This is a solid set of results from a company that knows its business and despite the downturn, has stuck with its investment plans. Its stores are continuing to be refitted and new outlets have been opened. And this investment is paying off. Greggs now has over 1,437 sites in the UK, serving over six million customers each week.

Acknowledging that consumers now have far less money to spend, the company has also focused its promotions on value offers such as meal deals and breakfast promotions. All sensible stuff.

But Greggs acknowledges that there will be further inflationary pressures coming to bear over the next six months, including a rise in the cost of wheat and other basic raw materials. As foodservice and food retail operators will find it difficult to raise prices to maintain their margins, there's likely to be a hit on the bottom line for the sector as a whole.

Peter Backman
Managing Director
Horizons

This week Carlson, the US hospitality group, has bought out its private equity partner in TGI Friday’s UK and we have already seen Tragus expressing interest in Chez Gerard operator Paramount, the owners of La Tasca launching a formal auction process for the Spanish tapas chain and Ego, the northwest chain of Mediterranean restaurants, looking for a purchaser.

These takeover attempts focussing on strong brands, yet brands that are not yet mature in terms of geographic saturation, become more likely as the eating out market begins to improve. Bidders are keen to strike before prices recover fully while banks are beginning to finance the right deals again.

For further comment, please contact Linda Pettit on 07973 789853 or Peter Backman on 020 8349 0162.

The public service market is said to be worth £80bn in the UK and while contracts are likely to come up for retender more regularly as clients seek to cut costs, the pressure on margins will be increased further and the customer base will be reduced as staff cutbacks kick in.

The food and service management sector is about to undergo a massive change which could see the nature of contracts in this sector changing.

Peter Backman
Managing Director

Taco Bell has tried, and failed, in the UK before. Mexican restaurants that are doing well in the UK - Chiquito and the Chimichanga chain - are more formal sit-down restaurants than the quick service style of Taco Bell. And while tex mex occupies its own niche in the US with hot and spicy-style meats in sauces, that niche is already filled in the UK by Indian food.

Yum! Brands has a tough marketing job on its hands launching the tex mex concept to UK consumers. I will watch with interest, but I’m really not sure there’s a gap in the market for it.

Peter Backman
Managing Director

Winston House
2 Dollis Park
London
N3 1HF

Over recent years, we have expanded our portfolio of services and worked closer than ever with organisations involved in all areas of the foodservice industry. Our new location allows us to continue to improve the range of services available and strengthen our foundations as experts in data, insight and consultancy.

For further information about our portfolio of services, please contact Horizons on +44 (0)7785 242 809 or info@horizonsforsuccess.com

As a result of the budget, consumers are likely to have less money in their pockets to spend on eating out and are going to be more cautious about how they spend money they have got. The VAT rise, fall in transfer payments such as housing benefit and child allowances and continued uncertainty in the jobs market all mean that spending will be on hold for longer, so while we may have expected the market to improve towards the latter end of this year, it is unlikely to do so for a further 12-18 months.

For operators, margins will continue to be squeezed as inflation falls and, if they don’t pass on the VAT rise in full, their profits will suffer. The reduction in capital allowances will also have a negative impact on profitability.

The steep reduction in public spending, down by 25% up to 2015, will mean that there could be more contracts up for grabs in the contract catering sector, although margins will remain extremely tight. However, less investment in schools, hospitals and government facilities mean fewer opportunities for contractors and could mean existing contracts come up for renegotiation more quickly.

More detailed analysis of the announcements and their impact on the foodservice sector.

If you would like to discuss anything in this summary, please contact Peter Backman, Horizons' Managing Director on +44 (0)20 8349 0162 or peter@horizonsforsuccess.com

The natural bounce seems to have gone from the US foodservice sector to be replaced by a pragmatic, almost world-weary, pragmatism. It’s almost a case of Europe taking over the USA.

The US foodservice market is in its third year of decline. The length and depth of this downturn is unprecedented and is the background against which all comments and views about the large US market should be seen.
The good news is that the rate of decline has fallen and may even have bottomed out but there is still enough uncertainty to make any projections problematic.

