– “Quality is the biggest thing that you can talk about.”
Value for money
– “It’s about a good quality product for a price and it’s about having a good
experience.”
Price
– “Consumers are more price focussed, they are more price conscious.”
Service
– “One thing that is coming back is customer service, customers are coming
back with more complaints about poor customer service.”
– “We take customer service very seriously, we do not just pay lip service to
the idea, we live it.”
Ambiance
– “One of the key things we need to work on is the ambiance of our stores.”
Listen to and be responsive to customers
– “We listen to our customers, that’s the first thing. And we serve good food.”
Underlying it all is the following on-the-go operator comment:
“What we are trying to do is give people a nicer experience and maintain the
spend. The average spend is down a little but it’s OK of it doesn’t go down too
far.”
These six elements are the key drivers behind outlet success and heavily influence
operator supplier and product choices. The list remains consistent across all outlet
types within on-the-go, albeit with a greater emphasis on price and value for money
and less on quality among the lower cost outlets.
The key point for suppliers to remember is that the first three consumer criteria listed
all concern quality and price. Products that are just cheap but low quality will not
sell. It must be the appropriate/acceptable quality (or better) at each price point.
Consumers may be suffering, but relatively few are prepared to go low cost and low
quality.
“We recognised that our customers had less money and we said that we will still
offer a good quality product, we are not going to cut corners. But we are going to
give it to our customers at a cheaper price.”
“People are looking for value but they are also for quality.”
54 November 2011
Operators recognise that while circa 30% of the revenue is derived from the cost of
ingredients, a bigger slice – 70% is derived from the reputation/brand/consumer
franchise they have built around the quality, service levels, location and ambience of
their business. Most are not prepared to put this at risk through provision of poor
quality/poor value product. However in this commitment they expect support from
their suppliers:
“If we are doing our job properly we are constantly negotiating better prices and
better conditions from our suppliers, where possible. We are doing our best to
keep our costs down and we are passing it onto our customers where we can.”
The customer demand map
Supply structure and Route to Market
The overall supply structure for the channel is fairly simple and consistent with
foodservice in general (see the Route to Market breakdown in the Trends in the Irish
foodservice market section of this study). The supply route of choice for most on-
the-go chains is delivered wholesale usually with a national wholesaler as the main
distributor used, supported by one or two other smaller or regional players.
“We switched our deli supplier at the start of the year and they did not deliver so
we reverted back to ******. They are a bit more expensive but their service is
second to none and the quality of their product is excellent and it’s extremely
consistent.”
“It’s not all price, we need a good service and we need to offer our customers a
good service.”
Traffic
Builders
Spend
Builders
Occasion
Builders
Quality
Value
Price
Service
Ambiance
Responsive
November 2011 55
“ ****** supports us with supply chefs when we do in-store promotions. We can
also meet at their kitchens to look at new trends. It’s not just distribution, they do
a whole lot of other things for us.”
There is also a movement to rationalising the distributors used:
“One thing I would like to do is to rationalise the number of deliveries to outlets.
It will probably be a one stop shop to simplify it.”
For the independent sector it tends to be a mix of delivered wholesale and Cash &
Carry.
In selecting their prime wholesaler(s) foodservice operators look for:
Regular and reliable delivery;
Security of product supply – that is, the full range is always available;
Quality of product;
Price.
Not surprisingly price has become a more contentious issue. Operators realise that
food prices have increased and that suppliers and wholesalers also need to survive,
but they seek in return increased transparency, increased communication and better
deals.
“I will not tolerate anyone increasing prices without a face-to-face meeting, if a
letter comes in I just put it in the bin, I don’t even read it.”
“If they are going to increase prices they come to me to explain why. They need
to justify it.”
The more premium the outlet, the higher the propensity to use specialist wholesalers
for key destination products and traffic builders.
Increasingly there is seen to be an advantage in being seen to use and support local
suppliers and as a consequence there is a growing propensity to go direct to
suppliers for specialist products such as cheese, some other dairy products,
patisserie and cakes.
Delivery is expected at least two to three times per week.
56 November 2011
Operator strategy
Over the past few years of economic turbulence the on-the-go channel has, along
with the rest of foodservice, been driven largely by survival based strategies. In the
case of on-the-go it has been one of predominately following the prevailing
consumer trend of financial prudence and building traffic at the expense of price. In
this they have been very successful as consumers have traded down to lower cost
eating out venues. In the on-the-go section transactions and meal occasions have
grown while like-for-like revenues initially dipped and then stabilised.
At the same time chains have taken the opportunity to prune their least viable and
worse performing outlets while taking advantage of falling new rents to obtain sites in
better locations.
However, the channel has not forgotten its dynamic heritage based on bringing new
offerings and new occasions to the industry and has continued to innovate to excite
and attract new customers. At the same time as offering price competitiveness and
traffic building meal deals it has sought to differentiate itself and add consumer
excitement through the regular introduction of new products and concepts. There is
an acceptance in this process that there will be many product failures as well as
some successes, but if the result is a maintenance of consumer interest, the overall
outcome will have been successful.
“What we do well is bringing in new lines, new successful lines.”
“For every five new muffins introduced, one is probably good.”
“We can have five or six product tests going on at any one time.”
“Even if it doesn’t sell it’s not the end of the world, it’s bringing in something new
and different.”
As a result of these strategies the on-the-go channel is in a better shape than most
of the rest of foodservice as we bump along the bottom of the economic downturn.
As a consequence it is also in a better position to benefit from the economic upturn
when it arrives.
Channel outlook
The channel outlook is positive and on-the-go is forecast to outperform foodservice
as a whole as we move forward. Sales are anticipated to remain stable in 2011
against a 3% decline in the foodservice market overall.
Given the current economic uncertainty we have been very pragmatic looking
forward with a conservative 1.2% forecast CAGR for the 2011-15 period. This will
see the on-the-go market increasing in value from €1,009 this year to €1,057 in
2015. It will come as no major surprise if the growth levels do not exceed this
conservative figure.
November 2011 57
In comparison, the total foodservice market is forecast to grow by 0.4% pa from
2011-15.
Forecast on-the-go: by segment (at consumer prices)
Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
Coffee Shops 98 98 0.0% 103 1.3%
Bakery/Tea Rooms 716 715 (0.1%) 751 1.2%
Cafés 195 196 0.5% 203 0.9%
Total 1,009 1,009 0.0% 1,057 1.2%
ROI 699 697 (0.3%) 730 1.2%
NI 310 312 0.6% 327 1.2%
November 2011 59
On-the-go channel product usage
Food and beverage split
There is not one universal food and beverage split across the on-the-go channel,
rather it differs by the type of outlet. Specifically whether it is food or beverage
driven is important. Even across a single chain the proportion of sales taken by
beverages can vary dramatically by outlet – driven principally by location and the
customer base that the location attracts.
Beverage driven outlets
Typically beverage outlets are driven more by hot than cold beverages. The main
exception would be specialist soft drink outlets such as juice or smoothie bars, where
typically food would be a minority category accounting for only 15-20% of outlet
revenue.
The drink driven category of outlet is dominated by coffee bars and is split between
the international formats exemplified by Starbucks and Costa where coffee takes
centre stage, the occasion “moment” is a major factor (for example a relaxation
moment, a social moment, wifi moment or a business meeting moment rather than a
pure foodservice occasion). The Irish version of the international coffee bar features
greater importance and range of food – ranging from sweet chocolate treats to
bagels and sandwiches.
Food driven on-the-go is mainly an extension of the traditional sandwich bars and
the development of prepared foods in bakeries.
Beverage sales60%
Food sales40%
60 November 2011
Food driven outlets
Product category size
There are huge variations in product category size dependent on such factors as:
The specific type of outlet
– Coffee shop
– Bakery/sandwich bar
– Café
Outlet location, at its simplest
– City centre
– Suburban
– Rural/semi rural
Time
– On weekdays savoury products such as sandwiches dominate in many
outlets while at weekends the focus switches to sweet lines.
– Revenue can vary dramatically by day of the week.
As a consequence, the following data sets should be seen as indicative rather than
absolute, but do give relatively robust indications of the various market potentials.
The initial category segmentation is the division into beverages, sweet food and
savoury food – which gives a broad indication of food and taste preferences in the
on-the-go sector. Some 33% revenue is accounted for by beverages, 22% by sweet
foods and 45% by savoury food. But this broad set of data covers a wide range of
different opportunities:
“On a Sunday it would be 50/50 (in terms of sweet/savoury food), but in the week
it’s mainly sandwiches – 80%.”
“People do not do sweet stuff on Mondays whereas on Saturday and Sunday
they eat loads.”
Beverage sales30%
Food sales70%
November 2011 61
In beverages it is difficult to over estimate the important position of coffee – even in a
traditional tea drinking nation such as Ireland. Coffee is a traffic magnate and an
important part of the business mix for most outlets:
“Coffee is a drug, people are addicted to it. You might cut back on eating out or
you might cut back on other things, but you will not cut back on your coffee.”
“A treat is still very important. They haven’t got €20 anymore to go out, but they
have €3 euro for a coffee for that time out.”
The coffee market is changing too:
“People are always going to buy coffee, but they are going to be more discerning
about it.”
“Coffee is changing, people are becoming more sophisticated in their coffee.”
“People are drinking smaller coffees, the whole Starbuck’s 20 oz coffee is a thing
of the past. People prefer to come and have an 8 oz and maybe have a second.
People are moving to less is more, and better quality.”
“The best analogy is the flat white. It was in London 2 years ago, but was in
Australia years and years ago. And now it is here. Our supplier brought it to our
attention.”
Sales value split by major category
Sandwiches are clearly the major food line accounting for 20% of overall sales,
followed by paninis and wraps with 12% and muffins with 8%. These three lines
combined account for €2 in every €5 spent on on-the-go food and beverages.
Again these broad numbers disguise attractive niche markets, driven by customer
base, locations and outlet theme:
“Hot chilli and Mexican wraps are good sellers – the students have that – it is
probably 10% of our market.”
Savoury bakery based36%
Sweet bakery19%
Other savoury9%
Other sweet3%
Beverages33%
62 November 2011
Category sales by channel
€million at consumer prices
Food Driven Outlets
Beverage driven outlets
Bakery/ sandwich bars Café Total
` Beverages 59 215 12 286
Savoury bakery 22 265 19 306
- Sandwiches 11 150 11 172
- Panini& wraps 8 86 6 100
- Bagels 3 29 2 34
Sweet bakery 18 143 4 165
- Muffins 10 57 2 69
- Scones/ croissant 3 29 1 32
- Other cakes 5 57 2 64
Ice cream - 21 1 22
Other savoury - 72 4 76
Total 98 726 40 854
Note: Other savoury in the above table covers foods such as salads, soups and baked potatoes.
The product structure seems set to remain in the near future – barring any new
blockbuster development as operators protect their signature and high margin lines:
“Our core is the muffin and we do not want to introduce another pastry to
compete with that.”
“It’s the muffin where we make our money. That’s where we have our margins.
It’s a love hate with other offerings we have to have them.”
Bakery case study
On-the-go bakery products are valued at €471 million and are the cornerstone of the
on-the-go sector, accounting for some 55% of the total market value (at consumer
price) and for 82% of food sales (excluding beverages).
Savoury bakery is the larger part, accounting for two-thirds of bakery value and is
principally filled bakery products – sandwiches, paninis, wraps and bagels.
Sweet bakery is dominated by the muffin, which accounts for 42% of the €165 million
on-the-go sweet bakery market.
November 2011 63
Bakery sales by taste
Product development
Innovation and product development is a key base of competition in the on-the-go
channel. Operators need constantly to refresh and add new excitement to their
product lines:
The product range is generally quite narrow and can quickly get stale.
The core outlet customers will visit an outlet on average 2-4 times a week and
will seek the variety of new offerings.
To attract new customers it is important to be different from the outlet along the
road or round the corner. Product development – be it new concepts or product
enhancement creates those points of difference.
For many operators – particularly the more successful ones - product development is
an integral part of their business:
“We do continually try to innovate, I suppose it is part of our plan.”
“I think growth will be just trying to innovate.”
This is a difficult area for the operator and is one in which it seeks active involvement
and support from suppliers. However most operators are realistic and do not see
there is necessarily a major, new blockbuster mass product just down the line.
Rather they are looking at new products to hit discrete sections of their market:
“Frozen yoghurt is something we are looking at because we have women who
are health conscious.”
However an aspect of product development that has come through very clearly is
encapsulated in the following comment from an on-the-go operator:
“The thing that Dublin and Ireland is guilty of is that we will go and find a new
concept, bring it here and water it down. We are not willing to go the whole nine
yards and make it authentic, we want to make the Irish version of it. People take
a bit of an idea and do not see it through to the end.”
Savoury bakery65%
Sweet bakery35%
64 November 2011
Innovation trends
As indicated above, innovation is the life blood of the grazing/on-the-go sector.
However, it must be remembered that in food terms the Irish consumer is very
traditional in his/her likes and dislikes. This is why, despite all the product
development, the traditional sandwich and its various variants – first baguettes then
panini, wraps and bagels - remains the dominant on-the-go food type. And within
sandwiches traditional fillers still feature strongly.
“For our customers they are quite standard in terms of savoury lines and tastes.”
“With regards to new carriers and new fillings (we need) to try to bring other taste
profiles in.”
“I think with the savoury range we need to try and stay ahead of the market in
respect of carriers and try to get new carriers out there.”
“I do not think anyone is going to move away from the traditional sandwich, at
least 80% of the time people have a sandwich three days a week – be that a
baguette, a wrap or something.”
It is therefore unsurprising, given the importance of sandwiches, in all their guises,
and muffins, that these two categories tend to dominate innovation and innovative
thinking among on-the-go operators:
“I think the muffins we do well, we have a high quality product and bake them
fresh through the day. What we do not do well is also the muffin in terms of
bringing in new lines, new successful lines.”
Key innovation trends identified by operators interviewed during the research
programme include:
Product specific
New sandwich carriers
– “We are looking to de-list baguettes and bring in something else, maybe
demi-baguettes or a flat bread or open sandwich.”
New sandwich fillers
Muffins at the extremes
– “We have them for 50cents already, but have made them bigger and need to
do better.”
– “The big thing now is the jumbo, luxury muffin.”
November 2011 65
Cookies
– “Cookies are something that could grow.”
– “It’s mainly kids today who go for cookies.”
Frozen yoghurt
– “I think frozen yoghurts is going to be absolutely massive.”
Flavoured and infused teas
– “We have herbal teas but we do not sing and dance about them.”
Cross product specific
Gluten free
– “We are getting continuing demand for gluten free products.”
– “We have a sweet range of gluten free but it’s difficult to do for bread.”
Organic
– “We buy free range eggs, I was trying to get organic but it’s too expensive.”
Smaller portions
– “We are looking at informal finger food.”
– “I think they are going the other way, smaller.”
Health
– “Health is a big thing. We are doing soya milks and we will be doing green
smoothies for the winter. There is a health push”!
– “There is a resurgence in people wanting indulgence products that are
healthy. I know it’s an oxymoron - naughty but nice.”
– “The other trend is healthier snacks.”
– “A lot of people are looking for healthier options because they are coming in
and asking about nutritional content.”
Nostalgia
– “I tell you we need to go back 20 years, products that were selling well then –
cherry buns, rock cakes, old fashioned sweets. There is a whole market for
old style pastries.”
– “There is a trend to china tea pots and afternoon tea with goodies like lemon
drizzle cake.”
66 November 2011
Artisan products
– “There is a trend towards going back to the country kitchen, what granny
used to make – odd shaped scones etc.”
Impulse purchases
– “We have introduced bite sized bakery at €1.50 each, alongside our tills.”
International trends
More European
– “The Irish consumer is moving towards European and away from the US
influence (in eating).”
– “They are looking at that cool European thing.”
Australasia
– “When it comes to coffee, Australia and New Zealand are having an
influence on Irish consumers – for example the flat white.”
Latin America is on the way
– Mexican
“Mexican food is definitely on the increase in Europe and it’s going to
come to Ireland. It is perceived as wholesome, more healthy. It’s
peasant food and that has a market.”
“Burritos are in at the moment. We are going to look at burritos for the
winter.”
– “Apparently Peruvian is the next big thing.”
Solution potential
In most countries where on-the-go has become a major feature of the foodservice
landscape, supplier solution provision has been a major building block in its success.
Operators have actively sought pre-prepared foods to resolve labour costs, speed of
serve and space issues. Value added, pre-prepared foods are used both:
To minimise labour requirements and costs
– “Labour was in short supply and expensive.”
To minimise the back-of-house space required in order to maximise front-of-
house sales capacity – particularly in a period of escalating urban rents.
Changes to the labour structure did not change these commercial perspectives in
most markets – it merely increased profit potential by lowering labour costs further.
November 2011 67
To date, the majority of on-the-go foodservice in Ireland has not followed this
economic mantra. Many operators produce on-the-go food using basic ingredients
on premise – either at the outlet level or in central kitchens.
“We make them on site every day, but they are not made to order.”
“We have a central production facility and pretty much make all the food including
cakes, cookies, brownies, apple pies. The only thing we don’t make ourselves
are the bagels.”
In many instances the USP involved in making the sandwiches themselves is not
utilised:
“The customers don’t necessarily know that we make our sandwiches fresh every
day.”
“We are not set-up to do made to order, that is something we could look at in
growing the business.”
There is a greater propensity to outsource sweet bakery:
“Croissants are delivered frozen and then they are baked on site. The same with
the scones.”
“Our tray-bakes are thaw and serve.”
There are a number of reasons why readymade solutions have not penetrated
further. Part of the reason for not using pre-prepared food is flawed views on
costing, where cost of labour and overheads for in-house preparation are not taken
into account:
“To buy in a decent muffin costs around a euro, it costs us less than 50 cents to
make it.”
