What Now for Foodservice?

As the foodservice market starts to brush itself down, dust itself off and look to take its first tentative steps now is the time to look at what is in store for the immediate future of foodservice. Today Simon Stenning shared his latest predictions with a CEDA audience, the topline summary of his far more in-depth report (which is available to purchase via futurefoodservice.com) shone a light on the industry as a whole as well as further sector specific impacts. Below are my top takeout’s…

Seismic Change
The headline to this webinar was far from a happy one with the hospitality/foodservice industry predicted to lose £23bn in revenue in 2HY 2020 which equates to 53% of normal sales levels. A sobering thought but one which was far from unexpected. In Simon’s view we will see a paradigm shift across recovery, re-emergence and how foodservice and hospitality operates as a whole. When it comes to influencing factors, he has taken account of drivers and inhibitors in the market from both consumer and operator sides.

The Economy
Of course, the economy has a huge impact on the sector and the Bank of England is predicting 9-10% unemployment (from previous record lows) moving to 7% in 2021 but with statisticians quoted as saying it takes six months to recover from every percentage point it could be up to six years before we see pre-Covid levels of employment – a sobering thought. Inflation is predicted to drop to 0.5% and then hit 0.6% in 2021 with a return to the Bank of England’s goal of 2% in 2022. However, consumers polled by YouGov and Citibank expected inflation to be far worse at 3% which shows a lack of confidence. However, if prices do fall then that is in theory more disposable cash and therefore could be a positive. As for managing operator pricing it will be a tightrope to walk to ensure they make a workable margin whilst not putting customers off with price hikes. We saw GDP take a nose dive in April, down 20% and the Bank of England is predicting -14% for 2020 but with a V shaped sharp dip and recovery in 2021 – subject to a Brexit free trade deal by the end of the year – else all bets are off and we could be looking more at a hockey stick shaped recovery.

Consumers
Consumer confidence has been negative since 2016 post referendum figures and Covid has only gone to drive it through the floor, from -12 to -33/36. This will hopefully pick up however as the economy improves, we see the death rate diminishing and (the silver bullet) we have a vaccine that can be widely distributed to the population. Consumer behaviour is difficult enough to predict at the best of times but in unprecedented circumstances it is even harder. There have been numerous surveys to try to gauge consumer attitudes to restaurants re-opening with varying results. CGA data states that 71% of consumers won’t return to eating out asap (whilst on the flip side 29% will) and 21% will eat out less frequently than before. CACI found that consumers unsurprisingly will choose brands that they feel are safe and 35% will increase how much they work from home. Marcus Wareing’s survey of over 9,000 consumers (although possibly not a hugely representative cross-section of the UK population given his fine dining status) saw 34% spending less when eating out and 31% concerned about returning. Whilst Brasserie Bar Co fronted by Raymond Blanc proudly released that their survey discovered 90% of consumers are likely to return to restaurants (although that does mean 10% are unlikely) and of the 90%, 40% would return asap but 60% would need to feel safe.

Overall, Simon sees four key consumer trends:

  • Physical and mental wellbeing – taking better care of both
  • Trust and Safety – needed to get consumers out and about
  • Managing work life balance – a trend already present pre-Covid which has been sped up by circumstances
  • Purpose and environment – another trend pre-Covid which has been fed by the impact we’ve seen on the environment and communities

However we cut it, the immediate future will see less frequency of visits and less spend which is not good for the sector. Consumer trend two – Safety and Trust is the one that will be crucial to the industry and those who can build trust and show clearly how they are making their customers safe will come out best. These measures are not forever but they are required certainly in 2020 and in all likelihood into 2021. The cost of these changes will need to be balanced with the length of time they will be needed for and expenditure made but managed. Measures like reduced capacity front and back of house for social distancing, contactless payment, QR code menus, delivery/take away options and crucially the ‘theatre of cleanliness’ will be essential to ensure custom but should not bankrupt the business in the meantime. CGA and Fourth Hospitality’s consumer insight highlighted that 64% of consumers would be more comfortable if tables and seats are moved apart, 60% if there were plenty of hand sanitizer, 56% if there were visibly-enhanced cleaning protocols and 55% if social distancing continued for some time. As for the differences with demographics, understandably the younger tend to be more gung-ho while older consumers are more cautious as they face a far higher risk. But we live in multigenerational households and workplaces so realistically any possible relaxation based on age would be pointless in Simon’s view (and I must concur). Indeed, the young may be more confident but they are also likely to be hardest hit by unemployment so they may want to be out and about but not have the funds to do so.

Operator Modelling
Aggregating accounts from a number of restaurants to create a ‘typical’ operator, Simon has worked with his accountancy client to look at various scenarios around the workability of capacity and margin with other factors like rates holidays and reduced rents etc. The up-shot being that if an average restaurant sees a 50% drop in revenue, even if it reduces head count (across the lower cost members of staff) and manages to maintain margin it will see a £71k loss which is not sustainable. The solution to keep their head above water and breakeven – to cut labour costs by cutting head count and reducing costs across high cost staff (via salary cuts)  and raising margin to 40% (still factoring in rates holidays and negotiating rents down). It’s a scary picture and recent MCA operator insight showed that the majority feel it will take one to two years to get back to profitability and others over three. What it failed to ask is how long can they operate at a loss or breakeven – a year perhaps? So, let’s all hope the vaccine comes soon eh!