Nevertheless there are still lessons to be learned from what is happening in the US foodservice market, which is why I make an annual trip to the NRA Show in Chicago. This year booth numbers were about the same as last year - 1,700 or so but down from the 1,900 in 2008. Visitor numbers appeared to be up considerably above last years’ and exhibitors told me that the quality of visitors, and their decision-making responsibilities, were significantly better than last year. I was told: “Visitors are only coming to the show if they really want to do business – they don’t have time to waste”.

1. Starting at about the time of the Lehman crash, the US foodservice sector turned negative for only the fourth time since 1971. And previous downturns have lasted at most a year and amounted to a fall of well under 1% each time.

2. The Great Foodservice Recession – as many already refer to it – has proved to be a different beast. The decline is 2008 was the worst ever up to then. Last year the market declined even faster, and although market forecasters see an improvement this year, the market will still be in negative territory for the full 2010 figures.

3. Overall the foodservice market will have fallen by between -5% and -15% depending on whose figures you use. A useful headline figure therefore is a real decline of -10% since 2008.

4. One reason for the depth of the downturn is that, for the first time since the 1930s, the top quartile of earners has seen a real reduction in spending levels. These people are essential to the restaurant sector and as a consequence of the trickle down effect also influence what happens in the Quick Service sector.

5. Another driver of the foodservice recession is the high level of unemployment – currently 10% and growing. But may also note the also high levels of underemployment which results in reduced pay packets. Together,unemployment and underemployment probably account for 18% of the working population.

6. The wider political and economic environment, of course, also impacts on the foodservice sector. The dramatic rise and subsequent fall in the popularity of President Obama, the passage of health care legislation, the Louisiana oil spill all exist in the background and to the extent that they affect consumer spending and confidence they have an impact of eating out. But the other factors covered in this note are more significant for the sector as a whole.

Full report.

The briefing revealed that the UK’s restaurant, hotel and pub operators are using an imaginative range of marketing techniques to keep the nation’s diners eating out including variations on ‘meal deal’ offers, ensuring they offer something for everyone, exotic-sounding dishes, familiar retail brands, and by labelling more dishes with health claims and details of food provenance.

New Menurama research from Horizons, which analyses menus from 100 high street foodservice brands, reveals deals such as ‘Italian car owners eat for free on Thursdays’ at Revolution, ‘curry & pint night for £4.99’ at Hungry Horse, and ‘all you can eat’ for £7.75 at Whitbread’s Table Table.

Some offers encourage diners to trade up to bigger portions such as Marston’s ‘go large for £1’ on its carvery, ‘go large on your chips for 35p’ at Beefeater, ‘add an extra egg’ on gammon & chips at Punch Taverns, ‘add a dessert for £2’ at Pizza Hut or ‘upgrade to an 8oz steak for £1’ at Miller & Carter.

The research shows that retail brands are becoming more commonplace on menus, particularly in pubs, as operators seek to sell familiar products that give consumers quality assurance. Examples include Heinz Baked Beans (Little Chef), Ben & Jerry’s (Gourmet Burger Kitchen), Häagen-Dazs (Gusto), Yeo Valley Organic Yogurt (Premier Inn) and Mövenpick ice cream (Exchange Bar & Grill).

Operators are also making more use of provenance-related labelling such as ‘rope-grown British mussels’ and ‘organic Shetland salmon’, while terms such as ‘farm assured’, ‘line-caught’ and ‘locally grown’ as well as health-related claims such as ‘nutritional balance’, and ‘5-a-day’ are becoming more common. Chef & Brewer’s menu, for example, has a ‘superfood salad’ dressed with pumpkin seeds and beetroot or pomegranate dressing. The Orchid pub company offers a roasted half of chicken with chips and a superfood salad, while Giraffe’s menu has an ‘ultimate superfood rude health muesli’, a wheat-free, organic blend of oats, rye, quinoa and barley flakes with chopped dried fruits and wild berries.

Exotic-sounding dishes are appearing more frequently on menus too, as chains attempt to offer customers something new. Pub chain Varsity, for example, has a dish called  ‘dirty dog’s dinner’ (served in a dog bowl!) and vodka chilli cherry tomato pasta, Blubeckers sells chips with Bloody Mary Ketchup, Scream has Quorn and Chianti lasagne while Las Iguanas has brie and papaya quesadilla.