Running alongside this is the perception that local/in-house preparation is better for
their specific market sector and that customers prefer products that do not appear
“processed”:
“Pre-made is a disaster you can’t give them away. People want to see them
made in front of them.”
“We tried the off-the-shelf thing once or twice but it just does not work for us, so
that in that respect I feel our deli offering is better than their sandwiches.”
“We would look for natural products from a supplier, not processed, good quality,
good taste but not too processed, rough cut, hand cut.”
However pre-prepared has established a good foothold in the market:
“For bakery we use a mix of pre-prepared and in-house.”
“Everything is brought in, we do not cook anything in the stores – we just prep it.”
68 November 2011
Also the basic service ethos of on-the-go is producing speedy and convenient food
at any time, which is facilitated by high levels of ready prepared product:
“What we are always looking at is our balance between quality and speed
because at this end of the business more and more people have less and less
time for lunch so every minute they stand in a queue is precious to them.”
In addition we find that large numbers of operators are sourcing product –
particularly sweet bakery items to supplement their own lines – from a local “cook”
rather than more industrial production.
While it is difficult to say within any great certainty what volumes of on-the-go food
are outsourced and pre-prepared, our best estimates would be:
Level of value added food sourcing Outsourced pre prepared food 20%
Food prepared in central kitchen 15%
Food prepared at outlet 65%
Total 100%
Channel and customer insights
The great strength of the on-the-go channel is that it is very consumer driven and
consumer responsive. The market is not uniform; it varies by locality, location, time
of the day and time of the week. It therefore works well for operators who
understand the industry and the market and are entrepreneurially run. People who
are close to their customers, ensure appropriate service levels and anticipate the
required product churn within their offering.
It works less well for those who are investment driven, who do not have a strong
local feel for the marketplace and suggest that systems can replace customer
knowledge. These types of business will have their place as and when the market
matures – but will face problems in the current situation.
Areas of opportunity
For operators this is clearly a market with growth potential. It is right on consumer
trend in terms of:
Its price position and response to price pressures in the current economic
environment
– The great gain on-the-go has made from the situation is that it has gained
traffic as cash strapped consumers have traded down to lower cost
foodservice. In the short term they have lost on price and margin and have
November 2011 69
had to fight to stand still – but those operators who come out the other end
will have a far larger customer base on which to build additional value.
The long term change in consumer habits from fixed to anywhere anytime
consumption.
The switch to on-the-go eating habits as meal times continue to de-structure and
grazing habits go main stream.
The challenge is surviving the medium term economic climate, particularly credit and
investment shortage.
For suppliers the upside is even greater. Not only is there the growth potential in the
market as a whole, there is also the potential to introduce increased levels of pre-
prepared product. However sceptical operators will need to be convinced of the
benefits of outsourcing when compared to controlling value adding within the
business, particularly in terms of the core competitive fields:
Cost benefit;
Quality;
Service and responsiveness;
Innovation and product churn;
Differentiation.
We have quoted earlier the comment from an Irish operator concerning the taking of
trends from overseas and “not going the whole nine yards.” On-the-go consumption
is an international trend and as the market has developed in other countries it has
been characterised by the increased penetration of ready prepared foods and the
implementation of operator systems.
Suppliers need to increasingly work with their operator customers, to share customer
knowledge and business risk, to innovate and build a shared future of growth.
Risk and barriers
The major risk for many people in the on-the-go market today is surviving the short
term. As one operator put it, possibly through excessively jaundiced eyes:
“The feeling was that the last man standing will hoover-up as people will still go
out. What is apparent now is that in 2012 the last man standing will bleed to
death. It will be a slow and painful death over the next 5 years.”
Most operators spoken to did not share this extreme view, but in reality there will be
many forced exits from the industry as cash flow and credit issues continue to bite.
For operators the keys will be more business than market driven:
Manage costs;
70 November 2011
Mange the cash;
Manage the way out of unprofitable meal deals and price positions.
What is clear is that the barriers to entry are relatively low:
Property rents have fallen and good sites are increasingly available;
Space requirements are not excessive;
Labour skills are relatively low and labour costs should come down.
Chains will expand to fill the space and new entrants will replace those falling out the
bottom.
For suppliers the major risk is backing too many wrong horses. The sector will
expand, but many players will be different. Suppliers will need to prospect, pick-up
and support customers while managing their credit balance.
November 2011 71
Casual Dining
November 2011 73
Casual dining channel trends
Channel size
What and why is casual dining?
Casual Dining is based on value for money, in an informal ambiance. The offer
generally includes a full service, separately staffed bar. With the exception of buffet
concepts these restaurants offer table service. Positioned between QSR/Fast
Casual and White Table Cloth (WTC), the segment mainly includes theme, family
and ethnic restaurants, but also any other foodservice establishment serving food in
a seated and casual environment.
Important sub segments of casual dining are:
Theme restaurants: The majority of these establishments are in the business of
serving food in a casual themed environment. Themes may evolve around a
particular sport, era, style of music or entertainment industry personality. Such
outlets are typically designed in a theatrical fashion with a stronger emphasis on
decor and souvenirs rather than food. A good example of casual themed outlets
are the Hard Rock Cafés.
Family restaurants: are FSRs, serving and selling food in a home style
ambiance, inviting the whole family particularly children. They are primarily
classified as a casual dining restaurant, where diners are served at a table and
eat relatively quickly at an affordable price. Examples include the TGIF
restaurant group.
Ethnic restaurants: Many ethnic Full Service Restaurants can be classified as
casual dining. They are in the business of selling specific cuisines such as
Italian, French, Mexican, Chinese, Japanese, Indian, Malaysian or Peruvian and
this is their “theme” or USP. The food and beverage experience in such
restaurants may range from a no frill to a first-class. In the casual dining sector,
menus are generally traditional with bold flavours and moderately priced (while in
a WTC environment, they are composed with top quality ingredients and sold at
a rather higher price).
Generally the price difference between a White Table Cloth and a casual dining
restaurant averages around 35% to 40%.
To understand the development of casual dining we need to look briefly at
international consumer food trends, this is because the same drivers have resulted in
casual dining‟s emergence and growth across Europe and North America. Ireland
has not been an exception in this movement. The main difference between
countries has been timing and the impact of local food cultures:
74 November 2011
In the USA the consumer‟s openness to change, desire for convenience and a
multi cultural attitude to food meant that casual dining developed quickly.
The UK‟s fast adoption of US trends and weak food culture meant it caught on
quickly there too.
In the Mediterranean countries – particularly France and Italy, the very strong
existing food cultures has meant that the change happened more slowly and over
a longer period of time.
Ireland in broad terms is behind this trend, which has two major implications:
It suggests substantial potential for further growth in Irish casual dining
While not accepting that all markets develop in the same manner, there are
important learning curves available from other countries.
Historically, food was in short supply and was a key element in survival, it therefore
ranked very highly in “consumer” importance – a question of eat or die. More
recently, say 30-40 years ago food was readily available but was expensive when
compared to the average wage. As a consequence it accounted for around 35% of
average consumer spend and was the largest item within the consumer budget. It
therefore remained very important, almost ritualised, with life structured around set
meal times, with these occasions becoming the key family meeting points during the
day.
As economies have developed over the last 40 years society and eating habits have
changed in conjunction. Most pertinently in this context while we have earned more
the proportion of consumer expenditure on food and drink has declined to 15-16%.
While it has grown in real terms, other parts of discretionary spend – notably fashion
(in all its forms), health and leisure – have expanded at far faster rates.
As a consequence sustenance has declined in perceived consumer importance.
Rather than life revolving around set meal occasions, food has now to fit in with life
and more importantly people‟s lifestyles. One result has been a de-formalisation of
meal times – if food is no longer so important, why cannot its consumption be more
casual? This is reflected in changes in foodservice. Not so long ago a meal out
would be an end to itself, it was the centre piece of a social activity. Now very often
it is a by-product of an activity, for example:
A quick and casual meal before a visit to a cinema, theatre or football match -
The key driver is a leisure occasion.
A relaxing wind down meal with friends after work - The key driver is a relaxing
leisure and social occasion.
A quick visit to be seen in the new tapas bar in town - The key driver is fashion
and making a fashion statement.
November 2011 75
A re-fuelling pit stop in the local leisure centre after a gym session - The key
driver is health.
These changes in consumer value systems and the richer variety of options provided
by increased affluence has created the demand for casual dining. It is about the re-
positioning of meal occasions and food roles among significant proportions of the
population for a significant proportion of their eating away–from-home moments.
However, casual dining operators need to understand these factors when they
evaluate their competition. While it may be the outlet down the road for traffic,
increasingly in today‟s economic environment it is the leisure industry, the fashion
industry and the health industry for access to the consumer wallet. This is illustrated
by the following operator quotes which give competing leisure activities as reasons
for not dining out
“Family dining on Saturday and Sunday in January is strong, that’s because of
the dark afternoons, people do not go to the park or the tourist destinations.”
“There has been emphasis on free things you can do at home, there are other
low cost options – you can go the National Museum and other sites.”
“The X Factor has started again and that will hurt us on a Saturday night. We’ll
be showing it in some of our outlets or people would stay at home to watch it.”
How big is casual dining?
Research commissioned by Bord Bia indicates that casual dining in the IOI was
valued at €111 million at consumer prices in 2010 and €39 million at operator buying
prices. It is really a sub-channel of FSR, accounting for 17% of FSR total sales last
year. However the important point to note is that it is a relatively new format in
Ireland that has come from almost nowhere (it was just 10% of FSR sales in 2003
and 14% in 2008) to achieve critical market mass in a relatively short time frame.
How significant is casual dining in the full Irish FSR channel?
Sales 2010
€m @ rsp Sales % Chains
Outlets 2010
Avg. Outlet Sales pa
Chains €’000s
Avg. Outlet Sales pa
Independent €’000s
White Table Cloth 551 1% 2690 206 204
Casual Dining 111 18% 450 266 240
Total FSR 662 4% 3140 224 209
ROI 444 4% 2355 228
NI 218 4% 785 213
CAGR: Compound Annual Growth Rate
76 November 2011
Two other characteristics are also of note, namely
1. The comparatively high penetration of chained operators in casual dining
compared to white table cloth restaurants:
– 18% of casual dining outlets are part of a chain;
– 1% of white table cloth restaurants are part of a chain.
2. The manner in which high traffic levels in casual dining are driving higher
sales per outlet when compared to the higher priced white table cloth
sector.
– “People are still spending, they are used to a lifestyle, going out maybe for a
meal or for a coffee and have migrated down to the value offer.”
– “I think many restaurants offer poor value for money, often you are paying
the price of a fillet steak for a chicken curry and rice.”
Trends in the channel
After a period of healthy annual growth in the five years to 2008, FSR as a whole
had a torrid time in the recession driven 2008 to 2010 period, falling by some 16.8%
per year. But as the chart below shows, this disguises two very different
performance levels. Casual dining grew at a far faster rate (9% CAGR) than white
table cloth (WTC) in the pre-recession years. It did not escape the dire effects of the
recession but declined at a far lower rate (-7.9% CAGR compared to WTC‟s –18.3%
CAGR) over the years 2008 to 2010. It has also come out of recession faster –
achieving a forecast turn round with 0.9% growth in 2011, compared to continued
decline in WTC.
There is also a strong consensus among operators that there would have been an
upturn in sales in 2010, if not for weather factors beyond their control – notably
volcanic ash clouds making holes in the tourist trade and snow causing a severe
dent in the crucial Christmas period:
“Last year was a very poor year for tourists between the ash clouds and the
December snow.”
“Christmas and the New Year really killed everybody which meant last year was
flat with a slight decline.”
“The summer in general, the three months, we were considerably up viz-a-viz the
previous year even before the tourist bubble blowing.”
November 2011 77
Annual growth rates in market value
The better performance of casual dining when compared to its more upmarket
counterpart has been driven by:
Its consumer perceived better value offering;
Its greater flexibility in responding to the recession, particularly in relation to price
and meal deal offerings;
Its closer alignment to the lifestyle requirements, particularly of the younger
generation of Irish consumers.
Casual Dining sales 2003 to 2010 at consumer prices
Sales
2003 (€m) Sales
2008 (€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
White Table Cloth 739 826 2.3% 551 (18.3%)
Casual Dining 85 131 9.0% 111 (7.9%)
Total FSR 824 957 3.0% 662 (16.8%)
ROI 610 730 3.7% 444 (22.0%)
NI 214 227 1.2% 218 (2.0%)
There has been a considerable difference in performance between the North and the
Republic, with the market in Northern Ireland far more resilient, while the South
traded down:
“In Belfast we would sell maybe 400 steaks a week and down here maybe 85. In
Belfast it has stayed the same all through the recession while down here it
changed to maybe a double burger.”
9.0%
(7.9%)
0.9%2.6%2.3%
(18.3%)
(2.9%)
(0.2%)
(20.0%)
(15.0%)
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
2003-8 2008-10 2010-11 2011-15
Casual dining White tablecloth
78 November 2011
Underpinning the move into casual dining are three key consumer trends identified
as also driving the on-the-go foodservice market (see earlier section), namely:
The continued de-structuring and greater informality in eating habits and meal
occasions:
“There is a move away from the formality of things, for example eating dinners
out with a number of courses.”
“Most of the things doing well in Dublin are informal.”
Consumers trading down to lower cost eating out:
“We see it every day, consumers are more price focused, they are more cost
conscious.”
“I think it’s about value for money.”
“They expect more now, they expect better service, better value for money.”
Consumers accepting the stress in their current lives and recognising the need for an
occasional low cost treat – in this case a served meal rather than possibly a coffee
and a bun in the on-the-go sector:
“Our regular customers see this as a sort of treat.”
“People still want a treat but they want it for less money.”
The same general trends are impacting on both casual dining and on-the-go, the
consumer is simply identifying them with different outlets types to meet their different
meal occasion needs during their busy and often stressed days and weeks.
Channel structure
Outlets
There are currently estimated to be 450 casual dining outlets in the IOI, 14% of the
FSR universe.
Exact breakdowns of casual dining by outlet type or cuisine style are not available,
but our best estimates indicate that the dominant types are pizza restaurants and
European restaurants (in which Irish is the dominant type of cuisine). These two
jointly account for 76% of the market.
November 2011 79
Casual dining sales by cuisine
Operators in the European segment tend to describe their cuisine as “Modern Irish,
modern European” rather than typical “traditional fare.”
Key players
Key operators within casual dining include:
Avoca Handweavers
Brambles
Captain Americas
Café Mao (EE Group)
Chick King (AIL Group)
Dunne & Crescenzi
Gourmet Burger Kitchen (AIL Group)
itsa
Kylemore Cafés
Kays Foodhall
Milano/Pizza Express
Nandos
TGI Friday (EE Group)
Hard Rock (EE Group)
Wagamama
A number of these players have a variety of offerings in the market:
Some – such as EE and AIL operate a number of branded casual dining formats;
Some, such as itsa, Kylemore Cafés, and now EE Group with its Starbucks
franchise, span both casual dining and on-the-go formats.
Further information on many of these operators can be found in Bord Bia‟s Irish
Foodservice Market Directory.
Pizza41%
European35%
Asian13%
North American11%
80 November 2011
Operator insights
We noted in the on-the-go channel section, how outlet viability is driven by traffic
levels, meal occasion and spend per occasion. These are the three core elements
that drive profitability.
However, within casual dining the key factors are:
Traffic; and
Spend per occasion.
For much of casual dining the occasion is fairly fixed (around lunch and evening
meals) at the current time and success revolves around the outlet‟s ability to build
and maintain traffic and spend per occasion.
During the recession operators have focussed on maintaining traffic levels and to
this end they have sacrificed price in terms of meal offers, discounts and even
reduced prices. Customer increases have not been sufficient to offset price losses,
but have been sufficient to keep most in business and relatively healthy.
However, as noted earlier, operators are increasingly looking at other day parts to try
and extend their opening time, and the ability to extend casual dining occasions
could become a significant opportunity for suppliers to add value as well as volume
to their offering.
“We don’t do a lot of take-out but I have heard it’s a trend. That seems to be the
future and we want to adapt our business to this trend.”
“In London, one place I went to has an all day menu which I thought made a lot
of sense.”
The other major element operators have examined and continue to revisit is their
internal cost structure. Restaurant overheads are generally higher in casual dining
than in on-the-go and suppliers who can assist with products that reduce labour
costs and where possible the proportion of back-of-house space required without
impacting on quality would have a significant advantage.
“Keeping your costs down is a big thing, your staff, your rent and all that, it’s an
area of the business we are always looking at to refine and to do better.”
Customer demand maps
As with the on-the-go analysis within this report, suppliers to casual dining need to
build two considerations into their thinking:
1. What drives casual dining operator’s decision making?
As outlined above this has been achieved essentially by maintaining customer
footfall by being flexible and innovative on price.
November 2011 81
2. What drive the operator’s customer’s (i.e. consumers) decision making?
As far as consumers are concerned the key drivers are overwhelmingly seen as:
– Value for money
“It’s value for money at the end of the day, consumers want value.”
“I would say our strength is really good quality food at a good price.”
“We are careful that we sell the best we can buy and at a fair price for a
good product.”
“We have brought the prices down, we have not brought the quality
down.”
– Service levels
“Efficient service, people want efficient, friendly service.”
“It’s customer service – don’t make a fuss but make sure things are
looked after properly.”
– In tune with today
“More casual dining, small portions, lots of variety.”
“There is a comfort zone, you are going to sit and chat with your friends,
you do not think there is a time limit and you are not paying a fortune for
the food.”
Key casual dining drivers today
Maintain footfallPrice
competitive
Value for money
Service levels
In tune with today
Traf f ic magnets Control costs
82 November 2011
In this process of maintaining the business in a difficult economic environment while
continuing to satisfy customers, casual dining operators have found themselves
between the proverbial “rock and a hard place.”
