One year ago, foodservice was primed for dramatic growth. Analyst IGD predicted a £5.8bn rise in five years in the food-to-go market alone.
However, on June 24 last year, the UK woke up with a collective hangover, thanks to the ‘Brexit’ vote to leave the European Union. That decision has triggered years of uncertainty. According to Peter Backman, director of foodservice analyst Horizon, there are now two main areas of concern.
“A clampdown on immigration means there are not going to be enough people to work in the industry, or it is going to be constrained,” he says. “That means costs will probably go up, because there are fewer people and, more controversially, the quality might fall.”
The fall in the value of the pound since the vote has pushed up food, equipment and energy costs. While this does not spell a reversal in the fortunes of this evolving market, it does mean that operators and wholesalers must be aware and agile to stay ahead.
According to a report from business strategist CGA, casual dining is one of the strongest sectors, with like-for-like growth up 4% last year. However, Brexit, the National Living Wage, the upcoming Apprenticeship Levy and increased business rates mean that the cost of operating is increasing faster than revenues, putting pressure on already tight margins. The report says that vital to the industry’s survival are good strategic planning, a focus on training and development, and greater communication about its value and vibrancy.
Alongside the challenges, there are opportunities to grow your foodservice. Any reworking of food legislation, for example, has the potential to be tailored towards UK needs and the country has already felt an increase in inbound and domestic tourism. A shift towards buying British and an emphasis on provenance may also proliferate throughout the sector.
Foresight, agility and collaboration
According to Bidvest’s group sales director Andy Kemp, whatever challenges and opportunities the next few years present, wholesalers will require strong leadership and a collaborative approach. Operators will also need to be responsive to the changing legal, economic and social landscape.
“One has to have agility within an organisation to move around this landscape,” he says, pinpointing food inflation as a key pinch point. “If we see products moving forward very quickly, we need to be offering an alternative. The consumer purse has a limit, and while eating out of home has been seen as a luxury, it is increasingly a lifestyle; people also want to enjoy a family experience. Agility means offering a range of products that are affordable in all of the marketplaces we trade in.”
While food inflation will affect everyone, the Federation of Wholesale Distributors’ chief executive James Bielby highlights the opportunities for wholesale.
“Price increases to consumers could also benefit wholesalers, who have been trading in a deflationary market for a number of years,” he says, adding that suppliers and wholesalers will increasingly need to work together to create efficiencies. “They will need to discuss what they want from each other and how they can work together to deliver those solutions to their customers.”
He also foresees suppliers of branded goods finding themselves on the back foot. “They are going to have to consider their response carefully – whether that is different pack formats or different-sized products, or by putting their prices up. This means foodservice wholesalers could be in a relatively strong position when it comes to food inflation, because their customers are likely to buy cheaper, own-label products,” he says.
Rise of the new wave
Peter Harden, one of the founders of restaurant guide publisher Harden’s, says understanding changing lifestyles also sets the scene for winning in foodservice. “The population has gone up by 10% and people are delaying when they have children,” he explains. This means more time spent enjoying leisure activities, such as eating out.
However, while there was a record number of restaurant openings in London last year, there was also a record number of closures. And he predicts increasing dominance of chains over independents in a post-Brexit world.
Groups like Wahaca, Pho and Franco Manca are just some of the brands dubbed the ‘new wave’ of casual dining outlets, often beginning life in the capital before expanding nationally. CGA anticipates this sub-segment of casual dining will almost double to more than 900 outlets by 2020.
Bidvest’s Kemp agrees that the traditional trajectory for burgeoning chains is to test the market in London, before looking to the Midlands – typically Birmingham – and beyond. Understanding the customer and tailoring the wholesale operation to these expanding companies is crucial to success, he adds.
“Small chains will often use small, regional wholesalers, but as capacity increases they will look to deal with a large, national operation,” he explains. Using chain TGI Fridays as an example, Kemp says: “This restaurant chain was reasonably small and sat in our wholesale division for a long time, but when TGI Fridays exploded their brand, they got to a size where we moved them into our logistics operation. That was the right thing for them.”
British and best
As economic uncertainty persists, more retailers and foodservice outlets may start looking closer to home. Kemp predicts a greater emphasis on buying British, and a greater interest in provenance and regional foods.
“We are looking at many concepts,” he says, adding that Bidvest is also thinking ahead to the prospect of catering for a more European, healthier menu that offers better value.
He adds: “As people start to eat more healthily, and people consider what they eat out and how frequently, there has to be some real thought about how we manage our food stocks and industry.”