The research, unveiled by Paul Backman, found that while menus may be getting more adventurous, prices are rising. Over the past 12 months the average cost of a starter has risen 8% to £5.27, a main course has increased 1.4% to £8.98 and the price of a dessert has gone up 11.9% to £4.53.

Since January 2009 the price of a three-course pub meal has risen 6% from £14.85 to £15.74, a restaurant meal is up 5.1% from £19.48 to £20.47, while the average cost of a hotel meal has risen 6.6% over the past 12 months, from £26.45 to £28.20. In some restaurants the price of optional service charge has been raised from 10% to 12.5%.

Menurama also reveals something of a return to nostalgia, with a growing number of dishes being described as slow-cooked or roasted. Porridge has also made a comeback. Frankie & Benny’s, Little Chef, Eat, Starbucks and Browns are all selling porridge while Pret A Manger sells pots of porridge plain, with honey or with compote. Prices range from 99p to £3.50. “Porridge has made a remarkable reappearance over the past year, it has really gained in popularity. But it’s the perfect breakfast option – cheap to make, nutritious, healthy and filling,” commented Horizons’ managing director Peter Backman.

Mini desserts are another new high street trend, giving diners a taste of several desserts or enabling them to share. Ha Ha Bar & Grill, for example, has a trio of mini desserts with a mini lemon tart, chocolate fondant and a shot of blackcurrant and lemon mousse for £5.95. Likewise, Greene King-owned Hardy’s House offers a ‘mini hot pudding trio’ including chocolate and orange, zesty lemon and treacle sponge pudding costing £3.49.

At the Annual Briefing Investec chief economist Philip Shaw said that while the UK was now in a period of recovery, it would take until 2012 for the country to recover its previous GDP levels. Post election fiscal policy could also constrain the pace of recovery, as a VAT rise and tax increases were highly likely.

Horizons’ managing director Peter Backman forecast that the eating out market would grow over the next 18 months, but only modestly, rising an estimated £850m to a new value of £42.8bn and that it was unlikely to reach levels of 2008 until the end of 2011.

“Despite uncertainty about the economy and the election outcome, consumers are still eating out, although they are clearly spending less than they did. Operators are going to have to perform better than customers expect in order to improve trading,” said Backman, “however, the Olympic Games in 2012 could bring an additional £145m in revenue to the hospitality sector.”

Download the briefing presentation.

Where are they now? None expanded beyond two or three outlets and even Unilever, having spent considerable time and money researching and setting up Ch'a tea shops, had to admit failure several years ago.

So the prognosis for the launch of Cadbury's own chain of branded cafes is not good. That's not to say it won't be a success but it will depend on getting many things right. And chief amongst those for a retail brand is marrying up what the brand offers with what the customers want.

There is a fundamental misbelief amongst many that customers will flock to an outlet because of the brand of food or beverage on offer. They can point to Starbucks and claim that customers frequent their coffee shops because of the Starbucks coffee - but the coffee shops are more important than the coffee.

So Cadbury must make sure that they properly understand that customers will visit their cafes for a variety of reasons - the service, the atmosphere, or the opportunity to meet friends for example. The brand of chocolate may not be important to customers.

This was the message from Horizons MD, Peter Backman, speaking to an audience of FMCG investors at a conference in London today [9 March], organised by the Consumer Analyst Group Europe (CAGE).

Horizons values food and drink purchases made by the catering sector at £10.3bn, but is critical of the fact that many food and drink manufacturers are focussed almost entirely on the retail sector.

“FMCG manufacturers often view foodservice as a poor relation to retail sales, merely repackaging their products into larger pack sizes. But the foodservice sector is growing at a faster rate than food retail as people eat more and more of their meals out of the home – and we will continue to see further growth over the next decade,” said Backman. “Many restaurant and pub menus now feature specific brand names on their menus, while other restaurant products have successfully transferred to the retail market, where they usually command premium prices.