The Theatre of Cleanliness
As stated, this will be key to driving custom and giving customers the reassurance they need. Hilton has introduced their Clean Stay plan with 10 high touch deep clean areas, whilst Greene King announced £15m spend across their estate (approx. £1k per site). As well as offering hand sanitiser, visibly cleaning and using screens and other PPE when appropriate, minimising touch will be a priority with touchless dispensers for cutlery, air touch distance selection, QR codes to control coffee touch screens on your phone, QR code menus replacing paper ones and the move to single serve sachets (rather than table top bottles).

As for the 2m distance and the lobby to move to 1m Simon believes that the arbitrary 2m is just not workable for hospitality, as he put it ‘sub economical optional’ and that although signage will doubtless stay at 2m the more workable reality may be more about safe distancing based on WHO recommendations allowing for differences in time spent by side by side and face to face etc. As for implementing safe foodservice outlets that is where Environmental Health inspectors will come in – trained professionals whose careers are dedicated to ensuring food safety and who are now more important than ever.

Location
Where operators are located will also be a big factor. With public transport likely to be affected for some months to come transport hub outlets will be heavily hit. Some city high street operators are not looking to re-open until September with so many city workers continuing to work from home. Whilst as consumers default to car, travel forecourts will have increased footfall and F&B sales opportunities.

Sector Impact
As we know the foodservice world is highly fragmented and sectorised. Each sector has its own challenges. Here is a topline look at how Covid may impact each of the following:

  • Service Led Restaurants 48% of normal revenue predicted HY2020
    Casual dining as a sector was in trouble long before Covid and this has only exacerbated the issues with casualties already being seen and it’s predicted the mid-market will continue to struggle.
    Fine Dining will be less affected, although working back of house may prove a struggle and they will of course be impacted by the downturn in corporate hospitality and business entertaining.

Independents were already a shrinking sector and will struggle to build trust with consumers as consumers will tend to trust brands over independents.

  • Fast Food 77% of normal revenue predicted HY2020
    Fast food is doing well and is set up for take away and delivery but will still be impacted at 77% of revenue.
    Street Food Halls, especially those indoors will be heavily impacted.
    Traditional Market Street Food has been continuing to adapt with take away and pre ordering but will have to work hard to build trust with consumers.
  • Pubs 55% of normal revenue predicted HY2020
    Some group operators are proactively looking at plans to ensure customer safety like Brewdog’s 10 point plan and Wetherspoon’s and Greene King with the new normal being ordering via an app on your mobile.
    Some local pubs have turned into local heroes during the crisis pivoting their business to create farm shops and take away and will hopefully reap the rewards of locals’ loyalty. Indeed, some local pubs have upped their business during lockdown showing the value of trust amongst the local customer base.
    Nightclubs will of course be heavily hit as indoor mass gatherings are unlikely to return for some time.
  • Hotels 35% of normal revenue predicted HY2020

Heaviest hit of all will be the accommodation sector with hotel guests likely to stick to their rooms and even order in via apps like Deliveroo and Uber Eats. Hotels will need to counter this with improved room service, but this may not be enough choice for today’s somewhat “spoilt for choice” consumers. But in the spirit of if you can’t beat ‘em join ‘em…the other option is to pivot hotel kitchens into dark kitchens themselves and offer delivery to the local area.

Budget hotels for whom F&B has never been a focus may benefit the local area more in terms of guests ordering out for local fast food during staycations.

B&B’s are likely to benefit from staycations business as will the likes of Airbnb, also helping to bring in domestic tourist spend to their local areas.

  • High Street (Cafes, Sandwich Shops, In Store Cafes, Garden Centres) 62% of normal revenue predicted HY2020

Those set up for take away will do well, but will obviously miss out on sit down business driven by café based remote working. Some like Pret are offering deals like 20 coffees for £20 (any coffee) to lock consumers in and drive habitual purchase.
Garden Centre cafes who tend to have an older demographic may be hard hit although those that have moved to becoming more of a deli farm shop may do better if they can ensure customers feel safe.

  • Retail Grocery 51% of normal revenue predicted HY2020

With so many of us working from home the retail grab and go fixture has been hard hit, but as people start to move around more and go back to work they are likely to see an uplift based on the fact that their range is pre-packaged and therefore perceived as safer.

  • Travel 53% of normal revenue predicted HY2020
    With travel hugely affected the only real short term survivor is the forecourt and MSA, although as air travel returns it may be that we are more cautious and therefore have more dwell time to purchase more F&B as we travel through terminals.
  • Leisure 24% of normal revenue predicted HY2020

The heaviest hit of all with no large gatherings allowed, everything from visitor attractions, gyms and cinemas will be holding their breath for a vaccine. So, although we may be having more staycations and using places like National Trust spaces there will be very limited F&B sales for some time.

  • Contract Catering 69% of normal revenue predicted HY2020

Covering so many sectors including B&I, healthcare, education, defence and leisure, to name a few, this sector will be mainly propped up by its public sector contracts which have in the main continued throughout.
B&I has of course been affected with the move to work from home with contract caterers reporting the closure of around 50% of sites but employers will want to reassure staff that their workplace is a safe place to return to and this sector is likely to come back online slowly.

Corporate Hospitality however will be shut down for some time to come impacting on this side of contract catering.

The Road to Recovery
With all this doom and gloom it is hard to think things will ever be the same again, but Simon is confident that although it will be tough and some operators may sadly never reopen, the foodservice market will recover. For now, we are looking at a drop from 2019 at £98.1bn market value to 2021 £88.2bn followed by a steady recovery over the next eight years with 2030 hitting £108bn – a positive thought to end on!

As ever a great presentation from Simon Stenning brought to us by CEDA. For information or to buy the full report do contact Simon via futurefoodservice.com/