The rock is the traditional foodservice view that they need to control all elements of
their business – and none more so than the value added functions of food/meal
preparation.
Casual dining is the successful sector that fits between the:
– On-site (higher cost and price) food preparation model of white table cloth
FSR – which is its heritage. Here casual dining is winning today as
consumers trade down, and
– the lower cost and convenient food assembly model supplied by QSR –
which has the cost base and speed to serve to which casual dining aspires.
But the processes and system which it rejects. Here casual dining must
learn to compete effectively in the long term to maintain its market.
The hard place is the need to control cost – food and staff cost – within a price
constrained market. Casual dining in Ireland is still heavily chef driven or influenced
at the present time and as a consequence relatively little pre-prepared and
outsourced food is used, in contrast to its counterparts in other countries where
casual dining is well established. Even in France, the home of fine cuisine, the out-
sourcing of large parts of the casual dining menu is commonplace.
The operators who manage to bridge this divide – who best utilise the skills of others
in the chain to supply the needs and wants of their customers while not sacrificing
quality and flexibility will be tomorrow‟s key success stories.
Supply structure and Route to Market (RTM)
Relatively small volumes within casual dining are sourced direct from producers –
the vast majority is sourced from the delivered wholesale sector.
In this market there is a basic split in supply chains employed. Many of the
operators will source via the national wholesalers for their standard and processed
lines but go direct to either specialist wholesalers or local producers for speciality or
signature products. This last element might be, for example locally sourced produce
or meat, or it might be Italian specialities.
“We deal with the national guys for a lot of stuff, then we deal with the individual
specialists.”
The remainder prefer to deal with a wider mix of smaller wholesalers and local
producers.
November 2011 83
There is little similarity between the characteristics of the players in each group to
drive this supply route choice – it seems to be mainly driven by the beliefs and
experiences of the key buying decision makers, who might be the owner, manager,
buying manager or chef.
Sources of supply
Whichever route is taken there is a clear acceptance of the importance of suppliers
and supply relationships:
“You have to have a good relationship with your suppliers.”
and the improvement in wholesaler performance that has taken place over the past
few years:
“The wholesalers are all more competitive now, more service orientated.”
The key attributes sought from wholesalers and suppliers are very similar to those in
the on-the-go channel. They are:
Quality;
Service;
Reliability/consistency;
– “It’s no use them saying they have it and then they’re out of stock.”
Price.
“They need to be very flexible for us, they need to deliver what we want when we
want it, and cheaply. It’s a balance of quality, price and consistency. If they cannot
do it one week out of twelve, then it’s not acceptable.”
60%
40%
0%
25%
50%
75%
Sourcing f rom major wholesale Sourcing f rom smaller players
84 November 2011
Operator strategy
The underlying strategy of many casual dining operators has been driven by the
knowledge they have a winning proposition as far as significant numbers of Irish
consumers are concerned, as is evidenced by their pre-recession performance.
They also know they have a potentially winning proposition in today‟s cash strapped
environment in that they are significantly cheaper than white table cloth restaurants
and have superior service and ambiance to QSR. Their response has been to
maintain traffic levels by ticket price reductions and meal deals to encourage existing
customers to continue to dine out with them, and to lure white table customers who
are trading down.
“Yes we have a fine dining restaurant and it’s a disaster, it’s running at a loss.
You know what’s strange, our fine dining restaurant is the same price as our
other restaurants, but people see it as a fine dining experience and they seem to
be avoiding them. It’s psychological more than anything else. People don’t mind
a little treat though, it’s seen as indulging. The future is more casual dining,
small portions, lots of variety.”
“We introduced the €15 two course offer and I doubt we will ever lose it, because
it’s what brings people in, whether they buy it or not. Tuesday to Thursday it is
between 40% to 60% of sales and on weekends it’s down to 15%.”
“We are looking to have plenty of things at around €9-10 and make them smaller
portions, so maybe people will have a dessert as well – but again make that
smaller.”
“We do value promotions now and again. We might have a soup and a sandwich
combination.”
“Within the restaurants we’ve been offering the early bird.”
“It’s value for money at the end of the day, they want value for money.”
In this process operators have been mostly successful, with a majority reporting
increases in customer visits. However the downside of meal offers and reduced
prices has been to reduce the price per consumer occasion, which has in turn
resulted in initial falling revenues despite the increased footfall. The sector now
seems to be coming out of that particular conundrum but will have to price
conservatively over the next few years in order to avoid eroding the gains they have
built.
Channel outlook
While it is unlikely that casual dining will become the largest part of the FSR channel
in the foreseeable future (despite its much higher growth rates), its future does seem
assured.
November 2011 85
What also seems highly probable is that it will break out of the FSR channel as other
“distressed” parts of foodservice seek to build custom and value by taking on the
attributes of casual dining. The main channel where this is likely to happen is Pubs,
where sales have been under significant pressure. Exactly the same trend was
apparent in the UK some years ago, when many pubs learned to wear the “cloths of
casual dining” to stay in business as the channel restructured to compensate for lost
traffic and alcohol sales. We have not factored this movement into our outlook, but it
is certainly a situation we anticipate seeing emerge.
We can also see many casual dining establishments, provided they have the right
locations, extending their consumption occasions into other day parts – with
breakfast and those relaxation coffee/cake breaks the obvious targets. Just as we
have indicated the blurring of boundaries between the on-the-go outlet types, we
also predict a blurring around the boundaries of on-the-go and casual dining.
“Certainly for us the main product development has been the take-out.”
“We see the food-to-go as being key to future growth.”
“We are seeing trends moving to food-on-the-go.”
“We don’t open until 12, but the afternoon is quite strong for coffee. We have a
sandwich option which runs up to 5 pm. We haven’t pushed that 11 o’clock
market for scones and coffee.”
“We set out this four item breakfast with free toast and tea or coffee and we set a
price point of €4.95, and we haven’t looked back since – it was a huge turning
point. It’s been the single most successful thing we have done across the
company.”
Forecast Casual Dining sales: by segment (at consumer prices)
Sales
2010 (€m) Sales
2011 (€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
White Table Cloth 551 535 (2.9%) 539 0.2%
Casual Dining 111 112 0.9% 124 2.6%
Total FSR 662 647 (2.3%) 663 0.6%
ROI 444 434 (2.3%) 445 0.6%
NI 218 213 (2.3%) 218 0.6%
As a point of interest, in the UK casual dining sales are valued at €3.1 billion. The
sector accounts for 40% of total FSR revenue and 56% of outlets.
If anything like the UK growth path is followed, the long term Irish potential is
immense.
Successful suppliers to Irish casual dining will also have a large UK market on
their doorsteps into which to expand.
86 November 2011
It is also worth noting that casual dining accounts for 27% of the French FSR
market and because FSR is several time larger in France than in the UK, this is
worth €5.4 billion.
In Ireland‟s two nearest neighbours the market for casual dining is valued at a
combined €8.5 billion – larger than the entire Irish foodservice.
November 2011 87
Channel product usage
Food and beverage split
Food accounts for €84 million of the €111 million casual dining market (at consumer
prices). Beverages account for the remaining €27 million.
Beverages are seen as the more price sensitive segment in today‟s environment:
“Drinks are very price sensitive.”
“We haven’t put up our (beverage) prices, in fact we reacted immediately and
lowered our drink prices as people became obsessed with their price.”
Casual dining sales by food & beverage split
“Food is doing better than beverages, except in the city centres. In our city centre
locations liquor has gone up.”
Generally alcohol sales have suffered in recent years, and wine has suffered the
most:
“Glasses of wine used to be our number one seller but now it doesn’t even
register in the top 70..”
“We are looking at a lot of mineral water now, and soft drinks, fruit juices and non
alcoholic cocktails.”
The principal reasons for this are that consumers now seem unwilling to accept the
foodservice price differential when compared with retail; in addition, a higher
proportion of casual dining meals are family occasions.
“People at home can buy a bottle of wine (from a supermarket) cheaper than I
can. The same with bottles of beer.”
“It seems to be families, not couples.”
Food sales76%
Beverage sales24%
88 November 2011
Just as food rules in the casual dining universe, so savoury rules in the food
universe. The majority of food in casual dining is savoury – valued at €72 million,
with sweet food coming in at a further €39 million (consumer buying prices).
Casual dining food sales by taste split
Currently a key concern among many operators is meal size. There is an
acknowledgement that portions are too large, that they are in fact often larger than
can be consumed, but that reducing portion size could impact on perceived value by
customers – although clearly having a beneficial impact on cost and potentially, meal
price:
“I think we are guilty of giving huge portions.”
“It’s is one of those awkward things, if we cut back the portions people think you
are trying to take away from them.”
“Is this little old lady really going to eat a lot, but if you get a big rugby player next
to her...”
“With the opening of new outlets, we can then change the way we do things, we
can look at smaller portions.”
“We are looking at things at around €9-10, and make them small portions, so
maybe people will have a dessert as well, but again make it smaller.”
Product category size
Main meals account for 50% of food sales, with both starters and desserts coming
under pressure from the impacts of the consumer recession.
“It would be appetisers and mains, appetisers and mains all the way down the
line.”
Savoury food65%
Sweet food35%
November 2011 89
It has become increasingly rare for a casual diner to consume three courses, one
course for lunch and two for an evening meal has become the norm, although it has
become more normal for people to share either a starter or a dessert (and
sometimes both).
Casual dining sales by meal component
“A lot of people come in here and have one dessert between two, or have a
plate of salad and share it.”
“One of our strengths is that they can come and spend as little as they want but
can still meet their friends for lunch. They can just have a main course or a salad
or something.”
“I would say around 40% will not have a main course, they will have some soup
and a salad or bread and pâté at lunchtime.”
This is perceived to be more acceptable behaviour in the relaxed atmosphere of a
casual dining outlet than it is in a white table cloth restaurant.
However, the above breakdown is an average and it should be noted that the
proportions consuming particular meal components vary according to different times
of the week, with desserts in particular far more popular at weekends; and by
seasons:
“On Sundays desserts might be 30% of turnover whereas on Monday it might be
15-20%. It’s a treat.”
“Premium desserts are for weekends. You would certainly see them on
Sundays.”
“In winter I would say 35% of our savoury sales would be soups, compared to 20-
25% in summer. But salads tend to be consistent throughout the year.”
Starters35%
Mains50%
Desserts15%
90 November 2011
There is also a wide variance in types of food consumed from operator to operator,
chain to chain. Each casual dining player has set out to develop its own unique
concept as far as is possible and as a consequence the meal offering varies
dramatically with very little unity across the sub channel. For some, soups will be
significant, for others it is salads, for others still it might be burgers or pies. As an
example the following is the food type breakdown of one chain, but as mentioned,
this should be seen as indicative rather than representing the breakdown of the total
casual dining channel:
Sample chain food and beverage breakdown
This data is for the chain as a whole, there was also considerable variation in
revenue composition by food and beverage type from outlet to outlet within the chain
– driven by the differing customer profile by location.
Product case studies
Desserts
Desserts are seen as pure indulgence – a treat without any health connotations or
guilt trips:
“It’s (desserts) not the healthy options, the Irish love cream and chocolate.
Tiramisu would account for half our dessert sales.”
“Pavlova would be the most popular, followed by apple cake and strudel.”
However, the volume of sales is heavily dependent on day of the week, with a
pronounced skew to weekends:
“It’s Friday, Saturday, Sunday when desserts might be 40% of our sales and by
Monday 20%.”
18%
9% 10%
20%
33%
10%
0%
5%
10%
15%
20%
25%
30%
35%
Hot beverages Cold beverages
Soups Salads Hot food Cakes & desserts
November 2011 91
“At the start of the summer when everyone is dieting dessert sales will drop right
back and in advance of Christmas, sales will drop-off.”
But they are the meal element that has suffered most from the recession as
consumers go for one course only, or share a second.
A significant proportion of desserts are outsourced, maybe as much as 40% to 45%.
“Yes, nearly all desserts are bought in. They are usually a small part of our
menu. They would be less that 5% of sales.”
However, the operator base is divided between those for whom desserts are not too
important and can be delegated to others, and those who see them as a key point of
difference:
“We spent a substantial amount last year putting in our own bakery because at the
time we were spending a lot on patisserie products, and we brought that all in-house.
It wasn’t done specifically to increase margins, it was felt we could control the
product on a cost neutral basis.”
Ready meals
Ready meals do not feature with any prominence in most casual dining repertoires.
There remains a heavy emphasis on preparing and cooking food on-site from basic
ingredients, although a number of operators do run central kitchens for meal
preparation, with final cooking or meal warming undertaken at the individual outlet.
Large parts of casual dining menus lend themselves to outsourcing of the labour
intensive and high labour skills components:
“Pies are still your most popular item – cottages pies, shepherds pies, beef and
Guinness are your most popular. Pies would be our staple mains.”
The challenge for Irish suppliers is that to supply ready meals to casual dining at cost
effective prices requires sufficient market size to realise economies of scale in
production. Given the fragmented nature of much of the casual dining offering that
scale is not there – yet.
What is certain is that, as demonstrated clearly by alcohol sales, consumers will not
pay large premiums for ready meals served in foodservice if they can buy the same
in retail at a fraction of the price. The meals have to be seen as distinct in
appearance, composition and taste, or the operator will lose his consumer franchise:
“It comes down to “I cannot cook that thing.” When you get a tikka masala you
cannot cook that at home. Whereas if you go in and get a pork chop and
vegetables for the same price they don’t see the value in that because they can
cook it at home.”
92 November 2011
Product development
One of the closest parallels to casual dining is the fashion industry. In fashion,
fielding last season‟s range would bring instant demise. In casual dining, the market
is constantly evolving and last year‟s cuisine is often seen to be stale.
We flagged earlier in this study the three consumer industries benefiting most from
consumer trends are fashion, health and leisure. Casual dining needs to see itself
as an adjunct to the fashion industry as well as part of foodservice – it needs to
constantly update, to excite and titillate its audience with new offerings. Many are
doing this already:
“Two years ago it was burgers, before that it was bagels, these things come and
go.”
“We work hard at maintaining quality, at trying new and innovative things,
incorporating new ingredients and trying out new ideas.”
“Trying to be innovative and try new ideas for our customers. Saying nobody
else has this.”
“We’re flexible, we’re happy to changes things if they don’t work.”
Currently most of this product development is done in-house, with concepts evolving
and new menu items added. However, according to many operators, the key brake
on new product development is their customers:
“The Irish are traditional consumers – they like meat and two veg.”
“I think we are quite traditional and resistant to change.”
“I’d say the Irish don’t really like spicy food, they don’t like hot food. Yes they
think they like curry, but it’s very mild. A madras would be too hot.”
“I do not find they have a very sophisticated taste.”
“We (as a nation) are hard pushed to tell the difference between Thai and
Chinese.”
“We try and put on things like lemon syllabub and nobody knows what it is, so no
one buys it.”
“Chicken is such a staple it is a default choice for many customers.”
Innovation trends
As far as innovation is concerned there are two markets in Ireland. In the major
cities – Dublin, Cork and Belfast – the populace is more cosmopolitan in outlook and
open to change. The rest of Ireland is seen to be more conservative and inflexible in
their food wants.
November 2011 93
“In Dublin the people are more adventurous, but when you leave Dublin and go
to the country, people there are not as much into new trends.”
As a consequence innovation is focussed on the cities and suburbs, with more
traditional fare in the rest of the country.
At present, innovation is largely driven by a me-too approach. Perhaps
unsurprisingly in these troubled times, operators are reluctant to be a first mover with
new concepts, preferring to take the lower risk route of copying other‟s success
rather than inventing themselves There is a strong appreciation that the Irish
consumer is very traditional in his/her food tastes and cuisines and the typical
operator will look to see what is happening abroad that can be adapted to the Irish
market.
As a consequence, there are strong leanings towards further development in Asian
style food:
“There has been a big uplift in ethnic foods, Thai food, Indian, Eastern cuisine.
They seem to be the growth areas.”
“I think we will see two main trends food-wise – classical dishes well executed
and then new fusion dishes.”
“Flavoured, street style food.”
“Consumers have been travelling the world, now they are coming back. There is
also the influx of new people. Generally the Asian product is good, people like it.”
North and South America are also seen as sources of inspiration:
“One of the big things is soul food.”
“Mexican is probably one of the ethnic cuisines that could take off.”
“The Tex-Mex, thing I would like to see us boost that up. I would like to see
more burritos.”
Unlike on-the-go there is a divide on the impact of healthy food in casual dining and
the jury seems to be out on its potential impact.
For some the importance of health is low:
– “If we have a healthy option on we might sell one a week.”
“They do not come to us for healthy options, they come for a dirty great
burger and fries.”
– “I look at other concepts when I’m in London, like frozen yoghurts. You
would think you would need it with a full fat ice cream on the side to sell
here.”
94 November 2011
For others it is a movement that is just emerging:
– “The whole healthy eating thing is starting to take hold, but you can’t force it
down someone’s neck.”
– “We keep trying, and we will try again in the Autumn.”
– “It’s a nice idea for those who really want it.”
For the third group it is to be embraced:
– “We are putting a huge emphasis on gluten free.”
The positions taken by operators on the health trend seems to be driven either by
the personal perceptions of the operator or by the position of their concept on the
health scale.
Irish and local product is also seen as a trend, with frequently product source listed
on the menu as a value adding conformation of quality:
“More Irish product, supporting the local butchers and farmers.”
“There are so many Irish cheeses, and now they are being used.”
Solution potential
Clearly all operators are looking for solutions to their problems, but for many in
casual dining it has not reached the stage where they are prepared to outsource
large elements of meal preparation and production. This is still, with a few notable
exceptions, performed in-house.
