Peter Backman is managing director of Horizons, one of Britain’s leading foodservice consultancies. I’ve always found his annual analysis of the National Restaurant Association Show to be particularly insightful, and it has proved very popular with BurgerBusiness readers. Rather than give a link, I’ve printed this year’s, titled “A Chastened U.S. Foodservice Market,” for Memorial Day reading. Peter can be reached with comments at [email protected], and his complete contact info is at the end. Enjoy the holiday.
In a Nutshell
The last couple of years have seen quite a lot of culling – of operators and suppliers. Those that are still in business may have seen some increase in sales at the expense of their less successful competitors but overall it has been a difficult time.After two and a half years of decline, foodservice sales seem to have bottomed out and, according to industry watchers, turnover is showing some growth this year.
But operators and suppliers are not rejoicing. But people are somewhat more optimistic than they were a year ago even if there is less exuberance than in better times. Now is a time to be careful and to continue to watch expenditure.
No doubt the natural energy of the US market will return but this is not yet the time for cost-hungry creative marketing and product innovation.
Things have started to improve
1. The numbers of exhibitors at the NRA Show increased from last year’s 1,700 to 1,900 last seen in 2008. Some well-known food manufacturers, including Heinz, returned after an absence. But booth sizes were smaller, aisles seemed to be no narrower than last year and unused spaces around the show floors were just as large. So it seems that exhibitors were spending less
2. But the Show itself is only a part of the overall NRA “Experience” – there is a host of promotional and networking activity going on throughout Chicago. It seems that more is happening at these “fringe” events
3. The US economy is growing reasonably smartly at the moment but some economists are fretting that when quantitative easing comes to a halt the dollar will fall – or rise –leading to more inflation or deflation. The outlook is uncertain
4. The foodservice sector is growing – a bit. Meal numbers are expected to be up this year over 2010 and 2009, but they are still only at 2005 levels.
5. Inflation has helped the market to show better % growth but even so expert forecasters generally agree that the market will grow by only 1% or so this year in nominal value terms after falling by -4% since 2007.
6. And growth of 1% is still well below the average of 2.4% experienced annually between 1995 and 2005.
7. Over the last two or three years the foodservice sector has winnowed out weaker players – and as recently as April, pizza chain Sbarro Inc filed for Chapter 11 protection. Many more successful operators have closed underperforming stores.
8. The net result has been a reduction in capacity which has allowed many operators to grow faster than the market as a whole. This is very necessary in view of the parlous state of many operators whose balance sheets have been severely impacted since 2008 by falling sales, rising costs and unwise real estate investments – after all, the foodservice sector was just as much a part of the property bubble as the housing market
9. The supply-side has seen a similar picture, with less successful, or less committed, food manufacturers cutting back their foodservice activities, thereby creating additional, if small, opportunities for suppliers that remain in the market
10. The equipment market as a whole is still far below where it was in2007. Operators cut back their capital expenditure with the onset of The Great Recession in 2008 and have not returned to former buying levels. Replacement expenditure is staring to kick in though and equipment suppliers are seeing some real growth in 2011.
11. Fears of job losses – even though the rate of decline has stabilised – exerts some influence over eating out levels but US consumers still appear to want to eat out because of its convenience, value and the opportunity to be convivial.
12. Activities taken to reduce costs when food inflation peaked in 2008 have been reintroduced in part as prices rose again in late 2010. Action has included cutting back as far as possible to the essential – cleaning was reduced where possible for instance; cheaper alternatives replacing more costly products or services; reducing energy – especial in transport; buying food more cheaply or buying cheaper options. But in reality most of these changes are small scale and of limited effect since operators have been running very lean regimes for two or three years
13. And in clear echoes of the UK market: regulation continues to be a problem for foodservice operators; operators have to cope with rising energy costs and food prices, especially for commodities notably meat and dairy; shortages of sufficiently trained labour are being compounded by a declining pool of labour
I asked for $1 every time I was asked this question – and I was able to retire early!
Were you at the wedding?
14. McDonald’s, reportedly accounting for 1 in every 12 meals out of home in the USA had a good year. And with its size and reach has been influential in helping the whole sector to grow recently
15. The casual dining sector – typically with a $15 meal spend – has struggled against consumer cutbacks and trending towards lower cost offers.