Kemp believes that, in turn, chefs will ask what is important on a menu. “Will we go back to seasonal menus? Will the number of offers sitting on a major menu reduce? Will good quality British food win out?”
One wholesaler also points to an increasing emphasis on provenance and heritage foods. Paul Hargreaves, of fine foods wholesaler Cotswold Fayre, says that the company’s sales were up 40% in convenience last year.
“Convenience is growing, but consumers want a different offer from the multiples. There is a trend towards premium across the food and drink sector, and there is work to do to change the perception of convenience stores,” he says.
Of the company’s lines, 75% are sourced from the UK and Ireland. It has also significantly increased its chilled offer. “Those convenience stores stocking chilled are outperforming on ambient three times. Good quality, quick meal solutions and food-to-go are all doing well”, he says.
Kickstarting the shift in store layout arguably started with the multiples. In 2015 in key areas throughout England, Sainsbury’s trialled six redesigned stores that catered to specific ‘shopper missions’. And while food-to-go is not new, the concept is reaching new levels of sophistication. In those stores, the food-to-go area sits at the front of the store, next to the checkouts. Sainsbury’s has also moved its fresh bakery products to this section, making it more convenient for people wanting to buy quickly.
According to analyst IGD, there are five different ‘missions’ for food-to-go shoppers: breakfast, drinks, lunch, snacks and leisure. The company’s survey found that 28% of the UK’s adult population had bought an on-the-go breakfast product in the previous month and 70% bought lunch on-the-go, with choice, quality and taste as the main criteria. Street food, too, has been cornering the grab-and-go market, particularly in larger urban centres, paving the way for upcoming food trends. This is the heartland of Mexican, American, Chinese, Thai and barbecue flavours.
The grab-and-go concept is also filtering into the contract sector with schools jumping on the latest trends. Creed Foodservice development chef Rob Owen, says: “Increasingly, caterers are after new ideas to tempt students and to increase meal uptake. These range from grab-and-go items that mimic lunch options available in high street branded coffee shops, to adventurous ‘street food’-style dishes. Street food is particularly attractive to older pupils who view food-to-go and hot food-to-go in particular as ‘cool’.”
24/7 food culture
Whether it is Deliveroo bringing restaurant-quality lunch and dinners to offices and homes, or shops and forecourts offering food 24/7, wholesalers must be aware of changing consumer habits. Horizon’s Backman urges wholesalers to think about delivery: that a product is fit for consumption, and its packaging is right.
“Traditionally, the Indian or Chinese takeaway has come in very basic packaging but if you look at Wagamama’s delivery, it is a bit more sophisticated,” he says, adding that wholesalers should not be “flogging the cheap stuff”.
And while the delivery business is mainly coming from the group operators, which will mostly be supplied by contract distributors, some will be supplied by wholesalers. “Wholesalers have to keep an eye on that market. It is new and developing, so it is difficult to say exactly what they should be doing, but they must be monitoring it and working out who is doing what,” he says.
In retail, gains can be made in areas such as forecourts, where fuel drives footfall, but margins of 45% to 50% are made on other products. Wholesaler Country Choice, part of the Brakes Group, supplies breads, pastries, sausage rolls and other items to retail outlets and forecourts.
Marketing manager Stephen Clifford explains how important it is to understand this market: “The core 80% of the market are van drivers and professionals on the road,” he says. “There are pockets of regional difference – for example, pies are more popular in the north – but the core is relatively consistent: in the morning, it is a mix of breakfast baps and croissants; lunch is sandwiches and a drink; and the in-between times are pastries, which are accompanied overwhelmingly by coffee.”
The cost sector
The cost sector, which includes schools, hospitals and local authorities, is complex, with an array of procurement processes. In hospitals, for example, there is a recommended NHS supply chain, but trusts can also buy from regional wholesalers.
Premier Foods’ channel marketing manager Sarah Robb says: “Manufacturers and wholesalers must understand the needs of that market. It is not one size fits all. We’ve seen growth across the whole sector, but each part is very different.”
Premier works hard with schools to understand meal plans and the issues surrounding obesity and sugar. Not only does this help with the reformulation of products, but the company also works to add value, such as recipe support.
In care homes, the issues shift again. “Dementia sufferers forget to eat, so having bite-sized products available is vital. People with dysphagia have problems swallowing, so it is about upskilling chefs to cater for the condition,” Robb says.
Premier runs the annual Dysphagia Chef of the Year competition to showcase specialist foodservice talent: “Sharing knowledge and expertise is key.”
She adds that in hospitals, packaging that patients can open is also important: “Wholesalers must be aware that packaging must be fit for purpose and available at the right cost. If we can all work together, we get better results.”