This and the potential growth of the channel suggests that it has considerable
potential for value added suppliers as operators move from basic ingredients to
product solutions in meal provision.
Initially this is likely to revolve around products such as readymade sauces and
flavourings which can be combined with on-site prepared meals. The next stage
would be the provision of complete entrées.
The key to supplier success will be the correct identification of specific operator
problems – all solutions to be successful must address a real rather than a perceived
need and this is often a case of getting the timing right. Problems needing solution
could be:
Labour reduction;
Cost reduction;
Improvement to service through increased speed to serve;
Concept enhancement and refreshment;
Menu enhancement and refreshment.
November 2011 95
What is clear is that many outlets – and this includes mid-sized chains - are
entrepreneurially run by owner managers with a food vocation. As the market
develops and their businesses expand, they will need increased levels of support
and professionalism.
The casual dining market life cycle
Channel and customer insights
With all commercial foodservice the mantra is “outlet location is key.” Operators
seek locations with appropriate traffic and customer types and many chains have
complex location evaluation models. Within Irish casual dining the mantra is
“location, location, location.” Operators in the main, there are notable exceptions,
appear to seek locations with good traffic potential and then adjust their concept and
food and beverage offering to fit the location customer base.
“It differs with each location. Across the chain food accounts for 65% of sales but
in some locations it can be 75%.”
“Our business is food and beverage, be it American, Asian, or Italian.”
All this adds complexity and cost to what ideally should be a simple and streamlined
operation. Menus too can add complexity and there is an awareness that this need
to change:
“We have a menu in the morning and then we have to close down that menu to
change for lunch and then again for the evening.”
Market: adolescent
Business style: Professional & market driven
Supply need: solutions, differentiation & value added
Mid-term
Market: maturing
Business style: system & finance drive
Supply need: cost saving
Longer-term
Market: embryonic
Business style: entrepreneurial & vocational
Supply need: quality & value
Today
96 November 2011
“There was an example where we had three types of fish on the lunchtime menu
and then three different types on the menu at night. We should be sensible
about menu planning.”
“I think we’re guilty of having ridiculously complex menus. It worked out as
having 2.5 prepping days for opening on a Thursday night. It’s mad.”
There is also, among many operators, a lack of real marketing activity. There
appears to be an over reliance on loyal customers, word of mouth and location to
build custom:
“We do value promotions now and again, but we don’t advertise it.”
In truth there are a lot of good initiatives going on, but a belief that the right people
will hear about them almost by osmosis.
“We try and do different things through the year. We’ve done a couple of
promotional nights which include a cookery demonstration, a themed night where
we’ve charged €25 for the demonstration and a buffet supper afterwards.”
It‟s a very old adage but having “right product, in the right place, at the right price,
supported by the right promotion” remains the basis of most marketing. Casual
dining does well on three out of the four components, many players could “try
harder” on the fourth. Having said this they have performed commendably in an
extremely difficult environment.
Areas of opportunity
If we look at the dramatic emergence of casual dining in Ireland and its development
in other countries, it is apparent that this will be a major market and a significant area
of opportunity for both operators and suppliers. There is little doubt that the channel
will grow and form a bridge between lower cost and convenience driven QSR and
on-the-go outlets and the higher priced, formal white table cloth restaurant – giving
the Irish consumer a continuum of dining choices.
The downside is that it will have to compete on two fronts, the upside is that it has
three markets into which it can encroach.
November 2011 97
The casual dining market environment
If it is going to fulfil its potential, operators will need to examine their systems and
processes. They will need to identify which are the key competencies they need to
control and which can be done better by others. Here “better” could mean:
To superior standards;
Or at lower cost:
– “Our butcher is offering to cut the chicken for us for not much change in
price, so that’s saving the kitchen, stuff like that.”
This will create great opportunities for suppliers to fill the gaps, but they will need to
think not just of product but also service and roll this into solution provision. This
could take the form of:
Reductions in operator labour requirements and costs;
Reduction in back of house costs and space requirements;
Creating concept excitement by increasing innovation to improve the offering
churn.
Risk and barriers
Casual dining operators and their main suppliers perceive their major risks, and
barriers to further development, emanate from the performance, or lack of
performance in the Irish economy. There is a general acceptance that for the short
term the decline has bottomed out, but that the country is now bumping along the
bottom of a U shaped recovery and that it is certainly not going to be a V shape as
many had originally hoped.
Speed & convenience
Ambience & dining experience
QSR
Casual dining
On-the-go
White tablecloth
98 November 2011
There are three key questions that will determine how high the risks are to be:
1. How wide will the bottom of the U be, before a real upturn in the economy sparks
substantial growth?
2. What will the impact of the Government‟s next budget be?
3. What will the impact of the Greek financial crisis be and what is the probability
that it will drag down other euro countries?
The channel players seems to be confident that so far they have successfully fought
everything the downturn has thrown at them and are now seeing some turn round in
their sales. What they cannot judge is the answers to questions 2 & 3 above, and
this is creating uncertainty.
November 2011 99
Developments by Channel to 2015
November 2011 101
Commercial Channels - Quick Service Restaurants
- Full Service Restaurants
- Pubs/Coffee Shops
- Hotels
- Other Commercial
November 2011 103
Quick Service Restaurants (QSR)
Channel definition and scale
QSR (also known as Fast Food) is the term given to food that can be prepared and
served very quickly. While any meal with low preparation time can be considered to
be fast food, typically the term refers to food sold in a restaurant or store with
preheated or precooked ingredients. It is distinguished within the foodservice market
by:
Counter service (as opposed to table service in full service restaurants).
Limited menus sold in large quantities.
Low price points against other channels.
Systematised operation requiring low skill levels and culinary expertise on the
part of staff.
High levels of cost control throughout the operation including purchasing.
Aggressive marketing strategies.
Definitions however must not be taken too literally, since the entrepreneur operator is
forever changing menus and concepts. Consequently the boundaries of foodservice
channels are always fluid.
How big is QSR in Ireland? (at consumer prices)
QSR channel Sales 2010
€m @ Sales % Chains
Outlets 2010
Avg. Outlet Sales pa Chains
€’000s
Avg. Outlet Sales pa Independent
€’000s
Bakery/General 716 38% 1,543 724 390
Burger 525 94% 362 1,640 545
Chicken 71 88% 58 1,430 700
Fish 117 6% 674 760 160
C Store 598 98% 1,127 530 400
Others 83 5% 167 497
Total QSR 2,110 70% 3,931 770 330
ROI 1,519 69% 2,757 550
NI 591 73% 1,074 558
QSR has been the best performing commercial channel during the 2008-2010
recession. Its combination of hard, discount-driven promotion, efficiency and cost
control have given it a clear advantage over other channels.
104 November 2011
Drivers and trends in the channel 2008–10
QSR benefited from consumers trading down from full service restaurants and other
high ticket venues. In order to do this however, it had to heavily discount on an
increasingly frequent basis and while foot fall increased, average spend was down
resulting in a value loss of just under 4% over the two years.
There is a growing trend for QSR to locate outside stand-alone units to other
channels (Retail, Travel and Leisure). This is particularly true of chains, Supermac‟s
for example are locating to the new motorway service areas that are opening up.
The essence of QSR is the system operation making it slicker, quicker and more
efficient. This is natural territory for chain operators who can then add marketing and
branding expertise to promote a standard, easily understood product.
Thus chains easily outperform their independent equivalents.
Chain sales as a percentage of all QSR sales increased to 70%, although the
ratio of chain to independent outlets remained the same.
Chain sales per outlet are commonly two or three times higher than their
independent equivalent.
QSR TOTAL VALUE 2010
€2.11 billion @ RSP
Food/Drink Eat in/Take away
Outlets Value
Food81%
Drink19%
Eat in 34%
Take Away66%
Chains48%
Independent52%
Chains70%
Independent30%
November 2011 105
While QSR is driven by standardised menus and formats, drink is important. The
recession has seen the emergence of the “meal deal” where food and drink are sold
as a joint item at a single promotional price.
As promotions become more important, so chains and branding increasingly benefit.
QSR is heavily biased towards food, drink is inevitably non-alcoholic.
The take-away facility is dominant over rudimentary eating in (although
McDonalds is changing this trend).
While chains have fewer than half the outlets, they have more than two-thirds of
sales.
QSR sales 2003 to 2010 by segment (at consumer prices)
QSR channel Sales 2003
(€m) Sales 2008
(€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
Bakery/General 528 735 6.8% 716 (1.3%)
Burger 313 522 10.8% 525 0.3%
Chicken 24 68 23.2% 71 2.2%
Fish 143 133 (1.4%) 117 (6.2%)
C Store 566 633 2.3% 598 (2.8%)
Others 78 96 4.2% 83 (7.0%
Total QSR 1,651 2,187 5.8% 2,110 (1.8%)
ROI 1,222 1,640 6.1% 1,519 (3.8%)
NI 429 547 5.0% 591 3.9%
During the boom years to 2008, QSR grew at a compound rate of 5.8% p.a. fuelled
by rising consumer affluence and an aggressive rate of new store openings. The
only exception to this is fish and chip shops, where the rising cost of fish and the
increasing number of alternatives have resulted in continued decline.
In the recession, trends in QSR hardened:
The value of independent outlets fell faster and now represents only 30% of total
channel sales.
Burgers and chicken continued to grow through the recession.
The rise in bakeries was reversed. However, it still remained the most important
segment overall. Additionally, our in-depth research shows bakeries adapting
quickly through 2010 and 2011 to change menu formats and provide on-the-go
options.
This adaptability also applied to C-stores which also introduced new menu
options and look set to grow in the future.
106 November 2011
The decline in fish and chips, coupled with an initial decline in C-stores in 2009
resulted in the channel as a whole losing sales value.
QSR sales 2003 to 2010 by segment (at consumer prices)
QSR channel Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
Bakery/General 716 715 (0.8%) 751 1.2%
Burger 525 526 0.2% 585 3.1%
Chicken 71 71 0% 75 1.4%
Fish 117 115 (1.7%) 105 (2.2%)
C Store 598 594 (0.7%) 602 0.3%
Others 83 80 (3.6%) 83 0.9%
Total QSR 2,110 2,101 (0.7%) 2,211 1.3%
ROI 1,519 1,512 (0.7%) 1,591 1.3%
NI 591 589 (0.7%) 620 1.3%
Forecast 2011
While QSR was forecast to grow by 1% in 2010, the actual result was a slight fall of
1.8% and a further decline of just under 1% is forecast for 2011.
Behind this decline was an increase in traffic, but this was bought at the expense of
heavy “deals” and discounting which depressed overall value
The formats that did best were burgers, where McDonalds, for example, discounted
aggressively and promoted heavily. Chicken also maintained value through the
same tactics from chains such as KFC.
Forecast 2015
The forecast to 2015 is that QSR will be the most buoyant channel. With an average
growth rate of 1.2%, it is forecast to be the fastest growing of the three major Irish
food service channels.
Driving this buoyancy is the channel‟s emphasis on aggressive pricing, coupled with
heavy marketing by chains.
Within QSR, the on-the-go market will grow faster than the channel as a whole and
menu concepts which focus on this will benefit.
November 2011 107
Key implications for suppliers
To be successful in this channel suppliers have to focus on the following:
Systematised supply with the ability to deliver just-in-time against varying
demands.
Low cost production where margins can assimilate frequent discounts and
participation in special offers.
High standard of Quality Controls and traceability down the supply chain.
The influence of “on-the-go” in bakery is important and suppliers need to
anticipate growing demand in innovation for different “carriers” for food. Wraps
and other “non-bread” options are likely to grow in importance in this respect.
November 2011 109
Full Service Restaurants (FSR)
Channel definition and scale
Full Service Restaurants (FSR) is the business of feeding, servicing and entertaining
customers at lunch or dinner. Channel segments include both casual dining and
white table cloth restaurants. Menus offer a complete range of items often using
fresh ingredients - appetizers, soups, main courses and desserts and are
accompanied by a complete wine or beverages list. Cuisine styles are varied and
cover the complete range of European, North American and Asian cooking styles.
Characterised by its set-table service, meals are served on china in a relaxed
atmosphere and may be subject to a certain preparation time. Patrons pay after
having consumed their meal.
Casual restaurants form an increasingly important part of FSR and are examined in
greater depth elsewhere in this report.
A casual dining restaurant is defined as: a restaurant that serves moderately-priced
food in a casual atmosphere. Except for buffet-style restaurants, casual dining
restaurants typically provide table service.
How big is FSR in Ireland?
Although FSR is the third largest channel in Irish foodservice it also has the lowest
penetration of foodservice chains. It remains independent operator dominated and
driven, very fragmented and problematic for direct supplier involvement.
FSR sales in 2010 at consumer prices
Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
European 432 4% 1,930 239 235
Asian 158 1% 910 174 173
Other 72 3% 300 240 240
Total 662 4% 3,140 224 209
ROI 444 4% 2,355 188
NI 218 4% 785 278
As well as being one of the largest channels, FSR suffered one of the largest
revenue declines during the recession. According to RAI (Restaurant Association of
Ireland), trade was down 40% from 2008 to 2010 and many restaurants struggled to
survive.
110 November 2011
As a consequence up-market restaurants have identified the need to move towards
the middle market to survive and middle market restaurants are therefore being
squeezed further. In turn the lower market offering is under threat from QSR as its
customer base erodes through consumer trading down.
This is a direct result of two consumer movements:
Consumers no longer have the same level of discretionary income and
restaurants are having to adapt as a result to either a lower cost proposition (as
they have with their discounting promotions) or position their offering as a “super
treat” occasion.
Consumers are suffering from a social conscience and there appears to be a real
psychological barrier to being seen to frequent expensive restaurants at a time of
general economic hardship and uncertainty. Restaurants need to be addressing
this barrier through emphasising the use and support of local suppliers, the
support of local services etc. They need to use the tools of customer relationship
management.
– A US survey demonstrates that 56% of diners are more likely to use a
restaurant that supports the local community or displays a social conscience.
– Also in the US, campaigns promote the large contribution of the restaurant
sector to the national economy and employment to promote continued
consumer use of the channel.
The lack of large scale players in FSR means that it falls way behind QSR in terms
of concentrated promotional spend and voice and as a result, customers continue to
leak away to the cheaper option. If operators cannot compete in share of voice they
need to compete by being cleverer, for example:
In enlisting supplier assistance;
In full utilisation of the social media.
Drivers and trends in the channel 2008-10
FSR has been hit on two fronts – traffic declined as consumers switched to lower
cost options and operators responded by lowering prices which further impacted on
revenue.
Most restaurants are having to discount their product by way of meal offers and
set meal offers even during peak periods in order to attract custom. Early Bird
offerings are universal.
This means therefore that average spend is down in the region of 5%-10% and the
remaining drop is due purely to lower footfall.
November 2011 111
The dramatic fall in revenue has meant that most operator strategy – particularly in
the white table cloth (WTC) segment – is survival driven. The best opportunities will
be for suppliers that are able to offer products:
That are better value;
Enable cuts in fixed cost;
And/or attract customers.
As stated above – and this is repeated because it is an important issue - the core of
the FSR sector is the independent restaurant operator and during the recession, they
have not had the resources in money or expertise to mount sophisticated promotions
of the kind seen in QSR.
Key FSR characteristics are:
The total value of sales in full service restaurants in IOI in 2010 was €662 million
at consumer prices. Of this, €444 million came from the ROI and €218 million
from NI.
Chains now account for 3% of outlets by number and around 5% of sales value.
The driving force in the segment is still the independent operator.
Interestingly, although by definition these are full service restaurants, some 15%
of their sales value is estimated to be in take away meals, significant parts of
which are in the ethnic section.
Ethnic restaurants have performed better during these difficult times.
Total value 2010 – €662m @ rsp
Food / Drink Eat in / Take Away
Food70%
Drink30%
Eat in85%
Take Away15%
112 November 2011
Outlets Value
Drink plays a significant role in FSR, with a higher emphasis on alcohol. In addition,
increasing numbers of outlets are offering take away facilities as Home Meal
Replacement becomes an accepted meal option.
Barriers to channel entry have traditionally been low – with credit available to both
chefs and business people to open new restaurants. The channel has therefore
always had a relatively high outlet churn with many new openings and a high failure
rate of more than 50% of new FSR openings closing or changing ownership in the
first year of operation. The credit crunch has greatly restricted new openings and
outlet numbers have declined, as have average takings per outlet.
FSR sales 2003 to 2010 by segment
Unlike much of Europe, where FSR is mature, the channel grew in the years prior to
the recession. However from 2008 to 2010 all cuisine styles in the channel declined
substantially, with restaurants in the Republic hit far harder than those in the North.
FSR sales trends 2003 to 2010 (at consumer prices)
Sales 2003
(€m) Sales 2008
(€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
European 571 639 2.3% 432 (17.8%)
Asian 201 218 1.6% 158 (14.9%)
Other 52 100 14.0% 72 (15.1%)
Total 824 957 3.0% 662 (16.8%)
ROI 610 730 3.7% 444 (22.0%)
NI 214 227 1.2% 218 (2.0%)
Of the restaurant types, Asian restaurants have fared slightly better as a result of the
heavily discounted products they were offering, such as “all you can eat” buffets.
However, all restaurants felt the pain over the last two years, with the benefits going
to fast food chains like McDonald's as consumers sought lower priced options.
Independent97%
Chains3%
Independent95%
Chains5%
November 2011 113
Consumers no longer have the discretionary income they once enjoyed and at the
top end of the market, there is a reluctance to spend or to be seen to spend too
much
However, while the decline in sales in ROI was nearly 40% in 2010 over 2008,
the corresponding decline in sales in NI was much less at around 2% which was
on a par with the UK as a whole.
