What’s Hot In The USA Foodservice Market
Horizons MD, Peter Backman, recently returned from the NRA show in Chicago with an up-to-date view on the US foodservice market from appointments with 30 operators, distributors and manufacturers and informal discussions with many more:
In my 2008 report on the NRA show, I pointed out forcefully that the US foodservice sector was learning to cope with two huge issues. First there was slackening demand and second was the major cost increases from rapidly rising inflation. What a difference a year makes. The operators, distributors and manufacturers I spoke to all agreed that inflation is no longer a current issue – although it may come back like a Vampire from the grave (and more on this theme later). But slackening demand is here – right now – and with a vengeance.
1. The foodservice sector in the US is looking like the foodservice sector in the UK - sales are down. And while input cost inflation is low, large rises last year extracted profit from the sector and current operator pricing activity is eroding margins even further.
2. My view - and probably yours too when you read what follows - is that there is very little difference between what is happening to the market, and how it is responding, whether you are in Manchester, Connecticut or Manchester, the home of Man U.
3. On the plus side, operators are fully aware of these issues; most have taken action to ameliorate margin pressures and reduced turnover by reducing costs - primarily labour.
4. While there have been operator failures, these have been heavily concentrated in the cashstrapped, under-capitalised independent sector.
5. Of course the picture is a bit more nuanced than this bald view. Some segments, most notably quick service, have been doing well recently recording growth well into positive
territory.
Some numbers and facts help tell the story:
6. Overall foodservice sales in the US are flagging right now and the NRA say that they expect real (inflation adjusted) sales to dip in 2009, by -1%. The market also fell last year, so that makes two years of consecutive decline - which is the first time that's happened since records began in 1971.
7. As in the UK, eating out on a whim is no longer the order of the day, and the corporate expense account sector has gone into hibernation. The result is reduced demand from Monday to Thursday, possibly extending into Friday. But weekend trading looks OK.
8. Of course, some regions are really suffering - such as those where the automobile sector is a major employer or where the finance sector used to boom.
9. Since the start of this year, quick service has grown - on the back of its overall "value" (for which read "low price") proposition. The next segment up - casual dining which is roughly equivalent to much of the UK's pub sector - has fallen and its problems are exacerbated by massive overcapacity (unit numbers have doubled since 2001). Higher up the expenditure scale, the market has also fallen but by not as much as the casual segment.
10. These movements demonstrate that the so-called "down trading effect" is leading to more sales in the lowest cost sectors - but down trading is not universal, with evidence that customers are still remaining loyal to their traditional mid- and upper-spend haunts.
11. And today, customers are reported to respect value for money - which doesn't always mean lower cost. Operators reported to me that consumers frequent places that offer "value" - if there is a real reason for visiting, customers will visit - but if it's just "lower prices" then they are much less likely to.
12. Staff feeding (much less important in the US than in the UK as a proportion of overall market activity) has suffered from rising unemployment - 8.9% in April and set to rise to 10%. But the rest of the non-commercial sector has, thus far, been broadly unaffected by the downturn.
For the rest of Peter's report, click here.
