As a leading foodservice agency we always keep up to date with the latest trends in the market and as part of this on-going commitment we regularly attend the MCA de-briefs. This month we were particularly interested to see that their latest event covered the contract catering sector*, as this is an area of the foodservice market which many of our clients target and one that is often overlooked by the wider world, despite being responsible for feeding us from cradle to grave. The morning briefing encompassed both the wider market, from their Eating Out Panel and a deeper delve into the contract catering sector. The complete report is very comprehensive and available to MCA Forum members or to purchase, but below are some of our key take outs to whet your appetite.
Eating Out Market
1. Overall – The current picture isn’t great with frequency of visits down 13% to 14.3 visits p/m which is the lowest in 6 years. Average spend per visit is up 3% to £7.75 (driven by menu price inflation) but with frequency down so much this means that average spend per head per month is down 11% to £110.84 and with 51.1m adults eating out this means that total spend is down 11% overall. This is unsurprising given the concerns around Brexit and current lack of consumer confidence and sobering to see these kinds of figures in black and white.
2. Day parts – Frequencies across all day parts are in decline with lunch showing the most resilience, as it tends to be more locked in with workers. Consumers are cutting back on non-essential spending with millennials most effected as inflation outstrips wage growth, whilst over fifties on the other hand are more steady with regard to frequency.
3. Sectors – Sector-wise, sandwich retailers focused on lunch are doing well e.g. Greggs, pubs are struggling at lunchtime but doing better for dinner along with independent restaurants. The drivers for dinner are back to celebrations, get togethers & date nights, focused on planned occasions. Fast food outlets are doing well with breakfast, lunch and snacking, but poorly around dinner occasions. Coffee shops are losing share on snacking as consumers tighten their purse strings, while supermarkets are seeing snacking visits up strongly as consumers seek value for money, giving them a 25.7% share with Tesco’s topping the chart.
4. Brands – It seems in uncertain times consumers are looking to the reassurance of big brands with McDonalds, JD Wetherspoon, Costa and Greggs doing well. This may also be because they are looking for real value for money (as well as convenience, quality etc.) and know what they will get from these familiar outlets. This doesn’t seem to be linked to promotions in general though, apart from in chain restaurants where a third of all visits involved a promotion of some kind and in sandwich retailers who still rely heavily on meal deals.
Outlook – Simply put, things are unlikely to change in 2018 but hopefully they will pick up in 2019.
1. Market Value – The total contract catering market is valued at £9.3bn in 2017, including both in-house and outsourced catering activities as well as associated soft FM revenues and fees (across B&I, public sector and leisure). The market is set to grow by 2.6% this year, down from 3.5% in 2016, as much like the rest of the OOH market it is hit by Brexit uncertainty and other head winds including: the rising price of food, the national living wage, lower investment due to Brexit uncertainty, more working from home, staff shortages due to lower immigration levels, decline in frequency across the board, growth of high street competition, the fast pace of food trends, dietary requirements driving consumers to bring food from home and the often negative consumer perception of contract catering as inferior to the high street brands. With inflation at 2-3% there is a negative underlying volume trend. Directly paid for food and drink in-house and outsourced is valued at £4.7bn (up 1.7% from 2016) with 78,330 outlets and a market growth of 2.6% . The outsourced market is valued at £5.9bn and is forecast to grow by 3.9% this year, down from 4.3% in 2016.
2. Growth Drivers – There are many and varied drives of growth in this sector including: specialised operators, high street styling, integrated offers, snacking, multi-functional spaces for work and socialising, record levels of employment (B&I), an aging population (healthcare), rising numbers of primary school aged children (education), tourism and staycations driving leisure spend, cost conscious workers using lower cost staff canteens (B&I).
3. Top players – The top five contract caterers are Compass Group UK, Sodexo, WSH, Elior and Aramark, followed by CH&Co (showing exceptional growth of 40%), MITIE Catering Services, OCS Group, Servest and Interserve Catering. 7/10 are in growth, which is traditionally driven by the acquisition cycle where key people leave a large contract caterer, set-up their own business with their contacts, win accounts and grow to a reasonable size then they are acquired by one of the larger contract caterers. There have been 6 key deals over the past year, a notable one being CH&Co’s acquisition of Harper and Jones.
4. Fastest growing – The fastest growing contract caterer is Rhubarb, an event and venue specialist who has a number of high profile clients including Sky Garden and The Royal Albert Hall. This shows that success can be gained by specialising in a sector like leisure. Indeed the top 25 contract caterers operate in the following: 80% in sports, leisure and events, 72% in B&I, 65% in education, 60% in healthcare and 40% in defence.
5. Overall – There is an healthy operating margin, the market cycle of acquisition is highly active, specialists like Rhubarb and Amadeus are succeeding and there are opportunities in healthcare and education where there is more to go for.