FSR outlook
The rate of decline appears to have lessened greatly in 2011, with a predicted sales
fall of 2.3%. The decline in 2011 over 2010 was similar in both ROI and NI.
Forecast: FSR 2010 to 2015 by segment (at consumer prices)
Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
European 432 422 (2.3%) 430 0.5%
Asian 158 155 (1.9%) 160 0.8%
Other 72 70 (2.8%) 73 1.1%
Total 662 647 (2.3%) 663 0.6%
ROI 444 434 (2.3%) 445 0.6%
NI 218 213 (2.3%) 218 0.6%
Forecast 2011
Restaurants in Dublin have seen an increase in revenue based on higher levels of
tourism, but restaurants in lower traffic areas and in rural areas have continued to
see large declines.
Generally, the trade hope they are seeing the bottom of the current situation, which
is desperate for most operators. Few are predicting a rapid recovery, however.
Forecast 2015
The future forecast is of a minimal growth rate yearly to 2015.
The effects of the recession on restaurants are now being felt in the North also as its
economy suffers from its high reliance on the public sector - which is being squeezed
in the UK.
There is little difference in the value gains expected between ROI and NI, going
forward.
114 November 2011
Key implications for suppliers
The FSR channel is under severe pressure from both loss of customers and the
necessity to reduce prices. It is looking for suppliers who can assist with
products that will improve restaurant footfall by re-introducing excitement into
their offering while maintaining a lower cost base.
FSR operators are being forced to look for value alternatives when it comes to
purchasing. Many still buy fresh produce direct from fruit and vegetable
wholesale markets, with meat delivered via butchers. This channel has also
witnessed an increase in cash and carry purchases in a bid by operators to
better manage their cash flow. Suppliers, therefore, need to review their route to
market.
Industry feedback suggests that suppliers understand the challenges operators
are facing and are becoming more proactive in their product offerings. There
has not been much change in menu types, however. Chefs are looking for
lesser used meat cuts and value options across the board in order to gain the
best value.
Casual dining, while relatively small, has performed far better than white table
cloth (WTC) and will provide a platform for supplier growth going forward.
A key supplier competence will be wholesaler relationships and the ability to
motivate wholesalers to give their product prominence and sales/promotional
support.
November 2011 115
Pubs, Cafés, Coffee Shops
Channel definition and scale
This channel has three main and distinct components, namely:
Licensed pubs (also including clubs and bars) will need little introduction. They
are outlets built and largely dependent on the sale of alcohol for on-premise
consumption. Traditionally they would have had a limited food offering, and in
many pubs it remains fairly basic today. Pubs are characterised by a bar service
and are often seen as social meeting places rather than places of pure
consumption.
Cafés are informal restaurants offering a range of hot meals and made-to-order
sandwiches. Coffee shops, while similar to cafés, are not restaurants due to the
fact that they primarily serve and derive the majority of their revenue from hot
drinks. Many cafés are open for breakfast and serve full hot breakfasts. In some
areas cafés offer outdoor seating
Coffee shops are casual restaurants without table service that emphasise coffee
and other beverages. Typically a limited selection of cold foods such as pastries
and perhaps sandwiches are offered as well. Their distinguishing feature is that
they allow customers to relax, work and socialise on their premises for long
periods of time without pressure to leave promptly after eating, and are thus
frequently chosen as sites for meetings. They are characterised by the
Starbucks/ Costa Coffee formats.
As a channel, it forms a very broad spectrum, but it is a spectrum that has two very
contrasting parts. At one end there are coffee shops and cafés which (as far as any
sectors of the economy can claim) have performed comparatively well (all things are
relative) through the economic downturn. For reasons explained earlier in this report
– among them being their relatively robust performance – coffee shops and cafés
are analysed in more depth in the section covering the on-the-go channel.
At the other end of the spectrum are pubs, which had an extremely challenging time,
with sales falling by 9.2% per annum (CAGR) between 2008 and 2010.
Pubs account for the lion‟s share of the channel revenue – some 86% in 2010 – and
its performance shaped the channel decline of 8.2% (CAGR) from 2008 to 2010.
How big is Pubs, Cafés and Coffee Shops in Ireland?
In sales value terms, the channel is the largest in Irish foodservice – accounting for
34.8% of the IOI market. It is thus very significant, however it should be
remembered that a major proportion of this will be sales of alcohol (beverage sales
in total are circa 75% of revenue).
116 November 2011
Pubs, Cafés and Coffee shop sales in 2010 (at consumer prices)
Sales 2010
€m @ rsp Sales % Chains
Outlets 2010
Avg. Outlet Sales pa
Chains €’000s
Avg. Outlet Sales pa Independent
€’000s
Pubs 1,855 2% 7,610 890 205
Cafés 195 5% 812 280 230
Coffee Shops 98 82% 86 365 185
Total 2,148 3% 8,508 441 213
ROI 1,498 3% 5,558
NI 650 3% 29.50
Total sales in the segment were just over €2.1 billion at consumer prices in 2010.
Around €1.5 billion of sales came from ROI and €650 million from NI. Of the total
figure, the vast majority related to pubs (as indicated above at 86% of the market).
Café sales accounted for a further 9% and coffee shops for 5%.
In outlet number terms the channel is also very significant, with 8,500 sites. One of
the weaknesses of the channel is that only 2% of outlets are parts of chains,
however it should be noted that average outlet sales for chains are much higher than
independent equivalents and they account for 3% of sales value.
Chains are not important in pubs or cafés, but dominate the coffee shops segment.
As noted pubs (-9.2% CAGR 2008-10) in particular have been badly hit by the
recession, cafés (-0.3%) have tended to adapt more easily since they depend on
food rather than alcohol. Coffee shop sales (-2.5%) have been hit by the closure of
Starbucks outlets. However, this was due more to high rental demands, than an
excessive downturn in trade.
November 2011 117
Drivers and trends in the channel 2008-10
Pubs dependence on alcohol sales was under pressure before the recession, but
the need for additional revenue streams has been brought into sharp focus by it.
The lower unit cost of sales in pubs mean that they are highly traffic driven, which
means that good location has become all the more important to survival:
As pub overheads are high (property and staff costs) the volume of footfall is
critical to survival.
Urban pubs, particularly those in Dublin, with their higher traffic potential have
performed better than rural area.
Rural locations for both pubs and cafés have been particularly hard hit.
Discounting has resulted in much tighter margins which rely on higher volumes
of footfall to compensate.
Cafés are more likely to be family run and therefore overheads are more easily
absorbed.
Although food accounts for 30% of channel value, food sales through pubs are
significantly lower and food sales are heavily skewed to cafés and coffee shops.
The important differences between the three key outlet types are:
Beverages, particularly alcohol are the key traffic and revenue drivers in pubs;
Tea and coffee are the mainstays of coffee shops;
Cafés rely on food sales for the bulk of their income;
Cafés and coffee shops are responding to the rise of on-the-go items and the
share of take-away in these outlets is increasing (see the On-the-go section of
the study) whereas pubs are reliant on on-premise consumption.
There are consequently significant differences between channel types in terms of
their business and income streams, but since cafés and coffee shops are featured
elsewhere, we will focus the commentary mainly on pubs in this section.
Pubs, Cafés and Coffee shops – 2003 to 2010 by segment
Pub sales were increasing by an average 2.1% each year pre recession (2008-
2010), but hit the wall as soon as the downturn started, as consumer confidence
disappeared and discretionary income came under pressure. Normally in time of
economic downturn alcohol sales hold-up well, acting as a sort of social pressure
valve. The difference this time is an indication of alcohol‟s changing position in
society.
118 November 2011
Pubs, Cafés and Coffee Shops – Sales trends 2003 to 2010 (at consumer prices)
Pubs, Cafés and Coffee Shops channel
Sales 2003 (€m)
Sales 2008 (€m)
CAGR 2003-2008
Sales 2010 (€m)
CAGR 2008-2010
Pubs 2,026 2,249 2.1% 1,855 (9.2%)
Cafés 183 196 1.4% 195 (0.3%)
Coffee Shops 48 103 16.5% 98 (2.5%)
Total 2,257 2,548 2.5% 2,148 (8.2%)
ROI 1,647 1,885 2.7% 1,498 (10.9%)
NI 610 663 1.7% 650 (1.0%)
The difference in performance between ROI and NI was palpable. NI sales in this
channel only declined by 1% per annum on the back of higher employment, a better
economy and a weak sterling which resulted in more tourism.
Given their recession performance and the changing relationship society has with
alcohol, pubs need to review their business model and question whether they can
prosper long term with such a dependence on one income stream. The answer
when faced with similar problems in the UK was a clear no. While not suggesting
that the UK scenario will transfer completely to Ireland, it does highlight a number of
interesting indicators:
The UK experience is that few alcohol only pubs can survive;
– Over the past decade the number of pubs in the UK has declined
dramatically, most of those that closed were alcohol dependent for the
majority of their income.
– Today in the UK most pubs that rely on alcohol sales will still obtain at least
20% of sales from food (an estimated 30% of the pub stock).
– Large numbers of pubs have followed the casual dining route and now obtain
circa 50% of their income from food (an estimated 60% of the pub stock).
– A significant proportion have gone the “whole hog” and are now classified as
restaurants obtaining circa 80% from food (an estimated 10% of the pub
stock).
Pubs, Cafés and Coffee Shops outlook to 2015
In Ireland, if the current situation persists, pubs are forecast to decline by a further
5.7% in 2011 and then grow by just under 1% (CAGR) per year from 2010 to 2015.
November 2011 119
Forecast: Pubs, Cafés and Coffee Shops – 2010 to 2015 by segment
(at consumer prices)
Pubs, Cafés and Coffee Shops channel
Sales 2010 (€m)
Sales 2011 (€m)
CAGR 2010-2011
Sales 2015 (€m)
CAGR 2011-2015
Pubs 1,855 1,749 (5.7%) 1,697 (0.8%)
Cafés 195 196 0.5% 203 0.9%
Coffee Shops 98 98 (0.0%) 103 1.3%
Total 2,148 2,043 (4.9%) 2,003 (0.5%)
ROI 1,498 1,408 (6.0%) 1,383 (0.4%)
NI 650 635 (2.3%) 620 (0.4%)
The trade believes there are two kinds of consumer in Ireland at present:
Those who have money and are saving it at record levels and not spending
unless they really have to, although this group is in the minority
The other group which is much bigger is those who have no money and little
savings and increasingly have to scrape by as best they can in the face of higher
prices and higher unemployment.
Combined, the two groups result in a much lower disposable income which is felt
throughout the retail and hospitality sectors. As a result, pubs have to depend
mostly on foreign tourism for any green shoots and forecasts are depressed.
“People have been severely stung and will not readily return to the high spending
habits in pubs we had during boom years.”
120 November 2011
Key implications for suppliers
Suppliers have clear choices:
Do they continue to support and supply pubs and risk losses?
Do they support selectively and reduce exposure to the sector?
Do they exit the channel?
The pub sector will need assistance to diversify its income stream and one key way
of doing that is to increase their food sales. For this the sector will need increasing
volumes of food solutions and support.
There is a large potential for increased sales of pre-prepared food, particularly ready
meals.
There is a large potential for longer shelf life products.
There is a move to cheaper food generally within the channel and cost, credit
terms and value and advice will be key elements of the supplier mix.
In menu terms, the trade has seen little change in product mix. People are still
buying meat dishes, however they are looking for lower price offerings and therefore
products such as hamburgers and lasagne, pasta, curries and stews are performing
well.
“It is important however, to remember that maintaining food quality is essential. If
this is compromised to cut down on costs, then there will be impact on traffic and
volumes.”
November 2011 121
Hotels
Channel definition and scale
Foodservice in the hotel and accommodation channel is heavily focused on the hotel
sector, which accounts for 95% of the market. Hotels include both chains and
independents.
Other accommodation forms such as guest houses are covered, but only where they
are large enough (10 rooms or more) and these are few in number. Meetings,
banquets and conferences that occur in hotels are also included.
B&Bs are not covered as their foodservice needs are usually only breakfast items
which they obtain through cash and carry or direct from retail.
How big is Hotels and Accommodation in Ireland?
The channel accounts for 6% of the Irish foodservice market and in normal economic
conditions is one of the fastest growing elements in the foodservice universe and the
least cost driven. It is centred on 3 to 5 star hotels which, when combined, account
for 85% of the market.
Hotel and accommodation sales in 2010 (at consumer prices)
Sales 2010
€m @ rsp Sales % Chains
Outlets 2010
Avg. Outlet Sales pa
Chains €’000s
Avg. Outlet Sales pa Independent
€’000s
4/5* 158 90% 290 613 276
3* 155 85% 448 368 255
2* minus 38 5% 260 88 153
Guesthouse 18 0% 410 44
Total 369 72% 1,408 441 213
ROI 261 73% 996 221
NI 108 70% 412 262
Readers should note the difference in foodservice sales per outlet between 4/5*
hotels and the rest of the market – it is on average 66% higher than that in 3* hotels
and nearly 7 times that of 2* hotels. This is because in these higher star rated
hotels, foodservice is seen as a key revenue centre, it can contribute 40% of hotel
revenue (compared to 7%-10% in 2* star hotels), and revolves around continuous
food and drink provision (breakfast, lunch, dinner, drink and snack breaks, room
service).
In contrast, foodservice in 2* hotels features mainly breakfast and is seen as a cost
and inconvenience rather than a profit centre.
122 November 2011
In normal times the more upmarket hotels are the key target markets:
They are large foodservice centres;
Food and beverages are an important part of their offering and franchise;
Many are parts of chains and have central purchasing, or at the least, central
listing system.
Unfortunately this is the sector that has been hardest hit by the recession and is
currently prone to heavy discounting. The one positive in this scenario is that
upmarket hotel margins on food and beverages are traditionally large and there is
room for pruning.
Because as much as 50% of hotel food sales can occur around breakfast and this is
rarely charged separately but typically priced on a room and breakfast basis,
foodservice in hotels is difficult to quantify. However the sector was worth an
estimated €369 million at consumer prices across the island of Ireland in 2010. This
compares to €505 million in 2008, which represents a dramatic fall of 27% over the
period.
This fall was exacerbated by the fact that many hotels were built on the back of the
property boom and overcapacity has been a consequence. They are now facing
considerable challenges to remain viable over the short to medium term.
While the proportion of chained outlets in ROI is given as 72%, if the chain hotels
currently in NAMA (and operating under management contract) were excluded, the
proportion of chain hotels would be much less.
Currently 2* chains are not important, but could be in the future with the entry of UK
budget chains Travel Inn and Travelodge to the Irish market.
November 2011 123
Drivers and trends in the channel 2008-10
The hotel sector is usually the first part of foodservice to be impacted by recession
as business travellers, tourism and entertainment fall back. This has certainly been
the Irish experience. It is also one of the slower channels to recover.
Despite this, recovering international tourist visits suggest that this proposition
may not apply and suppliers should monitor hotel performance closely.
Accommodation and the level of room occupancy is the driving force in this channel.
Guest volumes govern the volumes in foodservice. However, the overcapacity in
hotels coupled with the recession resulted in “perfect storm” conditions.
In 2008 hotel room occupancy rates were 64%, in 2009 and 2010 this fell to 52% (a
19% decline in the number of rooms occupied) and in 2011 it has recovered slightly
to 54%. Room rates had to be discounted heavily, many rooms were unoccupied as
tourism from UK declined with a strong euro to sterling exchange. Without guests in
hotel rooms, food and drink sales fell as occupancy declined.
While many hotels are in administration, they are still operating and having to
discount heavily which in turn depresses the market further.
The larger and more up-market the hotel, the higher its take from foodservice.
Hotels rely on guest numbers to drive foodservice but are increasingly looking to
meetings and banquets to supplement non-guest income. Events were a major
growth item in the international hotel market prior to recession, but like
accommodation have been heavily hit by cuts in personal and corporate budgets.
Any supplemental income that can be derived has to be beneficial in the short term,
while providing a long term plank for growth as the economy, business and travel
pick-up.
Event catering tends to be a separate cost centre within hotels and the responsibility
of banqueting managers. Although sit down meals are significant, there is a growing
emphasis on snacks and finger food.
Value in the hotel foodservice market is focused on the chained sector and built
around a food offering supplemented by beverages.
Key market characteristics are:
Hotel foodservice is biased towards food and drink is more alcoholic than soft.
While non-alcoholic drinks are less important, hot beverages are important as
they are key to breakfast, meetings menus and room service – but they are often
complimentary at breakfast.
The take-away facility is negligible.
124 November 2011
While chains have around a quarter of the outlets, they have more than two-thirds of
sales. This is because chains are concentrated in the upper end of the market (3*,
4/5*).
Hotel sales 2003 to 2010 by segment
Between 2003 and 2008 hotel sales increased by 55%, key to which was a doubling
of the 4/5* market (increasing its market share from 33% to 44% in the process).
Between 2008 and 2010 these sales gains were lost and the market finished only
slightly larger than on 2003.
During this downturn, the core 3* plus sector suffered the fiercest declines, losing
29% of their annual foodservice revenue between 2008 and 2010.
Hotel sales trends 2003 to 2010 (at consumer prices)
Hotels & Accommodation channel
Sales 2003 (€m)
Sales 2008 (€m)
CAGR 2003-2008
Sales 2010 (€m)
CAGR 2008-2010
4/5* 111 223 15.0% 158 (15.8%)
3* 160 213 5.9% 155 (14.7%)
2* minus 41 46 2.3% 38 (9.1%)
Guesthouse 21 23 1.8% 18 (11.5%
Total 333 505 8.7% 369 (14.5%)
ROI 243 391 10.0% 261 (18.3%)
NI 90 114 4.8% 108 (2.7%)
Hotels were the best performing foodservice channel in the years 2003-2008 when,
for example, an annual average increase of 15%+ in revenue in 4* hotels were
achieved. Much of this was on the back of new openings.