16. Fast casual – fast food/QSR with an above average check size (that means people pay more than in a traditional QSR unit) – has performed well as a sector. Consumers have been trading down from casual dining, showing that they still expect value – in terms of quality, experience and quantity – even when they are paying less
17. Non-commercial operations have stayed flat at best – but government austerity programs and high (in US terms at 9.7%) employment will force these sectors lower during 2011.
18. Many operators cut back on staff matters generally, and training in particular, when things started to go downhill in 2008. By and large, there has been little move back again to former levels (which many observers believe were insufficient even in the good times)
19. Staff turnover seems to have slowed because, in tough economic times, employees have wanted to hold on to their jobs. Despite that operators who cut back staffing levels in 2009 and 2010 are not hiring yet except for new stores which are few and far between.
Some things are new
20. Because of rising protein costs = meat, fish, seafood – there is pressure to migrate to lower cost options. And that means chicken. There are two dangers with this direction of travel. The first is to reinforce a eating out monoculture based on a limited range of products and the second, is to focus on chicken which consumers eat at home – so why should they go out to eat it.
21. Because of the tough economic environment, investment in innovation seems to have taken a back seat. Genuinely new products are few and far between. And they are mainly to be found in areas where they can make a real difference to operators‟ costs.
22. Thus, kitchen equipment, dosing equipment and the like have seen some new product launches. But it’s mainly been incremental product development and not genuine innovation this year.
23. One of last year’s more noteworthy launches was the Coca-Cola Freestyle dispenser, which we commented on after the 2010 Show. This dispenser allows the customer to select over 100 flavour options from a single machine. In view of their high cost (we heard that they could be in the region of $25,000 each) placements are limited but growing. And the launch of a lower cost “crew serve” model should be a boost.
24. Pubs, generally referred to as bars or taverns, with 3% of the US foodservice market, are still only a small eating out sector. Nevertheless Lamb Weston have created a pub theme – The Beer and Crunch! – for their Tavern Traditions brand.
25. The US market is still obsessing about customers‟ weight but surprisingly my impression is that fried foods are less noticeable this year than ever before at the NRA Show. There is more emphasis on apparently healthy products like flatbread which now comes in a bewildering variety of shapes (round, square, rectangular, oval …), content (whole grain, low sodium …), format (tortillas, wraps, pizza base … ). But the question is what goes inside these products – and the quantities used – because that is what counts towards the calories.
26. One of the notable developments is the continuing expansion of “Gluten-free” -even gluten-free milk! Americans need to be reassured about these sorts of things.
27. Other ethical issues are also getting a wider hearing. Fair Trade is mentioned from time to time and sustainability is definitely on the up – although still only having small-scale application. The pressures to do something come from the consumer – so it makes good business sense to promote ethical issues.
28. Sustainability does not seem to extend to the supply chain and although distributors are trying to reduce their mileage (by more efficient routing for example) this is primarily being driven by the rise in gas (petrol) prices – now at about $4 a gallon – 50p a litre.
29. But customers do not seem to be forsaking delivered distributors for other sources such as cash and carry
30. But organic foods had been growing up to 2009 but since then the higher prices required for these products have turned consumers away from them.
31. Last year we picked up the Trufill system for filling beer glasses from the bottom. This is not a marketing gimmick but there are genuine benefits in speed and reduced wastage in doing things bottom-up. This year’s contribution from Grinon Industries uses a container with a hole in the base through which beer enters. When filling has stopped, a magnetic cover falls on the hole and is held in place by a metal ring surrounding the hole. The world record for filling this system is 54 16-oz. cups in 60 seconds.
32. There seems to be a bit more attention to striking design – in things as varied as blenders and coffee machines – and less industrial-looking models. The Egro coffee machine from a Swiss company – allows the operator to play videos while the drink is being prepared.
33. Rather than innovate over the last couple of years, operators and suppliers have been tidying up – clearing out badly performing operations, products, regions etc – rather than innovating for growth
Accentuate the positive
There was the usual crop of compliments about my accent including this one; “I love your Belgian accent.” Presumably Britain and Belgium, both beginning with “B,” are equally important to Americans.