“Foodservice is a good place to launch products – manufacturers can test the market, gauge customer response and, with the help of restaurant operators, build successful brands. It’s also far cheaper to build a brand through the catering sector than it is through the retail trade. The catering market is currently suffering from a real lack of new product development, at a time when pubs and restaurants are desperate to keep their menus fresh and interesting for customers. This is a great opportunity for food manufacturers.”

Horizons’ latest QuickBite survey, of over 1,000 consumers, puts the value of sales through the catering sector at £36.6bn, a figure that has shown an impressive 12.5% increase year-on-year. While the economy has slowed the market, consumers have opted to reduce their spend rather than not go out.

Average spend per head including drinks currently stands at £11.69, a 7.5% fall year-on-year from £12.64. This year the UK eating out sector is likely to be boosted by a strengthened tourist trade, with visitors attracted to the UK by a weak pound against the US dollar and Euro. British holidaymakers are also likely to stay at home again this year, given the high cost of holidaying abroad.

Horizons’ QuickBite survey, conducted in December 2009, reveals that price is becoming less of an influencing factor on eating out and that consumers are becoming less pessimistic about how often they thought they would eat out in the future. Some 5% of respondents predict they would eat out more often in 2010 than they had in 2009, while 73% feel they would eat out just as often in the coming year.

The restaurant sector has suffered far less during this recession than many expected. This is partly because eating out is now so entrenched in the British way of life that consumers are reluctant to give it up, but money-off vouchers have also helped to keep them spending.

While consumers continue to eat out, they have changed the way they spend in restaurants. A survey conducted late last year by the consultancy Horizons revealed that 40 per cent of consumers ordered a starter less often when they ate out than they did a year earlier. The same percentage had cut out desserts and a third of diners shared dishes to save money. Also, ordering wine by the glass rather than the bottle had become commonplace. But price promotions carve margin from the bottom line and reduce profitability. Furthermore, when all the chains started discounting last year, the impact on trade was diminished.

During 2009 we have seen the style of promotion change from two-for-the-price-of-one to more targeted meal-deal offers. On-menu offers have complemented this, allowing operators to use meal deals as a tactical weapon to cope with local competition and demands. Some estimate that it will take at least 18 months for the sector to move away from discounting. I suspect that, as the economy improves, the consumer will no longer expect to find such deep discounting.

Operators have also learnt that promotions are of limited marketing value unless customer data is gained as a result. So I suspect that, rather than drop promotions altogether, restaurant chains will switch to a far more targeted form of customer incentive as they start to realise the benefit of enhancing brand loyalty and building a stronger customer relationship.

The recession has taught us all to be more demanding — food must be good quality, service must be efficient and friendly and value for money is paramount. Restaurateurs need to accept the new consumer, ensure their operations are consistently good and adapt their menus to reflect these changes. Targeted promotions can then be used to enhance customer loyalty rather than to get people through the door in the first place.

Source: The Times 22/02/10

Food spend went up in pubs in December – but not as much as in previous years.

That’s one of the key statistics to emerge from the latest quarterly QuickBite survey from pub food research specialist Horizons.

Based on a regular survey of more than 1,000 consumers, the quarterly survey offers a fascinating barometer of the foodservice trends, and where people are choosing to eat out.

Unsurprisingly, the foodservice sector as a whole saw consumers tighten their belts this Christmas.

Over the festive period, on average, pub consumers spend 63p more per meal than they do during September. In 2007 the pub market saw an uplift in meal spending during December of nearly 14 per cent. By the following year consumers were spending only 6.5 per cent more on pub meals during December than they did earlier in the year.

Last December that figure was just 0.9 per cent, as pub diners spent an average of £12.23 on a pub meal (including alcohol) – a figure that has been falling slowly since 2007, when the average diner would spend over £13.35. It’s worth noting, however, that this still compares favourably with general average spend per head on eating out at £11.69 per meal.

Paul Backman, Development Executive, says it’s clear that all foodservice sectors suffered in the period, not just pubs. “Economic uncertainty, especially unemployment rises and continuing corporate failures, meant December’s uplift was less than trends from previous years would have predicted,” he says. “As families spent precious extra pounds on presents or travelling to visit relatives, foodservice spend, especially in pubs, seemed less essential than in earlier years.”

