You may recall my last Lumina food strategy forum exec summary blog was split into the good news and the bad news. I’m sad to say that the weight of bad news is rather overwhelming this time around, however that isn’t to say there isn’t some good news. As ever things are changing on a daily basis as this debrief happened on 21st September two days before the Chancellor’s ‘mini budget’. However, that said, it offers up a useful snapshot of the market. My top take outs from the debrief are as follows:

The Market

  1. Tough Times: consumer confidence is at an all time low at -44 (the lowest since it has been tracked). Unsurprising given the war in Ukraine and the cost-of-living crisis, inflation and so the list goes on! Eating out penetration, frequency and average spend are all down quarter on quarter.
  2. QSRs & retailers doing well: Consumers are increasingly value-led and turning to retail meal deals and QSRs where transaction values are lower which conversely sees pubs and bars losing out. QSR’s are capitalising on this by launching loyalty schemes, with KFC, Greggs, Costa, and McDonalds all seeing an increase in their share of eating and drinking pout occasions.
  3. Drinks only occasions drop: Be it alcohol or coffee, sales are down as consumers tighten their belts.
  4. Occasions changing: Treat remains the most important occasion (possibly the lipstick effect in current challenging times). The other top growing mission is ‘I was travelling / commuting’, highlighting importance of travel locations at the moment. There has been a dip in socialising with friends, likely driven by consumers choosing to have dinner at home to save money. There has also been a shift in consumers’ routines, with this mission down by -0.4ppts and a notable decline in the amount spent at this occasion, again highlighting the changes consumers are making due to our current economic situation. Proximity, outdoor seating, and value for money have all seen an increase when it comes to why consumers are choosing an establishment.
  5. The World Cup: Despite drinks only occasions being down 4.6% ppts over the last quarter, the World Cup offers hope for pubs to reinvigorate their sales around this key sporting event. It may also help boost declining delivery occasions which are often associated with watching sports.

Pubs

  1. Sector recovery: High levels of inflation, meeting a year of unrestricted trade will see the pub market turnover grow by +57% between 2021 and 2022. Returning to a figure close to its 2019 level. The UK Pub market is forecast to be worth £22.5bn in 2022. The total UK pub market is forecast to see a compound annual growth rate (CAGR) of +1.9% between 2022-2025 which will take the market up to a total value of £23.9 billion, with a slower rate of growth in the coming years due to recessionary pressures.
  2. Key to success: With little outlet growth the opportunity for pubs is to drive spend per transaction and footfall. Not easy in the current economic times.
  3. Consumer drivers: 73% of pub and bar consumers now deem themselves to be value led. Encouraging chains to offer deals to attract consumers e.g. kids eat for £1 on Mondays at Hungry Horse. As with the rest of the market, drinks only occasions are falling driven by 18–24-year-olds who are most affected by the current economic situation, but with food and drinks occasions gaining share. Treat occasions and associated spend is growing, with spending time with friends, family and treat missions growing share in the latest quarter. Consumers are increasingly spending more during treat and socialising with friends missions with premiumisation playing a key role in driving this higher spend, as consumers seek higher quality experiences when they do eat out.
  4. What the top 20 brands withing the pub channel are doing: Drink prices are rising whilst food has slightly declined as operators fear alienating consumers at the current time with price hikes. Rather than scare customers away they are clawing back margin by upping the price of sides (up 6% April to July) rather than mains or starters, helping to drive spend by stealth. Premiumising sides and bringing in NPD aligned to indulgence, whilst using left digit anchoring to help drive value perception. Customisation is also a way in which operators are premiumising menus with upsell, accounting for 77% of customisation on mains, such as adding more premium sauces or toppings. Drinks are also an area where operators are increasing prices to drive margin as consumers seem reasonably price elastic with 53% of pub consumers believing that good quality has a price and are happy to pay more. Beer consumption remains unaffected by price increases. And finally in an attempt to minimise labour costs and mitigate staffing issues we are seeing low skill assembly dishes coming through on menus such as ploughman’s platters and sharing boards.
  5. Consumer actions: Consumers are holding back on higher spend occasions but spending more when they do.