6. Ones to watch – Compass Bateman & Co – part of Boxpark and focused on British heritage cuisine, Sodexo Delifresh – cutting 86 million calories to consumers, promoting UK sourcing and delivering against the healthy eating trend. CH&Co Juice Bar in the university market – this vibrant offer has all day dining with a focus on provenance. Compass Chop Chop range – which offers food to go including both healthy and adventurous options with a wide variety of under 500 calories dishes available. Elior Vita Mojo – taking customisation to the next level with their interactive healthy eating menu which allows consumers to tailor their dish to their nutritional and budget requirements via an iPad interface.
7. High street inspiration – By Chloe – the vegan/vegetarian concept that took NYC by storm is coming to London championing mindful eating and their ever popular guacamole burger. Rola Wala – offers twisted Indian street food that’s colourful, customisable and authentic. Saucy Pasta – hot on the heels of Coco di Mama this high street food to go pasta concept caters for both carb lovers and carb dodgers, with spiralised veg as an alternative to pasta and gluten free pasta as well.
8. Consumer behaviour – Across workplace, colleges and leisure, where contract caterers are operating, the frequency stats have all seen a decline in line with the wider market (workplace 7.6 times per head per month, University 5.6, Leisure 2.3). Snacking visits are down and there is a much lower spend per head than in the wider market. Convenience as a driver over indexes and sadly there is not a great value or quality perception with food quality ranking far lower down compared to the wider market. It would seem workplace consumers appreciate the low prices but don’t see the quality or value. So overall frequency has fallen while spend is rising (like the rest of the market) but food quality is not driving visits, as it is poorly rated compared to the wider eating out market.
9. Insiders viewpoint – Despite the rather negative consumer insights outlined by MCA Ian Harrison (ex-Compass and now a consultant) was keen to point out that despite not having the superior profile that restaurants hold, contract catering is the one area of our industry that feeds us from cradle to grave as they cover hospitals, schools, universities, workplace, care homes and even our leisure time (or worse case scenario prison!). The industry may have once been a ‘one size fits all’ solution, but those days are long gone and things are far more sophisticated and the quality of food and home grown concepts is often excellent. One of the key issues Ian pointed out is the negative perception of contract catering and its failure to be up there as a strong career choice (something Springboard Charity works hard to combat). However, with celeb chefs like Tom Aitken partnering with contract caterers it all helps to position the industry as more aspirational, as does the increasingly high bar when it comes to concept development to an attempt to compete with the high street. Of course there is the option to partner and licence brands like Costa and Subway but financially it can make more sense for caterers to develop their own and many have very successfully e.g. Coffee Society by Baxter Storey and Vita Mojo from Elior. The success of these concept brands is down to the fact that contract caterers put a huge amount of effort into understanding their target audience with a real focus on insight. By matching the consumers’ needs with food to go, locally sourced ingredients, healthy options and adventurous street food, whilst also offering far more transparent business models for clients than ever before and taking advantage of technology to create a seamless experience with services like click and collect, contract caterers are a lifetime away from the staff canteens of the bad old days and set to make waves well into the future.
10. In summary – There is a subdued outlook given the current headwinds with an estimated growth of 1.7% with opportunities in leisure, a positive future for education and a slower burn in healthcare. Millennials are more food savvy than any generation before, so food quality will continue to be hugely important as will technology (with learnings to be taken from Amazon Go) along with clever targeting of promotions though apps to drive spend and build loyalty. With 740.3 million total workplace eating out occasions annually and workplace valued at £2.4bn it is a huge market, but it is equally affected by the current Brexit uncertainly as the rest of the market, so leveraging opportunities to increase frequency, up-sell across average spend with a premiumised offer and drive more drink sales can all help increase operating margin. Although out of these options driving up average spend is likely to deliver the most effective. Other factors which will impact the future of contract catering include our aging population with more older workers and care home residents, automated jobs, less permanent staff and more working remotely, employers using facilities to differentiate themselves in a competitive recruitment market, population growth but less immigration, growth in smaller businesses (looking to share catering facilities), a move to more food to go and convenience retail, the importance of environment design and the rise of delivery outside of city centre security conscious locations. Like the rest of the industry, contract caterers are facing a lot of challenges and it will be the ones who rise to them and deliver what the consumer wants that will prevail.
The session was as ever very informative. Well done to the whole team at MCA who presented their findings on the day and of course to those who beavered away in the background. We look forward to the Marketing in Foodservice conference in December, at which I will be taking part in a panel discussion. So hopefully see you there!
*Confusingly some people refer specifically to the world of contract catering as ‘foodservice’ e.g. the Foodservice Cateys. Although most define foodservice as the wider catering market.