Backman also suggests that widespread snow in the days before Christmas also had a clear negative effect on out-of-home eating spend.

Better quality for less money

More worrying is the fact that when asked where they last ate out, only 16 per cent of people said they had eaten out in a pub, compared with 39 per cent of consumers who said they’d eaten at a fast-food outlet, and 32 per cent who had dined at a restaurant.

Horizons says pubs’ share of the eating-out sector has been falling since 2007, when the industry captured 21 per cent of the market and served 1.2 billion meals a year.

Pubs now serve one billion meals a year or 19 million a week, while the restaurant and fast-food sector serves a combined 2.7 billion meals a year, or 52 million a week.

Backman believes tenanted and leased pubs have been particularly slow to react to the downturn, and have struggled to compete with managed pubs, restaurants, fast-food outlets and takeaways in a market which at the best of times is oversupplied, and right now is hugely competitive. “Independent operators in all sectors have been finding conditions extremely tough – and tenanted and leased pubs especially so,” he says. “It is not enough just to lower prices and adjust quality accordingly, which is what lots of these pubs have been doing. Customers want better quality for less money – and that’s what the likes of Gourmet Burger Kitchen, McDonald’s and Wetherspoons have been offering.”

Backman also believes the 2007 smoking ban is still having a residual effect on pub food spend. He suggests the following strategies, based on the research, to increase consumer food spend in the months ahead:

• focus on your core offer by providing affordable meals in social settings, with amenities other outlets struggle to provide, such as satellite TV or games consoles

• develop your food offer intelligently to focus customers’ spending on high-margin lines, such as starters and desserts

• continue to improve customer service, engendering loyalty and repeat business

• target promotional offers to their demographics – take advantage of the internet and social media to target advertising to customers.

At a glance

• 16% of consumers had eaten in a pub the last time they ate out
• £12.23 average spend per head on a pub meal, including alcohol, in December
• £11.69 general average spend per head on eating out in December
• 19 million meals served by pubs every week

Data on types of foodservice outlet visited, spend per head and frequency of visit is based on the two weeks preceding December 12.

Source: The Publican, February 2 2010

Daniel Galmiche, head chef of the Vineyard at Stockcross, knows this only too well, having perfected his soup-making when working at L’Aigle d’Or in Singapore, where he was expected to create two different soups for the menu each day. “There was no room for error,” he says. “The soups had to be perfect because there was such a demand for them.” French-born Galmiche also credits his mother’s consistent soup-cooking as an influence on him, and cites France’s brasseries as thriving soup hubs. “Brasseries usually have a soup of the day or speciality of the region, like soup de poisson in the South of France, or soups in Brittany made with different bouillons,” he explains.

But on this side of the Channel, soup has traditionally been considered more of a winter warmer, or comfort food; its puréed vegetable bases seeming somewhat prosaic in contrast to the fragrantly infused broths of its eastern cousins. And while we may occasionally see the odd gazpacho rear its chilly head come summer, a year-round soup offering has been limited in the UK.

Not so anymore. The recession and subsequent drive towards economy, as well as increased travel and influences from international cuisines, has brought a wave of more interesting soups to the table. According to market analyst Horizons' Menurama survey: "More and more establishments are putting soup on their menus - presumably because it's cheap to produce and the margin on it can be fairly high. We know from research that customers are also looking for value for money through the recession, so to choose soup from the menu would suit their needs too."

But while pricing is a key factor, there's no doubt that flavours are becoming more exciting. Healthy casual dining chain Leon has two fresh soups available every day - a vegetarian option (such as lentil Masala) and a meaty option (like bacon and chilli bean), while at Moro in London's Clerkenwell, spicy chorizo and chestnut soup is on offer for £7.50 a bowl.

Horizons' Menurama survey also revealed a colourful selection of soups such as wild mushroom and Masala at restaurant chain Ask and white onion and pesto at Marriott hotels, with gastropubs using British produce such as haddock, celeriac, butternut squash, cheese, chicken and lamb.