The boom in hotel building from 2003-2008 was in mid and up-market hotels which
lead to channel over-capacity. The over-capacity in this segment has lead to 2011
room rates being on a par with those in 1999. As a consequence, upmarket hotels
have had to discount most in the 2008-2010 recession.
The initial decline in revenue in ROI was precipitous in 2009 while NI held up on the
back of a weak sterling. Subsequently revenue declines in ROI and NI in 2010 were
similar.
Hotels outlook to 2015
Market growth in 2011 is expected to be broadly neutral. Moving forward growth is
forecast to be 1.2% per annum until 2015, with 4/5* hotels leading the charge with an
average growth rate of 1.5% p.a.
November 2011 125
Hotels sales 2010 to 2015 by segment (at consumer prices)
Hotels channel Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
4/5* 158 159 0.6% 169 1.5%
3* 155 154 (0.6%) 159 0.8%
2* minus 38 37 (2.6%) 39 1.3%
Guesthouse 18 17 (5.6%) 18 1.4%
Total 369 367 (0.5%) 385 1.2%
ROI 261 259 (0.8%) 273 1.3%
NI 108 108 0.0% 112 0.9%
Forecast 2011
Fáilte Ireland report 49% of hotel operators believe that business will improve in
2011.
This is borne out by a recovery in tourism numbers of around 5% anticipated in
2011.
Unfortunately, these numbers do not translate into value increase since hotels
are having to discount food as part of total accommodation, food deals and
special deals on breaks.
As a result, the estimate is that foodservice in hotels will still be around the same
level in 2011. However the top of the market is reporting slight revenue increases on
the back of much higher volumes, particularly in tourist areas.
Recovering tourism flows and operator confidence are both very positive signs of a
turn round, even if their outcome is not immediate value gains.
Forecast 2015
Fáilte Ireland and the NI Tourist Board are both optimistic regarding visitor numbers
over the next four years.
It is expected that, with tourism levels rising, hotel volumes will continue to
recover and annual revenues will increase by an average of 1.2% p.a.in the
channel in the period to 2015.
However, this must be put into perspective as this will only see 2015 revenues at
76% of those achieved in 2008.
The issue of over-capacity in the channel needs to be addressed to allow for viability
amongst the remaining outlets over the longer term.
126 November 2011
Key implications for suppliers
Hotel recovery is expected to be slow but steady well into the medium term. Growth
from 2011 to 2015 is expected to be at 1.2% per annum – an increase in annual
foodservice sales of just €18 million over this period.
As a consequence, hotel foodservice strategy is concerned with managing today
and surviving the current and foreseeable market environment – sacrifices on
margins are being made and will continue to be made to generate both
customers and cash flow.
Staffing levels will continue to be cut which will mean that more labour saving
foods and food solutions will be sought.
Industry overcapacity will result in many of the less viable sites closing or being
“mothballed.”
In this environment, sourcing policy will not change very much with hotels looking for
keener and better deals and suppliers who can deliver a better service.
As most hotels use delivered wholesale, the big issue will be credit. Cash is
particularly tight in the hotel sector and credit terms will be a significant issue in
supply choice. Wholesalers will need to be particularly attuned to which hotels have
long term viability :
Successful suppliers are managing their working capital and stocks as well as
debtors.
The trade does not feel that tastes have changed as a result of the recession, apart
from people wanting better value for the same dishes and lower prices.
Most of the changes will be seen back-of-house in meal preparation and the
increased use of pre-prepared meals and meal ingredients.
There is some sourcing of lesser used and lower cost meat cuts, but really hotels
have to maintain quality or risk losing customers, despite having discounted
prices.
Opportunities for supplier innovation are welcome if they reduce cost. Potential
areas of innovation start with breakfast and bakery items. As meetings are
increasingly important, innovative hand-held buffet food and new carriers such as
wraps will be in demand. Ready prepared menu solutions (particularly for meetings
and banquets) are also an opportunity.
Into the medium term, the mantra for those servicing this channel will be cost and
value, credit and service.
November 2011 127
Other Commercial (Leisure and Travel)
Channel definition and scale
This sector contains two dynamic channels which, while still small in terms of sales
value, hold distinct opportunities for suppliers. These are:
Leisure:
The leisure channel is very diverse and comprises cinemas, theme parks,
amusements, tourist attractions, sports venues and clubs, spas, special events,
recreational areas and cruises. The largest sub segments are sporting events
such as those at the Aviva stadium and race track catering such as at
Leopardstown, followed by business and leisure events exemplified by the new
Dublin Convention Centre.
Travel
The travel channel includes on-board and terminus catering for flights, trains,
ferries and buses.
How big is Other Commercial in Ireland?
The other commercial channel was worth €142 million at consumer prices in 2010.
This puts it among the smaller foodservice segments, accounting as it does for 2.3%
of the Irish market. It is made up of €100 million in leisure and events and
€42 million in travel. ROI accounts for €106 million and NI for €36 million.
By its definition, there are no reliable outlet figures, since the category customers
have very different characteristics, (for example an airplane or train is a location,
as is a leisure centre) sales levels and therefore catering needs.
Catering for the larger leisure venues is usually done under contract via a tender
by the contract caterers. Aviva stadium, for example is the subject of a tender.
In the same way, in travel, the rights to operate at key sites will be the subject of
negotiation.
The smaller venues in both leisure and travel will have the same supplier needs,
but on a smaller scale.
In both the leisure and travel channels, beverages play a more prominent role,
accounting for 28% of sales compared to, for example 22% in Hotels and FSR and
20% in Business and Industry (B&I).
128 November 2011
Drivers and trends in the channel 2008-10
While both leisure and travel suffered in the recession, they were not as badly
affected in the short term. It is the long term drivers and trends that are important in
these channels.
Time, speed and efficiency drive the leisure channel. Sporting events for example
last for only a few hours. The caterers are charged with optimising consumer spend
and the number of customers served within a limited time span. The same applies
to airline catering.
Lower labour costs and maximum utilisation are key and therefore ready meal
solutions are critical to avoid the need for expensive skilled catering labour in situ.
Travel has different drivers, for example the meal occasion often spans 24 hours at
some road side locations.
The trend in travel, like leisure, is for meal solutions to be required from suppliers
where expensive labour need not be employed 24/7.
Other Commercial sales 2003 to 2010 by segment
The channel grew consistently by 2.6% per annum in the years prior to the recession
(in European terms this growth rate is low) but the downturn highlighted the essential
differences between the two parts – leisure seen as a more disposable luxury
declined by 18.1% per annum from 2008 to 2010, while the more essential travel
market fell by just 2.3%.
Other Commercial sales trends 2003 to 2010 (at consumer prices)
Other Commercial channel
Sales 2003 (€m)
Sales 2008 (€m)
CAGR 2003-2008
Sales 2010 (€m)
CAGR 2008-2010
Leisure 132 149 2.5% 100 (18.1%)
Travel 38 44 3.0% 42 (2.3%)
Total 170 193 2.6% 142 (14.2%)
ROI 133 152 2.7% 106 (16.5%)
NI 37 41 2.1% 36 (6.3%)
Overall the recession saw a continued decline in events catering in particular as
companies cut back on corporate entertainment and consumers had less disposable
income. In 2009-10 the decline in the sector was driven by wholesale cuts in events
revenue in ROI. The rate of decline slowed in IOI in 2010 and was about the same
between ROI and NI. Travel foodservice held steady.
November 2011 129
The channel declined by an average of just above 14% from 2008 to 2010.
However the larger part of the decline in the recession was almost immediate in
2009 as events were cancelled in response to the economic downturn.
Events decline in 2010 slowed mainly due to the opening of the Aviva stadium,
but the general consumer outlook remained bleak. There was a perceived
reluctance of consumers to be seen to be spending at events such as The
Galway Races which saw particular declines in foodservice spend.
Other Commercial outlook to 2015
The outlook today is a little more upbeat. While 2011 sales in the leisure sector are
anticipated to show falls of -6%, this is at a much reduced rate; and sales in the
travel sector are anticipated to have stabilised. Both sectors are forecast to return to
low growth in the 2011 to 2015 period, based on the assumption of some economic
stabilisation and then slow recovery leading to increased levels of consumer and
business confidence and disposable income.
Forecast: Other Commercial sales 2010 to 2015 by segment (at consumer prices)
Other Commercial channel
Sales 2010 (€m)
Sales 2011 (€m)
CAGR 2010-2011
Sales 2015 (€m)
CAGR 2011-2015
Leisure 100 94 (6.0%) 99 1.3%
Travel 42 42 0.0% 46 2.3%
Total 142 136 (4.2%) 145 1.6%
ROI 106 103 (2.8%) 111 1.9%
NI 36 33 (8.3%) 34 0.7%
Forecast 2011
The sector is still forecasting decline in 2011 as companies and consumers continue
to cut back on events and entertainment. However, travel will be stable this year.
In leisure, the trade still cite the reluctance of consumers to be visible in leisure
spending situations.
In travel, tourist spend (less affected by the recession) is a major factor in its
steady performance.
While it is still early days, the initial impact of the new Convention Centre in
Dublin has been extremely promising, particularly its ability to compete at an
international level and pull in an international customer base.
130 November 2011
Forecast 2015
To 2015 the forecast is for events catering to start to pick up, but at a slow pace.
Thus by 2015 it will still be 25% below 2008 levels in terms of spend. Consumers
will be more cautious in conspicuous consumption.
In travel, the opening of the motorway service areas will boost travel related
foodservice so that this segment will be above 2008 levels of consumer spend.
November 2011 131
Key implications for suppliers
The major challenges for operators in these two channels are twofold:
Sustenance is the by-product of another consumer activity (leisure or travel)
rather than a driver in its own right – that is it does not control its essential traffic
flows.
This is compounded by the fact that those two consumer activities are entirely
driven by economic performance and consumer confidence.
As a consequence, these two channels are largely reactive in their core activities
and have difficulty being pro-active in major ways. However, the positive
opportunity for suppliers is that if fewer people are paying for their services they
need to maximise the consumer spend per visit/occasion so the foodservice
contribution increases in importance.
In turn, the major challenges in supplying these two commercial channels are three
fold:
As adjuncts to the activities and drivers listed above, suppliers are largely
hostages to fortune and need to respond to, rather than influence situations.
Operating in a much reduced and slow growing market will mean increased
competition for a larger share of a smaller pie – which has obvious and ominous
price implications.
The very fragmented nature of the leisure market in particular, with different
operator types - ranging from contract caterers, to event organisers to spa and
amusement centre operators, coupled with different operator sizes means that a
“one size fits all” solution does not apply.
Across the business, the key to survival is value engineering and making what you
produce of a value to the consumer at a keen price – an interesting example of this
in today‟s world of consumer low cost grazing is on-the-go food. In the absence of
this value engineering, key figures in the trade forecast that most suppliers will
struggle.
At the top of the market in entertainment and leisure, people are cautious about
being seen eating out, given the economic recession. More conservative (value)
offerings are called for. However, this consumer behaviour was more evident in
2009/10 and things are starting to look more stable, particularly with the opening of
the Aviva stadium and the new Convention Centre in Dublin – both of which give
access to an international and not purely domestic customer base.
November 2011 133
Institutional Channels - Business and Industry
- Health
- Education
- Other Institutional
November 2011 135
Business and Industry
Channel definition and scale
What is B&I?
Business and Industry (B&I) is defined as catering to the workforce. Offices,
factories and remote sites are the key location segment.
Menus are generally offered in three formats:
fixed menus (mostly in factories);
self-service menus offering choice (mainly in office catering units);
"grab-and-go" and vending operations offering predominantly beverages
adjacent to their place of work.
The channel is characterized by its cafeteria-style service with employees
accustomed to paying before consumption.
Other divisions in the channel are:
Canteens/Cafeterias: this segment is part of the B&I channel which behaves in
a similar manner to a casual dining restaurant. They are mainly in the business
of feeding people quickly at lunch during working hours. Guests are served
directly at counters and then carry their meal on a tray to the table (self-service).
Generally, they involve high volume kitchens serving set menus and meals in a
short period of time to a large number of people who need to eat quickly. Meals
are often either completely or partially subsidised by the employer.
Table Service: is the segment in B&I that is in the business of serving limited
menus in a seated environment to office workers - mainly management and
visitors. This segment behaves similarly to white table cloth restaurants with the
difference being that meals are served within an office facility, either managed by
the company in-house or outsourced to a contract caterer.
Traditionally this category has been split by offices and factories, but over the last 20
years, the segmentation criteria has to account for the demise of blue collar and rise
of white collar jobs. In particular the movement from agricultural rural and
manufacturing based employment forms to a service orientated economy has
transformed workplace catering. As a result, unit site sizes have become smaller,
meal provision has decreased and meal times have become more flexible. Size of
workplace is now the key metric.
136 November 2011
How big is B&I in Ireland?
Business and Industry is a significant part of Irish foodservice – it is by a
considerable margin the largest channel in the non commercial (or cost) part of the
market, and the fifth largest channel in total foodservice.
B&I sales in 2010 (at consumer prices)
Business & Industry channel Sales 2010
€m Outlets
2010 Average Outlet
Sales pa €’000s
Small Businesses 7 300 23
Medium Businesses 70 980 71
Large Businesses 243 550 442
Total 320 1,830 175
ROI 223 1,380 162
NI 97 450 216
The channel was worth €320 million in 2010 at consumer prices. B&I is very heavily
dependent on the state of the economy. In hard times, it is one of the first areas
targeted for cost savings and has become one of the major victims of this recession,
with foodservice sales falling to pre 2003 levels.
The channel is heavily skewed to large businesses, which are often located out of
town with limited access to alternative eateries off site.
Large businesses (above 250 workers) account for 30% of outlets, but 76% of
sales value;
Small and medium sized businesses have a greater propensity to be in town and
employees utilise commercial foodservice outlets to a far greater extent.
Contract catering has successfully penetrated the channel in both ROI and NI and it
now constitutes 75% of the business.
The three main contract catering global players ARAMARK, Compass and
Sodexo have more than 90% of the contract catering market by value.
November 2011 137
Drivers and trends in the channel 2008–10
The channel is very dependent on the level of economic activity generally and has
been further hit by higher unemployment and lower disposable income.
In the recession, while the value of food consumed in the workplace has declined
greatly (falling by an average 13.2% per annum from 2008-2010), contract caterers
seem to have been more resilient.
This may be ascribed to the fact that they have longer fixed price contracts
rather than daily deliveries and they also provide other services such as
janitorial, reception etc.
They also benefit from the significant advantages of scale in purchasing.
Some employees are now bringing lunch to work in an effort to reduce spending.
Firms themselves are having to pare down menus to save cost.
Most B&I foodservice sites prepare and cook on-site and use suppliers via centrally
negotiated deals that deliver both specialist (meat) and general products to the
actual workplace, rather than centrally.
Delivered wholesale to B&I seems to have been particularly badly hit by recent
developments.
B&I sales 2003 to 2010 by segment
Between 2003 and 2008 B&I grew by a healthy 4.5% per annum, with most of this
growth located in the ROI. However the recession has hit hard on the sector, with
company subsidies cut and employees going for the lower cost alternative of
bringing their own food to work.
As a result between 2008 and 2010 sales fell by 13.2% per annum.
B&I sales 2003 to 2010 (at consumer prices)
Business & Industry channel
Sales 2003 (€m)
Sales 2008 (€m)
CAGR 2003-2008
Sales 2010 (€m)
CAGR 2008-2010
Small Businesses 8 10 4.6% 7 (16.3%)
Medium Businesses 75 90 3.7% 70 (11.8%)
Large Businesses 258 325 4.7% 243 (13.5%)
Total 341 425 4.5% 320 (13.2%)
ROI 230 302 5.6% 223 (14.1%)
NI 111 123 2.1% 97 (11.2%)
138 November 2011
Although the B&I channel was worth €320 million at notional consumer prices in
2010, this is actually below the level it achieved in 2003. Just as ROI led the growth
pre-recession so it was the hardest hit by it, recording a 14.1% annual decline (2008-
2010) compared to the North of Ireland‟s 11.2%.
B&I prospects to 2015
Future prospects are conservative for the channel. The fall in value is anticipated to
have slowed in 2011, although is still significant at 10.3%. The four years to 2015
are forecast to see the end of falling sales and a return to some stability, but very
little growth.
B&I sales 2010 to 2015 by segment (at consumer prices)
Business & Industry channel
Sales 2010 (€m)
Sales 2011 (€m)
CAGR 2010-2011
Sales 2015 (€m)
CAGR 2011-2015
Small Businesses 7 6 (14.3%) 6 0.0%
Medium Businesses 70 62 (11.4%) 61 (0.4%)
Large Businesses 243 219 (9.9%) 223 0.5%
Total 320 287 (10.3%) 290 0.3%
ROI 223 199 (10.8%) 201 0.3%
NI 97 88 (9.3%) 89 0.3%
Forecast 2011
It is estimated the decline of B&I has continued at around 10% in 2011, which will
see the value of the channel fall to €287 million.
The biggest declines are in small businesses where foodservice values are
estimated to be down 14.3% in 2011. To cope with economic downturns, many
firms were forced to cut their meal provision altogether or to reduce subsidies.
Large businesses had the same issue to face but were helped by contract
caterers in instituting cost saving measures to protect the meal facility.
Forecast 2015
As the economy recovers, it is expected that B&I will also recover in line. However,
the rate of recovery is likely to be slower than the growth rates recorded prior to the
recession. New habits among employees of bringing their own lunches which were
previously bought on site are expected to remain for some time.
Many small companies have ceased catering altogether and fewer companies are
able to contract out. However, larger companies may represent an opportunity for
contract caterers to take over their in-house facilities as they seek to cut overhead
cost.