Some things are just like the UK
34. In April, the FDA (Food and Drink Administration) revealed draft rules for disclosure of nutritional content to “help consumers limit excess calorie intake and understand how the foods that they purchase at these establishments fit within their daily caloric and other nutritional needs.”
35. The regulations will apply to chains with 20 or more locations operating under the same brand name and which offer substantially the same menu. Under the current draft, calorie information will be shown on menus for standard menu items. Additional nutritional information must be supplied to customers on request.
36. The plan is to have the nutrition labeling laws in place by mid-2012 – more information can be found here www.restaurant.org/menulabeling.
Marketing and IT collide
37. Food Trucks driven by Twitter. It’s not as crazy as it sounds. The Food Truck phenomenon – based on selling better-value lines than traditional food trucks selling low priced tacos, burgers and pizza – depends on creating high demand in a concentrated area in a short space of time. Twitter is great for that
38. Food Trucks are found in larger urban areas – Washington DC, New York City, LA, Portland – but not in others like Chicago where the authorities are against the concept (probably until they can find a way to tax it).
39. Operators are mainly independents (Bistro Truck in New York, Red Hook Lobster DC …) – but chains, including Taco Bell, also operate plenty.
40. They park, typically for 90 minutes over lunch, serve 150 or more people and then move on. Locations change daily so that customers are offered a daily choice of new concepts.
41. The drivers (excuse the pun) are supplying customers with novel offers constantly changing at a low cost to the operator with the possibility of trialling bricks and mortar concepts without the investment.
42. On the downside are food safety fears, and possible regulatory tightening as authorities search for ways to control and tax the whole phenomenon
43. Technology is once again a force to be reckoned with in foodservice. Typical enterprise solutions – supply chain control, accounting packages, stock control, nutrition analysis, menu costing – have been around for years and are well developed in foodservice. Newer IT solutions centre around staffing and recruitment
44. And a key development area is communicating with customers. Social media are widely used but less understood because the technology and consumer interaction with it are changing almost daily.
45. Dedicated smartphone apps, Groupon and other solutions are emerging all the time and restaurants are using the iPad is to show menus and take orders
46. Groupon is a major talking point. I went to a sandwich bar for lunch in downtown Chicago. The place was heaving with hordes of customers using their $1 Groupon vouchers – plenty of customers, no profit. I wanted to spend $10 – plenty of profit – but was unable to place my order. How does an operator make money out of this?
47. Groupon has 50 million or so email addresses, with 2/3 million in Chicago alone. 1% to 2% of these signed up people use a Groupon voucher each month.
48. Groupon is primarily used by independents that don’t have the access to widespread coupon distribution enjoyed by chain operators through their website.
49. The downside of Groupon – as with vouchers generally – is the potential for debasing the brand and educating consumers to pay less. Some ingenious solutions to this problem – such as BidMyWay – attempt to cope with this negative.
50. “Have your next meal on us” from a supplier of food trays – think about it!
51. There is some pressure to retire McDonald‟s iconic Ronald MacDonald. Recent research from The Marketing Arm shows that the mascot ranks 2,109 on a unique likeability index. However, it looks unlikely that the company will eliminate Ronald who was created in 1963.
52. Chill out with a coffee in Chicago? It’s difficult, you can go to Starbucks – in Borders, in hotel lobbies and in standalone sites, but the choice available in London just doesn’t exist in the Windy City. And McCafe is not really an alternative with its focus on selling calorific muffins and other pastries.
53. I did see a Mrs Fields Cookies in the Loop with a queue of office workers 15 deep at 3:00 in the afternoon. Clearly business was brisk – but leaving the office to eat cookies in the middle of the afternoon?
54. Mexican food is still going strong and apparently offers a healthy alternative – although burritos filled with rice, meat, cheese may not be everyone’s idea of a slimming menu
55. But Indian food is still a niche market – Americans feel it is far too spicy and anyway they have Mexican food which does the same job
Three Key Learnings
▪ One: Never underestimate the US consumer – things may be tough in their pockets and for their futures but they continue to eat out – reportedly some 200 times a year on average.
▪ Two: Innovation is important, and lack of it may have hurt the US foodservice market.
▪ Three: See opportunities in all things – even Twitter is driving Food Trucks.
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