Extract from Soup Opera by Rosie Birkett, Caterer and Hotelkeeper, 15/01/10

The research, based on data from over 400 menus from the UK’s top 100 leading chain and independent pubs, restaurants and hotels, shows that the average cost of a three-course meal across all eating-out establishments, excluding drink, has risen from £17.40 to £18.45 over the past year – up 6%. An average starter now costs £5.24 – up from £4.70 last year. A main course costs an average of £8.86 – up from £8.73, while a dessert now costs £4.36, up from £3.97 in 2008. 

Paul Backman, Horizons’ development executive, said: “The discounts and meal deals currently evident in the market have kept the prices charged for main courses fairly stable - in many cases they are lower than they were last year. But some operators, particularly in the pub sector, have made up for discounting on main courses by increasing the price of other dishes.”

The pub sector has increased the cost of starters and desserts the most, with a starter costing 10.6% more this year than in 2008, from £3.68 to £4.07. A pub dessert now costs 6% more, rising from £3.46 to £3.68.

However, a main course in a pub is now cheaper than it was a year ago with the average price falling from £7.19 to £7.17. The research also revealed that pubs dropped their main course prices by a huge 32p from January-July this year in a bid to boost trade.

The average cost of a restaurant main course has also fallen, from £10.06 to £10.01 year-on-year, largely due to promotional activities such as ‘two-for-the-price-of-one’ and money-off vouchers. Restaurant starters, at £5.48 this year, are 2p more than they were a year ago, although desserts are now cheaper at £4.34, compared with £4.42 in 2008.

Over the same period the price charged for a starter in a hotel rose 9% from £7.42 to £8.09 year-on-year, while main course prices have increased 1.5% from £12.47 to £12.67. The cost of a dessert in a hotel has risen 51p from £6.69 to £7.20.

“Operators can use starters and desserts to improve their margins as they are relatively cheap to produce,” added Paul Backman. “However, customers are very observant when it comes to price increases and could opt for just a main course if the price of starters and desserts rises too high compared to the cost of a main course.

“We would expect these pricing changes to level out if promotional activity lessens as the economy picks up. However, it could take at least 18 months for establishments to phase out price promotions altogether.”

Aggressive price increases for starters have been seen by some of the major high street restaurant brands over the past five years including Hard Rock Café and PizzaExpress. Others, such as ASK, Bella Italia, Café Rouge, Caffè Uno and Nando’s, have show more subdued increases. More gradual price increases on main courses have been observed from operators such as ASK, Bella Italia, PizzaExpress and Wagamama, while the past year has seen some shorter term price cuts from operators such as Caffè Uno and Pizza Hut.

Further findings from Menurama:

• A three-course pub meal now costs £14.91, up from £14.49 in 2008
• A three-course meal in a hotel has risen from £26.57 in 2008 to £27.91 
• But eating out at a restaurant is getting cheaper. A three-course restaurant meal now costs £19.93, down from £19.95 last year.

New statistics from Horizons show that on average consumers spent £189.61 on eating out in the high street during the first six months of 2009, compared with £200.26 in the first six months of 2008. A decrease of 6% year-on-year.

This year consumers are spending an average of £6.45 per meal, compared with £6.62 in 2008. The figures also show that the QSR (quick service restaurant) share of spend has grown from 41.2% to 42.2%, demonstrating the growing popularity of fast food outlets and takeaways.

The eating out market is unlikely to improve into 2010. The cost-conscious consumer is here to stay and that consumer is looking for value-for-money and attractive offers. That's not likely to change in the short-term and most operators - particularly the high street restaurant chains and pub operators - are doing a great job of adapting to this.

Horizons' predictions follow recent results from the major pub chains. Greene King announced that like-for-like sales across its food-led pub estate were 8.1% up on last year. Whitbread's pub-restaurant chains showed a 2.1% increase in like-for-like sales in the first half of this year, with its value-for-money focus attracting 7.2% more customers. And last week J D Wetherspoon announced a record year for sales with like-for-likes in the six weeks to 6 September up 1.2%, and total sales up 5.8%.

The consumer of 2010 will be paying off more debt, taking on less borrowing and tightening the purse strings when it comes to discretionary spend. Average spend is likely to drop further still so the challenge for foodservice operators going forward is to keep people coming through the door with innovative deals and interesting menus without jeopardising margins.