November 2011 139
Key implications for suppliers
This channel is now exceptionally cost driven – even contract caterers have had to
discount value prices by up to 10 per cent for the same offer which means they had
to find cheaper supply and cut overheads to maintain the business.
There is a difference between large and small businesses:
Small businesses are reconsidering the provision of catering services.
Larger businesses, often because of location, have no choice but to offer a
foodservice option, but there are significant cost pressures.
There is an opportunity for suppliers to innovate with value meal options to lure
those employees that are bringing their own lunches back to the canteens.
The value of foodservice in B&I has fallen by 32% since 2008. Not only is there a
cost pressured customer base, there is also massive over supply capacity. It will be
difficult to make reasonable margin in the short to medium term.
Suppliers working with the channel will be:
Those with the lowest cost base;
Those using B&I as a means to maximise their production volumes to reduce
overall costs.
While the channel has probably reached its lowest ebb, limited future growth should
be anticipated.
November 2011 141
Health
Channel definition and scale
Health in foodservice terms is the channel providing dining service to patients,
facility staff and visitors in hospitals, retirement homes and clinics.
In foodservice terms, hospitals are institutions which serve and feed patients
undergoing some sort of medical care, their guests and staff. This segment is
classified into private or public hospitals which, depending on the rating will offer
different culinary experiences ranging from a simple set meal in their patient‟s
rooms/ward, to a white table cloth restaurant experience. Additionally, they offer
customized menu alternatives for specific diets.
In foodservice terms rehab clinics are institutions that serve food to patients
undergoing rehabilitation either from a surgery or an addiction. As in hospitals
these establishments are classified either as public or private. Depending on the
grading, patients can either have lunch/dinner in their rooms, or in a buffet-style
or even full service restaurant environment. In some markets rehab clinics do
not even offer food and beverage facilities and food is only available from a
vending machine.
In foodservice terms retirement homes are institutions that provide retirees with
an appropriate meal in a retirement community. This segment behaves similarly
to a hotel where residents can easily enjoy a seated lunch and/or dinner at a food
and beverage outlet inside the home.
In hospitals, foodservice operations are segmented into three categories: patients,
visitors and staff
Patient feeding offers a limited, nutritionally-adapted menu range
Visiting family and personnel feeding features self service cafeterias offering
broader menus as well as "grab and go" and vending operations. With the
exception of patient feeding, consumers are accustomed to paying before
consumption. Separate facilities are usually provided for visitors and staff.
Government purchasing is being centralised in ROI but private (including charity)
operated establishments tend to purchase food on an individual basis.
Local sourcing of fresh items is the rule as is on-site preparation.
142 November 2011
How big is Health in Ireland?
Healthcare is the second largest channel in the cost (non commercial) segment of
foodservice. It accounts for 33% of non commercial channel sales and is the only
foodservice channel that did not see falls in sales during the worst of the recession
(2008-2010).
Health sales in 2010 (at consumer prices)
Health channel Sales 2010
€m @ Outlets
2010 Average Outlet
Sales pa €’000s
Hospitals 103 189 545
Homes and Welfare 138 1021 135
Total 241 1210 199
ROI 145 684 212
NI 96 526 182
In 2010 the channel was worth €241 million at retail selling prices. This divides into
€145 million in ROI and €96 million in NI. The greater spending per head by the
NHS in NI means the market there is proportionately more important.
There is a general misconception that the hospital sector is the largest part of the
health foodservice channel. In reality, it is the care element (rehab and retirement
homes) that are the largest and given demographic trends will be the fastest growing
in the future. Not only is the care population greater than the number of occupied
hospital beds, the role played by food in each sub-channel is different.
In hospitals the focus is on medical care with sustenance playing a very
secondary role and is often limited to three small meals a day.
Many managers in the care sector – particularly in retirement homes - often feel
they are in the food business. They have to care for and entertain a captive
population with limited mobility. They do this through the provision of endless
main meals, mini meals and snacks. As a result, food and beverage
consumption per capita is higher in the l care sector.
However routes to market for the two sub-channels tend to be very different
Hospitals tend to be large and, although they represent only 16% of outlets, they
account for 43% of purchase value. They are therefore easily targeted and
serviced.
– Contract caterers and delivered wholesale continue to be more important in
Northern Ireland.
November 2011 143
The care home segment tends to be fragmented and based around smaller units.
The larger care homes are supplied through delivered wholesale, while the
smaller homes use cash and carry and/or retail.
Nutritional values are important in the channel and many contract caterers employ
nutritional advisers who work with hospital nutritionists on menu planning and special
menu needs for medical patients or the elderly.
There is awareness that improved nutrition improves recovery times and shortens
(hospital) stays. However, the issue of nutritional values has yet to be fully
addressed in the care sector. Suppliers able to provide products with proven
nutritional benefits at reasonable cost will be at a significant advantage.
The other major issue in the hospital sector is meal preparation. Meals tend to be
prepared and cooked centrally in hospital kitchens and then despatched to often
“distant” wards for re-heating and distribution to patients (often involving major time
delays). This has implications for food taste, meal attractiveness and nutritional
values. Cost effective solutions to these problems would give any supplier a
significant competitive advantage.
Drivers and trends in the channel 2008-2010
While economic recession impinged on pricing and margins, volumes remained
strong as patient and care home numbers, if anything, increased.
The need for attention to nutrition formats increased despite cost constraints, as
regulations on food in this sector were tightened.
Health sales 2003 to 2010 by segment
Historically the health channel had low but steady growth. The number of hospital
patients was relatively steady and food budgets were controlled. Over the past
decade the care home sector has expanded with the increase in the elderly and as a
result good growth levels of 3.2% per annum were recorded for the channel pre-
recession.
Health sales trends 2003 to 2010 (at consumer prices)
Health channel Sales 2003
(€m) Sales 2008
(€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
Hospitals 91 103 2.5% 103 0.0%
Homes and Welfare 115 138 3.7% 138 0.0%
Total 206 241 3.2% 241 0.0%
ROI 119 147 4.3% 145 (0.7%)
NI 87 94 1.6% 96 1.1%
144 November 2011
During the recession years market value remained stable, unlike all other channels,
although prices came under pressure.
Volumes have increased, but a greater attention to nutrition has meant more
variety to menus and a greater need for special diets to be offered.
Costs and efficiency are at the heart of the HSE‟s reorganisation of logistics.
This is intended to give more of an opportunity to smaller suppliers in ROI.
Health outlook to 2015
Having emerged intact from the worst of the recession, channel value is expected to
decline slightly in 2011, before stabilising in the period 2011 to 2015.
Within the hospital segment, food is likely to come under further price pressure as
health budgets are pegged back. Cutting the cost of food is a less contentious issue
for health managers than cutting medical costs or reducing doctor numbers.
Suppliers able to demonstrate that their (value added) products can reduce costs
elsewhere in the system (for example in food preparation or patient stay) will have a
strong sales proposition.
Health sales 2010 to 2015 by segment (at consumer prices)
Health channel Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
Hospitals 103 101 (1.9%) 101 0.0%
Homes and Welfare 138 136 (1.4%) 136 0.0%
Total 241 237 (1.7%) 237 0.0%
ROI 145 143 (1.4%) 145 0.3%
NI 96 94 (2.1%) 92 (0.5%)
Forecast 2011
While volumes seem to have held in 2011, the increased attention to keener
prices in both ROI and NI has seen lower priced tenders and therefore lowered
the value of the channel.
Homes and Welfare have fared slightly better with a value loss of just 1%
estimated for 2011 over 2010.
Margins of suppliers seem to have suffered as operators demand more special
and expensive items in planned diets.
Forecast 2015
While volumes are expected to rise in this channel in future, the increased focus
on cost will mean there is no value growth in real terms.
November 2011 145
Even tighter planning of menu ingredients seems inevitable which means higher
unit costs must be absorbed by suppliers.
The initiation of the UK Government‟s spending cuts in 2011/12 means that NI
can expect a slight fall in the value of this channel over the next 4 years.
Key implications for suppliers
The health channel still represents a stable opportunity for suppliers, though high
volumes are counteracted by lower prices and margins generally.
The Health channel is basically stable given that they have captive populations who
have to eat and the numbers in hospitals are much as they were.
There is certainly a pressure on cost, but the trade say it is not as much as has
been seen in commercial channels.
The proposed streamlining of purchasing in the Republic of Ireland in the health
sector does not seem to be moving as fast as expected.
Declines in other parts of foodservice will see suppliers increasingly re-positioning
into the health channel as a more stable market. This will make the channel
increasingly competitive.
However there are opportunities to add new value propositions (as indicated earlier)
in what has been traditionally a low value ingredient business:
Foods that remove costs in other parts of the health system;
Foods that also offer improved and balanced nutrition;
Foods tailored to the needs of different patient and care home resident types;
Foods tailored to hospital delivery systems.
November 2011 147
Education
Channel definition and scale
In the education channel primary schools, secondary schools and universities are
the three key segments. This is the business of providing food and beverage
services to students at their place of learning. Menus are generally offered in two
main formats: fixed menus or cafeteria/self-service. Three trends are significant:
A balanced nutritional food offering as well as food safety is becoming more
relevant, especially in the school segment.
"Grab and go" and vending concepts are beginning to play a more significant role
in universities.
In North America, QSR operators are beginning to enter the segment and
breakfast provision is an important element.
The channel covers State, religious and privately funded and owned institutions.
The key difference in this channel is the scope of foodservice in ROI as opposed to
NI. NI adopts the UK model, where foodservice is almost universal in primary
schools and administered on a regional basis by the education and library boards,
whereas in ROI primary school foodservice is limited mainly to private schools.
As in health, there has been widespread publicity on the quality and content of
school meals. Nutritional guidelines are now given to schools and colleges by which
they are expected to abide, with for example, carbonated drinks vending being
banned in NI schools and water encouraged as a drink.
Education: market size and sales 2003 to 2010 by segment
Following unspectacular, inflation driven, growth levels pre-recession Education
suffered manageable falls in sales value during the difficult 2008 to 2010 period (-
1.8% per annum). Over this period the drop in the ROI was driven by lower volumes
as student numbers using college facilities dropped, while in the North volumes
remained constant, but budgets declined, as did price.
Education foodservice sales in 2010 (at consumer prices)
Education channel Sales 2003
(€m) Sales 2008
(€m) CAGR
2003-2008 Sales 2010
(€m) CAGR
2008-2010
Total 128 140 1.8% 135 (1.8%)
ROI 77 85 2.0% 81 (2.4%)
NI 51 55 1.5% 54 (0.9%)
148 November 2011
The education channel in IOI is estimated to be worth €135 million in 2010 (
€81 million in ROI and €54 million in NI).
NI is proportionately more important per head of population because it includes
primary school meals in the public sector.
The educational channel in ROI focuses on colleges and canteen style facilities in
particular. Contract caterers are increasingly important in both ROI and NI.
Where contract caterers are involved, a common arrangement is the fixed price
contract which is negotiated over one or more years.
The contract caterer takes responsibility for meals and for the staff who prepare
them.
Where there is no contract caterer involved, food supply is organised by the
outlet themselves or by districts (particularly in schools in NI).
As in the health channel, nutritional advisers are an important part of the decision-
making process, particularly in NI. Their job is to help schools plan menus to
optimise nutritional values.
Growth in the 2003-2008 period was higher in ROI because colleges expanded their
foodservice offering. NI, which depends more on primary schools, grew at a slower
rate but still steadily. In contrast, during the period 2008-2010, college catering in
ROI suffered and the channel declined by over 2% per annum.
Colleges in ROI suffered in the recession as students were forced, through
economic circumstances, to bring their own lunches as an alternative to
purchased meals. Colleges responded by seeking lower input prices, particularly
from contract caterers, to the extent that some contracts were dropped as
uneconomic.
In NI the channel held steady in 2009 but started to decline in 2010 as education
authorities began tightening their budgets and squeezing suppliers on cost.
November 2011 149
Drivers and trends in the channel 2008-10
In colleges in ROI, there has been an obvious decrease in the students' spending
power and as a result brought in food has become a significant competitor to college
catering.
In education, NI is important because of catering in primary schools and this has
started to feel a cost squeeze.
While costs are being squeezed, nutritional demands in menu planning for schools
are starting to impinge on margins.
The key metric for suppliers servicing this channel will be the balancing of nutritional
value with cost. Many in the trade believe this will increase the number of pasta-
based dishes.
Education outlook to 2015
Although a further drop in market value in 2011 is anticipated, this is at
comparatively manageable levels (-2.2%). The market is then forecast to return to
stable sales levels for the mid-term.
Forecast: Education sales 2010 to 2015 by segment (at consumer prices)
Education channel Sales 2010
(€m) Sales 2011
(€m) CAGR
2010-2011 Sales 2015
(€m) CAGR
2011-2015
Total 135 132 (2.2%) 136 0.7%
ROI 81 79 (2.5%) 82 0.9%
NI 54 53 (1.9%) 54 0.5%
Forecast 2011
It is estimated the squeeze on costs has continued into 2011 and has been felt in
both ROI and NI.
College catering facilities in the ROI and have been hard hit by the desire to cut
student meal costs in times of economic stress.
Contract caterers report that they have not rebid for certain college catering
contracts in 2011 as the cost reductions demanded made them uneconomic.
The Board of Education and Libraries in NI (who are responsible for schools
catering) are regionally organised and therefore there are varying responses in
its various regions to calls for economic stringency. However, the overall trend is
to cut input costs within nutritional guidelines, where possible.
150 November 2011
Forecast 2015
A return to economic growth and a greater emphasis on nutrition (and
consequently more expensive ingredients) should produce slow but steady
growth in the channel over the next 4 years.
This is likely to be greater in ROI than in NI as students switch back to college
lunches.
Key implications for suppliers
Nutritional advice is increasingly a key part of the suppliers offering, particularly from
contract caterers.
Innovation in the area of lower cost and high nutrition (e.g. pasta based meals) will
be increasingly required.
Contract caterers expect to get more of the larger contracts as authorities seek to
outsource, but smaller contracts will revert to on-site preparation and purchase
through delivered wholesale.
Grab and go/on-the-go concepts and food and beverage vending systems are
expected to expand in schools and colleges as they try to reduce fixed “back of
house” costs.
The reduction of on-site food preparation costs is anticipated to open new
opportunities for food suppliers.
November 2011 151
Other Institutional
Channel definition and scale
This channel includes Government organisations and in particular prisons and armed
forces (military messes, in-field canteens and soup kitchens).
While there is a potential for suppliers in this channel, the predominant focus of food
and beverage sourcing is by local sites and for basic ingredients. This is not
anticipated to change.
Both prisons and the armed forces have large manpower at their disposal and
see catering as an efficient use of it.
In addition, training of both servicemen and prison inmates is focussed to
preparing them with a skill – such as catering - which can be utilised once they
are discharged.
Other Institutional: market size and sales 2003 to 2010 by segment
The other institutions channel is a small (€38 million), stable, secure market for low
added value food ingredients and beverages. To all intents and purposes it is a
commodity market.
Other Institutional sales to 2010 (at consumer prices)
Other Institutional channel
Sales 2003 (€m)
Sales 2008 (€m)
CAGR 2003-2008
Sales 2010 (€m)
CAGR 2008-2010
Total 38 40 1.0% 38 (2.5%)
ROI 29 30 0.7% 29 (1.7%)
NI 9 10 2.1% 9 (5.1%)
The channel was valued at €38 million in 2010 (€29 million in ROI and €9 million in
NI).
As the channel comprises prisons and the military, the volumes are mostly steady
regardless of the economic conditions. As a consequence, the channel did not grow
very much during the “boom” years 2003 to 2008, when prison numbers grew, but
military numbers were largely static or declined slightly.
In the recession, volume demand remained constant, or even increased. However,
keener purchasing has driven down cost prices and therefore value.
152 November 2011
Drivers and trends in the channel 2008-10
Fresh ingredients and local site preparation is important.
Volumes are governed by political and social trends rather than economic ones.
Nutritional values to date have not been the subject of the sort of intense scrutiny
found in health or education channels. However, the trade believes they will be
of more importance in the future, particularly if they are the subject of concerted
media comment.
Forecast: Other Institutional sales 2010 to 2015 by segment
2011 is anticipated to reflect the same annual fall in market value as experienced in
the two preceding years (-2.6%). The significant difference is that all of this loss will
be felt in the ROI, while NI remains neutral. The market is then expected to return to
stability.
The continuing application of price reduction will be a feature of the market for the
foreseeable future.
Other Institutional channel
Sales 2010 (€m)
Sales 2011 (€m)
CAGR 2010-2011
Sales 2015 (€m)
CAGR 2011-2015
Total 38 37 (2.6%) 37 0.0%
ROI 29 28 (3.4%) 28 0.0%
NI 9 9 0.0% 9 0.0%
Forecast 2011
During 2011, there has been a focus on cost reduction in the channel which has
reduced its overall value by 2.6%. This was apparent in ROI, where value declined
by over 3% in response to cost pressures. In NI, larger demand offset the cost
pressures to keep overall value stable.
Forecast 2015
The forecast for the next 4 years is for stable values, volumes may increase slightly
but this will be cancelled out by keener prices in purchasing.
No changes in overall purchasing systems seem to be envisaged and local on-site
sourcing will continue to be important.
November 2011 153
Key implications for suppliers
It is difficult for suppliers on a national level to make an impact on this channel.
Local smaller suppliers however may find local sites for the military or prisons to be
more receptive to their approach if delivery can be guaranteed to be regular and
consistent, while price can be competitive.
Security of supply is a key supplier determinant, along with price in both the
prisons and the military.
Product quality and any value added are distant contenders behind security of
supply and price.
Security concerns in both the military and prisons must be considered and
observed.
Innovation in training aids to unskilled operatives would be important as a
competitive advantage.
