Intense pressure on margins to hit catering sector
Food inflation, overcapacity in the eating-out market and the downturn in consumer spending will prove serious to the UK’s pubs and restaurants and is likely to lead to a higher number of business casualties this year, particularly in the pub sector where competition is increasingly intense.
This is the stark warning from market analyst Peter Backman of Horizons, as the company releases its 2008 statistics on consumer spending across the UK’s £40bn eating out market.
“Since the smoking ban many pubs have switched their focus from the sale of drink to food, meaning they are now competing with high street restaurants. This has led to an over-capacity of outlets in the mid-spend sector. At the same time consumers are tightening their belts as food, energy and fuel prices rise and the mortgage market looks increasingly vulnerable,” commented Backman.
“Because of this competition the UK’s eating out sector – which consists of some 263,000 outlets - will have to rationalise by driving the less successful operators, whether it be restaurants, quick service outlets or pubs, out of business.”
Horizons also believes that many operators in the eating out sector are currently overlooking the impact the high rate of food inflation will have on their margins.
“Operators' food costs are rising at over 5% at the moment and I'd expect it to go significantly higher. This, coupled with increasing energy and labour costs and the fact that selling prices are rising more slowly, means margins [which are typically around 5%] are being squeezed hard,” said Backman.
Food inflation [input] is currently forecast to rise by 6.5% over the next six months, while restaurant selling prices are expected to increase by 3.25%. The fact that input prices are rising 3% faster than output prices is putting great strain on operators’ already slender margins.
Latest figures from Horizons show that average spend on a meal in a UK restaurant (not counting Ethnic restaurants) is now £18.99 including drink [Linda: the figure of £11.09 covers all Restaurants (including Chinese, Indian, instore etc), while consumer spend on a pub meal is £5.22. Average spend at a fast food restaurant is £4.60.
Consumers eat out in pubs, fast food outlets or restaurants 1.3
times per week, spending an average of £6.01 on a meal, including drink. Once inflation is factored in, Horizons expect this figure to increase to £6.21 during 2008 despite a softening in the eating out market
“At the top end of the mid market, customers are paying over £40 a head for a meal, while at the bottom end they are paying less than one pound. Although this huge choice demonstrates the adaptability of the eating out market, it also highlights the vulnerability of the business models of some operators,” said Peter Backman.