Sandwich & Coffee Shops

  1. Resilient sector: Coffee shop/café, fast food and sandwich & bakery channels are among the strongest performing channels from 2019-2022. Less reliant on ‘dine in’ through the pandemic, they have expanding and diversified across a wide range of locations, rolling out tech-led services in store and digitally, as well as attracting consumers seeking low ticket solutions. As such average spend per head is £6 compared to the market as a whole at £10.64. “It’s good value for money” comes in as the third most common reason for a consumer to choose an establishment, driving 21% of coffee & sandwich occasions. Ambiance is also key as 54% choose to enjoy their coffee or sandwich on-site soaking up the atmosphere. This sector also seems to attract more quality led consumers interested in sustainability, provenance and who are socially conscious.
  2. Occasions: Lunch, drinks and snacks offers are all occasions in growth in this sector. Deals and loyalty scheme are helping to drive sales in a value led market.
  3. Lunch: Proximity and convenience are the top drivers for lunch out of home so having locations to harness footfall is key. So, it is little surprise that retail is increasing its share by 1.5ppt vs. last quarter with a 16% share of the lunch occasion OOH, as retailers up their meal deal game to appeal to value led consumers.
  4. Snacking: Snacking is being driven by people being out and about and treating themselves. We are also seeing social occasions trading-down to ‘social snacking’ rather than full meals in an attempt to save money e.g. a muffin and a coffee rather than a full lunch out, with cake, ice cream (over the summer months) and scones topping the snacking charts. In an attempt to capitalise on this and premiumise snacking we are seeming super indulgent NPD coming through to tempt consumers e.g. Gail’s Strawberry and Ricotta Cake and Nero’s Passionfruit Martini Chouxnut.
  5. Drinks: Main reason why drinks are struggling is the increase in cost, as the average cost in the sector is £4.24 driven by coffee and iced coffee over the summer months. It is however the fastest growing day part up +8% vs last quarter and we are seeing a range of premiumisation and seasonal variants to create special treat beverages. But as the cost-of-living crisis hits it is something consumers can replicate at home so we will have to see how robust sales are in the coming months.

Industry Leaders Poll

Asking 107 industry leaders their opinion – to take the temperature of the boardroom across both eating out and grocery.

Headlines as follows:

  • Challenging conditions for hospitality leaders with economic and trading expectations downbeat.
  • 58% are expecting trading conditions to deteriorate across the next 12 months in eating out
  • There is sentiment among hospitality professionals that inflationary pressures, supply chain and availability challenges – as well as challenges around staff shortages – will ease in the next 12 months.
  • The cost of living & trading crisis is a major concern, with squeeze on household budgets and value consciousness coming top of a list of long-term consumer trends affecting the market
  • The top initiatives being prioritised are sustainability, innovation, digitalisation, and employee training.
  • The top challenges being passing on rising prices, increasing fuel costs, rising ingredient costs, raising profitability, and declining consumer spend.
  • 8 in 10 businesses are experiencing staff challenges, with Brexit, low paying sector and competition exacerbated by the pandemic cited as key drivers.
  • To help mitigate the impact of the cost-of-living crisis businesses are looking to support staff more, increase efficiencies and review prices and propositions.
  • Businesses are boosting their value credentials with loyalty schemes as well as offers and deals to appeal to cash strapped consumers.
  • 77% of hospitality operators haven’t seen a change in consumer behaviour since calorie labelling.
  • The most admired hospitality businesses are Wagamama, Nando’s, McDonald’s, Peach, Oakman Inns and Megan’s, all delivering consistency and innovation.
    od value for money” is the third most common reason for

As ever, it was an illuminating session from Lumina. To find out more about the Food Strategy Forum visit https://www.lumina-intelligence.com/product/food-strategy-forum/