November 2011 155
Conclusions, Implications and
Recommendations
November 2011 157
Conclusions
There can be no doubt whatsoever that life for all players in Irish foodservice is and
has been tough.
“We planned for an Arctic winter in foodservice, but it has been bigger and longer
that we thought.”
And there similarly should be no doubt in anyone‟s mind that it will remain tough for
the foreseeable future.
“It’s a case of holding your own, trying to sell more, hang on in there and try to
stay up and not sink. If you do nothing you will sink.”
There is no silver bullet or “get out of jail free card.” The successful players today
and as we move forward will be the ones that take the hard decisions and follow the
guidelines set out in Bord Bia‟s Channel opportunities in the Irish foodservice sector
report, June 2010. These were in essence:
Key to do list:
Focus on business stability not growth;
Focus on do-able wins;
Focus on your key existing customers;
Focus and target your resource;
Focus on profitability and cash.
But most of all manage, and where possible, continue to cut costs. Speaking to
operators and suppliers, there have been remarkable levels of cost taken out of
many companies to-date, without excessively impacting on performance, value or
service. That process needs to continue with cost and price continuing to be a
significant base of competition over the next few years.
“Be aware of your costs, because cost is a very big factor.”
The foodservice market as a whole is showing signs of stabilising – and in some
segments – such as on-the-go, casual dining, and QSR, there are clear green shoots
emerging. The real positive is that we have taken the pain, we have been through
the worst that can be thrown at the industry and barring major new economic
disasters, we have survived. As an industry we have emerged leaner, fitter, more
competitive and more market attuned. Foodservice has looked reality in the face
and come out on top. It has to continue to do this.
158 November 2011
A major upturn in consumer spending is not anticipated in the short term – but
steeply declining overall sales should be a thing of the past, indeed there should be
a slight upturn over the next three to four year phase.
Foodservice sales trends (€bn at consumer prices)
At first sight this suggests more of the same for foodservice, but that is not true. The
market will be competitive, but, for the first time in three years players can plan with
some sense of market stability. Some sense of certainty is returning to the market
and that is a real positive.
Consumer footfall will not decline further, but prices will remain pressured in the
immediate future. In the normal course of recessionary events, price should ease in
2012 and 2013 as operators reduce the level of discounting and offers and price
cautiously creep up.
Among operators there will be continuing fall-out as the number of outlets decline.
Many new entrants were attracted to the industry in the good times, not all of whom
had the required skill sets and these are the most vulnerable. The professional
operators, those close to their market and their customers, those who are hands-on
will be the ones that come through and survive. In times of tribulation those with the
right competencies rise to the top. Foodservice will be more professional, leaner and
more profitable. The survivors will benefit from acquiring the customers and
revenues from those forced to exit.
Suppliers have experienced a whirlwind, first benefiting from accelerating market
growth, only to have the brakes thrown on without warning and everything hurled into
reverse gear. They have moved from supply based expansion strategies overnight
and without warning into retrenchment and survival mode. They have been flattered
and now battered by circumstances totally outside their control. As we now bump
along the bottom of the economic cycle for the next few years they need to take
control and get close to customers in both understanding and relationships. And
they need to redefine their customers. In foodservice we should view this process as
a customer chain, there is not one customer but at least three, all with different roles,
impacts and levels of control.
5.9
7.2
6.2 6.0 6.1
0
2
4
6
8
2003 2008 2010 2011 2015
November 2011 159
At the end of the day suppliers take basic “stuff” and convert it into food and
beverages in the forms foodservice want and can utilise. The customer chain then
takes over and with varying levels of added value converts the food and beverages
into the meals and meal occasions demanded by the end market – the consumer:
Wholesalers are often seen as supplier‟s customers or route to market, but they
are, in fact, routes to foodservice operators;
Foodservice operators take food and convert it into meals while providing
location, service and ambiance;
However the market is the consumers who eat away-from-home, who pay the
bills that oil the foodservice customer chain, and vote on what they want and
where they want it with their feet and their wallets.
Each of these players performs a specific role in the customer chain and has specific
influence over choice, variety and purchase.
The foodservice customer chain
Customer Roles Subsectors Impact Relationship
Wholesaler Gatekeeper Stock holder
Logistics
Route to operator Partner
Operator Service provider Channels
Chains
Independents
Value added converter
Controller
Consumers Purchasers By affluence
By age
Trendsetters
Followers
Paymasters The Boss
Remember that foodservice is a big and varied universe, and while the general
outlook is relatively stable, certain elements will outperform the others.
Suppliers Wholesale Operators Consumers
Product Value
Insight
160 November 2011
QSR is attuned to modern living and will continue to take share of consumer spend.
However even here performance is not level;
Burger and chicken focused outlets have outperformed other types;
Traditional fish and chip shops have been under pressure and this will continue.
On-the-go is right on consumer trend and will continue to expand.
Coffee shops and deli type coffee shops will be at the forefront of growth, offering
those important leisure/relaxation moments and “little” self treats;
Bakery will increasingly absorb the consumer health and nutrition messages and
build on its flexibility and value offering;
Parts of travel – filling stations and forecourts in particular, are offering new on-
the-go locations.
Casual dining is again right on consumer trend and will expand substantially.
Expect more pubs to cross-over to casual dining outlets.
– Solution suppliers with a pub offering will find favour. Think not just ready
meals, but also menu preparation, recipe development using added value
ingredients, nutrition and health input, training – service could be almost as
important as product.
New concepts and cuisine style will continue to come through – with Latin
American (Mexican in particular) and Asian the favourites at the present time.
Follow tourism trends to pick-up indicators for tomorrow‟s new tastes.
Elsewhere in FSR, white table cloth restaurants will have a challenging time, but
they remain a significant market. They need assistance in cost cutting and self
promotion.
Hotels are a big problem at the moment but improving tourism will have a positive
impact on outlet viability. Expect closures and look at locations for indicators on who
could go.
Expect the discount hotel chains to exploit gaps in the
market. Food offering is limited in these hotels, but
breakfast is the big meal occasion. Food is an
unwelcome intrusion for discount hotel managers, so
solution providing suppliers will be at advantage.
Hospitals sales will remain largely stable in the Institutional market, but the
increasing need for higher nutrition levels to aid patient recovery will open new doors
to suppliers who can rise to the occasion.
November 2011 161
Implications
Foodservice suppliers have been very good at pumping product through the system
and not really worrying where it ended. This is great in periods of market expansion.
More recently they have been doing much of the same at reduced price points. They
cannot control the customer chain, but they can inter-relate with it, understand it and
exert greater influence on it.
The first stage in this process is, as in the two special deep research dives into on-
the-go and casual dining, to turn the chain on its head and start with the prime
mover, the consumer. Understanding what the consumer wants will help suppliers
ensure they get the right product in the right place.
Understanding operators and the operation of the supply chain will allow them to
judge the right price, while working with wholesale will allow them to sort out the
promotion element of the equation, as well as the logistics.
Suppliers need to move from an almost one dimensional strategy based on the
wholesaler is customer view, to a holistic perspective in which the entire chain is the
customer, and they need to understand and inter-react with it in its entirety.
In this process, if we are going to start with consumers we need to understand what
motivates them and apply this to our thinking. When going into a retail outlet to buy
food for consumption at home, research tells us that an average consumer has a
hierarchy of decision making factors they utilise in their purchase choice. Factors
such as - what is the meal occasion? Who will be there? Am I busy on that day?
Does it need to be healthy or can I be indulgent? This is all before they even think of
what they are going to serve or purchase. So too, consumers have varying
motivations and wants when they eat out, for example:
Are we going out to just enjoy the food and drink and the occasion?
Does the meal have to be convenient?
Are we doing something else and need a meal to fit?
Are we locked into a location and do we have to eat there?
When we look at foodservice today we tend to start with bricks and mortar – we think
restaurants, quick service restaurants, hotels, cafés. We think in industry terms.
That is not how the consumer thinks. Most will not know what QSR is, they will think
“I want food. I want quick, convenient food. I know I will go to....” or “I am going to
the gym tonight, why don’t I get a healthy snack while I am there?”
By starting with consumer motivations in eating away from home, we can re-segment
the market, assign channels to those segments and understand the differing roles of
food and beverages among operators, the perception and importance of foodservice
to their business, plus their food and beverage needs.
162 November 2011
If we take this type of perspective and combine it with the more traditional outlook of
foodservice the following groupings evolve.
The role of food and beverages by channel
Customer motivation
Market share Channels
Strategic role of
food/drink
Operator Perception of “foodservice” Operator need
Food& drink driven
45% FSR,
Cafés, coffee shops, bakeries
Food/ drink is core
Core competence Differentiation
Service
Quality
Convenience driven
35% QSR, CVS, Petrol stations,
Second to speed & ease
Part of the system
Food has to fit
Convenient solutions
Consistency, simplicity, cost
Consumer activity driven
8% Hotels
Leisure/Events
In store
Food/drink an “extra”
High profit “by product”
Service, solutions & reliability
Captive driven 12% On-board travel
B&I
Health
Education
Government
Food /drink a distraction
Cost Lowest price/ acceptable quality
Understanding consumers at a micro level can be an expensive business involving
original research. However, for this level of analysis and insight, strategic data
serves the purpose adequately. At this macro level research can be performed cost
effectively from combining:
The mass of consumer information available in the public domain – particularly
that available at Bord Bia;
Observation, we are consumers, we are surrounded by consumers – sometimes
spending time to look and understand gives the greatest insight;
Analysing the results and drawing conclusions.
Remember, one unique insight can be worth more than a 100 sales visits or 1,000
numbers.
Operator drivers
November 2011 163
Recommendations
The key recommendation for all foodservice players is that they need to operate
short, but plan long. No one in the short term can afford to take their eye off the
ball. It is also not the time for radical experiments, the market is still laden with risk.
The business mantra should be – “if I have survived so far I have got to be doing
something right, and if I have survived and making money I am doing it better than
most.”
Resting on laurels, no matter how hard earned, is never enough. If the bottom has
stopped falling out of the market, as we anticipate, then now is the time for building
on that firmer foundation and planning ahead. Planning and preparing based on
what we have learned, and the key message within this should be – foodservice
suppliers are a long way from consumers, but consumers are still king. This is not
a new sentiment, but supplier isolation in the customer chain often means that it gets
parked to one side.
It is time to move, cautiously, beyond survival strategies and back into sales and
market development. There is a need to assist operators in moving from value
offerings to increasing spend per occasion.
Within this process consideration needs to be given to:
Portion control;
Menu planning and streamlining;
Foods to add interest and excitement;
Foods for new meal occasions;
Health and nutrition;
Increasing the value of provenance and sourcing local/Irish;
Promoting the benefits of foodservice to the Irish consumer and economy.
The parts of foodservice that have most reflected consumer trends and needs are
the ones that have performed most credibly.
164 November 2011
The resilient foodservice channels and sub-channels
The need for convenience: QSR
The need for flexibility and location freedom: on-the-go
The need for day time treats: coffee shops
The need for informality: casual dining
The need for occasional treats: casual dining
The need for excitement and innovation: pop-ups (admittedly very embryonic).
This will not change. The consumer is getting more powerful through their increased
exposure to foodservice and through their access to information through the internet.
In the past they responded to what was on offer, that changed during the recession
and they are coming back newly empowered and making informed decisions.
Our specific recommendations follow these two key strategic planks:
1. Operate short
Under our earlier Conclusions section we have already flagged the need for focus
(see the “to do” list), particularly cost focus and we will here take those elements as
a given, as the core bases of competition in foodservice for the immediate future.
We will not labour them further.
To these we need to add:
1.1. Manage the customer chain
It‟s all very well to talk “think consumer” and manage these remote, seemingly
inaccessible links, but why?
Managing the customer chain
Supplier
consumer
sensitive
Ultimate Target
• Maximise
consumer
satisfaction
Maximise operator
performance
• Increase Traffic
• Spend per occasion
Maximise
operator
satisfaction
Create product
pull on
wholesale
November 2011 165
The base number to bear in mind is that a large wholesaler will carry in the region of
5,000 to 9,000 products. They cannot actively promote all these and for much of
their turnover they simply take orders rather than promote or sell. When the market
is expanding product moves, almost of its own volition. When the market contracts,
product needs help to move.
Wholesale provides an invaluable link in the chain, but they are not there to do your
job – to maximise individual supplier sales, they are there to maximise the returns to
their business.
The more that suppliers can anticipate consumer wants and particularly changing
consumer wants and convert these into operator benefits, the more product will both
be pulled through the chain, and also promoted through the chain. In the best
examples it becomes a self fulfilling prophesy.
1.2. Add excitement`
We live in a world of instant consumer gratification. They can access almost
anything they want almost instantly, with information at their fingertips. As a
consequence, the consumer boredom threshold is relatively low. They want to be
entertained and having something new has become an entertainment form. The
successful parts of commercial foodservice are in a constant state of renewal. It is
not an accident that we have compared on-the-go and casual dining to the fashion
industry, and it is not an accident that operators in these sub-channels rate
innovation so highly.
“Even though you are offering great value and the product is good, people will
only come back a certain number of times. They get bored with the same old
things. We have a tendency to shop around and we love something new when it
comes along.”
Consumers always want the option of something new from their foodservice outlet of
choice. As a result there is constant menu churn, product churn and concept churn,
and this rate of change is likely to accelerate
“All our customers are asking is there anything new, so we are pushing all our
suppliers for new ideas.”
Foodservice supplier need to add the words excitement to sustenance and
innovation to product extension if they are to continue to be successful. Too many
products are similar; they are me-too or minor modifications, rather than innovations.
These risk becoming generic, price-driven commodities.
166 November 2011
1.3. Reflect customer need
Remember “If your customers are successful, you will be successful. It’s all about
making your customers as successful as possible and that is what will give you
growth.”
Customer need comes on three fronts:
Successful operators have downsized their operations to meet today‟s cost
constraints. More than ever they will need assistance in solution provision – be
this low labour, fast to serve meal components or softer services such as menu
construction/advice.
– “It’s a lot easier with frozen options, just on shelf life. The challenge is
wastage, particularly for fresh.”
The need for innovation, excitement and crucially differentiation is flagged above.
To pull in punters operators will look for traffic magnets and these need to be
different, more original and more exciting than those offered by the competitor
outlet along the road.
– “The main challenge to all of us is getting customers through the door.”
They also need products that encourage customers to spend more per occasion.
– “That extra 20%. If they are in your restaurant, if you have already got them
through the door with a meal deal, you need the product to get them to
spend that extra 20%.”
1.4. Reflect consumer wants
Even in today‟s straightened environment, most consumers can afford most things
they need. But in real terms foodservice is not yet a need in Ireland, it is a want for
most of the populace, albeit a sometimes important want. On-the-go and casual
dining have been more successful because they have made new consumer wants
real – the wants for anytime anywhere consumption and informal dining. So much
so that they are well on the way to becoming consumer needs – things that the
consumer cannot do without.
Foodservice was able to plug into the consumer‟s extra euro as the economy
expanded. Now it has to compete for the consumer‟s leisure euro, fashion euro and
health euro because there are fewer euro to go round. By understanding consumer
trends, by building fashion, leisure and health into its food or beverage portfolio,
suppliers can identify the consumer wants that can be successfully serviced.
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1.5. Add value in routes to operators
For most in foodservice the route to operators will remain delivered wholesale and
cash and carry. It is important that suppliers increasingly find ways to work
alongside distribution to effectively market their products. The distribution world is
maturing and changing like everything else, it is becoming more concentrated, large
scale national distributors have developed and new entrants have emerged. All of
these have seen the decline in their foodservice sales and suppliers need to find
innovative ways to work with them to their mutual benefit.
Challenges facing delivered wholesale include:
The cost of service of many small orders from independent outlets;
The low levels of real value added – circa 50% of sales remain basic ingredients;
Balancing order taking with sales and promotion over a huge range;
– “We are not great at making new products a success quickly. I do not know
why that is, whether it is poor communications or what.”
Margins have declined and remain constrained;
Supplier relationships;
– “They need to understand our business, to know how our business operates
and to understand our strategy, who we are targeting and where we are
going. If they can understand that then they can tailor their offering in terms
of what we need.”
Transparency;
– “Trust and honesty is something we are looking for, building relationships.
Putting your hand up when there is a mistake and admitting it.”
2. Plan long
The economy will recover. Consumer affluence will return. Foodservice spend will
grow. When this happens prior integration of the key „To Do‟ list items in our
Conclustions section will mean that not only will they be fitter and in better financial
condition as they enter the grow phase, they will also be better prepared.
But just as moving from growth to retrenchment and cost reduction is not
instantaneous, so too moving from competitive growth to market growth does not
happen at the flick of a switch. Companies need to think about the what, where,
what if, when and how of tomorrow.
168 November 2011
2.1. Develop the vision
What do we plan to be in 5 years time?
2.2. Identify the market focus
Where do we intend to do this
– In which consumer segments?
– In which channels and sub channels?
– Using which routes to market?
2.3. Look at alternative and the impact of de-railers
Prepare fall back “what if” scenarios incorporating unexpected change.
2.4. Identify and monitor the trigger points
When will the time be right to start moving on the vision? Too soon and you
could lose money, too late and it will cost a lot to catch-up.
– Identify the key measurables in your target markets and start to monitor
them;
– These might be sales levels, NPD levels, sector profitability.
2.5. Prepare the ground and put the building blocks in place.
Identify how you will achieve the targets set in the vision and what you need in
terms of new competencies, products and resource.
Many times in the industry interview programme undertaken to generate this report a
key response was that in foodservice, the Irish do not want to be a first mover. If this
is true, they need to be a very close me-too to the first mover in order to realise the
real benefits of market expansion.
Above all, they need to stay flexible in their processes, thinking and investment and
be able to respond to what is still an uncertain environment.