The foodservice industry has seen year-on-year growth for the last five years, and offers a world of opportunity to the fresh produce sector, as well as the food and drink industry in general.
The foodservice industry is the UK’s fourth-largest consumer market, and its approximately 260,000 outlets come in many forms. Peter Backman, managing director of foodservice analyst Horizons, separates the industry into nine sections: restaurants, quick service, pubs, hotels, leisure - which ranges from fitness clubs to theme parks - staff catering, healthcare, education and services, such as military and police. But he believes that foodservice is an opportunity that fresh produce suppliers have not yet fully embraced.
“The foodservice business is undoubtedly a massive prospect for the fresh produce industry,” says Backman, “and it is a market that I don’t think the industry has tackled with sufficient vigour, as the supply chain can be difficult. But interesting, good-quality fruit and vegetables, for a variety of reasons, can mean good business within the foodservice sector.”
Fresh is best
Fresh fruit and vegetables are becoming increasingly important to the foodservice industry, as consumers move towards a healthier lifestyle. Consumers are now eating out more than ever before, as well as expecting schools, hospitals and workplaces to offer the same standard of food as restaurants. According to Backman, vegetables are considerably more important to the foodservice industry than fruit, but use of the latter is catching up fast, as foodservice providers realise its potential.
“Vegetables are more important in foodservice than the retail market, because foodservice operators are more likely to produce their own meals from scratch than the average household,” says Backman. “And then, as part of that, there is a huge business in fresh and chilled potatoes, which are very important to fish and chip shops, restaurants and caterers.
“Foodservice is not a great purchaser of fruit compared to retail, but this area is growing. Because fresh fruit is relatively easy and quick to prepare, and has a large margin, the amount bought by the foodservice industry has increased in the last year.”
Foodservice uses approximately 50 per cent of the UK’s potato tonnage, and holds massive potential for suppliers. The British Potato Council (BPC) has been making significant inroads within the foodservice sector, by helping improve both the quality and quantity of potato-based dishes served, while also supporting the industry by increasing sales to the sector.
“In the foodservice profit sector, taste, convenience, health and versatility are key drivers that shape and influence menus, and potatoes meet every single criteria,” says Heike Boelk, BPC marketing executive. “What is more, we know that customers are increasingly attracted to potato-based meals when eating out and, importantly, would be prepared to pay more for a special dish.
“Local sourcing is also fast becoming an important issue and, with 3,000 potato farmers in the UK, the level of choice, availability and freshness is second to none.”
Land of opportunity
In 2007, the UK foodservice industry grew by two per cent, and this year, because of inflation, consumers are now spending three to four per cent a year more on eating out than last year. Fresh Direct, which supplies fresh fruit and vegetables to a wide range of foodservice customers, from pubs to restaurants, event caterers to low-budget meal providers, is one business that is making the most of the opportunities out there. “With regards to restaurants specifically, the foodservice industry has a fantastic future, with ever-increasing rates of out-of-home dining, a nation more aware of what they are eating, customers looking for easier solutions and the end user demanding higher quality of food - scampi and chips in a basket is definitely a thing of the past,” says Nigel Harris, the company’s managing director.
Sarah Cooper, senior account manager for foodservice supplier Coopers Produce, which supplies fresh produce to retailer BHS’ in-store restaurants, says that there has been a considerable change in the foodservice industry over the last couple of years, and attributes its success to celebrity chefs’ influence on consumers. “I think the public’s palate has become far more refined over the last five years,” she says. “Jamie Oliver or Delia Smith create something on television and caterers will give it a whirl, and consumers will look out for the produce they have used.”
Food served within the public sector was worth £10 billion of the overall £39bn of food and drink sold to consumers in 2007. According to Backman, this is not a fair reflection of the market’s overall worth, as the final price of food is marked up much higher in private enterprises than in the institutional sector. “In terms of growth, all of the different sectors within the foodservice industry are growing,” he says. “There has been a noticeable trend towards healthy eating within the institutional sector, which has been pushed forward by Jamie Oliver and the like, but I would say that there has still probably been more interest than action. There has also been a move towards sustainability within the institutional sector, which has given fresh produce suppliers an edge.”
Potato supplier Greenvale AP provides the foodservice industry through its subsidiaries Greenvale Foods and Swancote Foods, and its Vale’s Fresh potato brand is supplied to schools throughout the UK. The company has recently launched an additive- and preservative-free range of prepared potatoes, which has gone down well in schools. Greenvale AP believes that there is a lot of hidden potential in supplying fresh produce to the public sector, and is looking to expand its customer base further. “At present, there is still a lot more potential for suppliers to get into the local authority outlets, such as schools, hospitals and care homes, as well as pub and hotel chains,” says Edward Davies, Greenvale AP’s process director. “Our business is expanding, and I believe we will see a trend towards more food being produced from scratch, with less use of additives and preservatives; hence the reason we have developed our additive- and preservative-free products.”
The grass is greener
Supplying the foodservice industry brings a number for advantages to fresh produce companies. According to Harris, supplying foodservice operators rewards companies with long-term commitment and partnerships, if the product is supplied correctly and costs are controlled.
Cooper agrees that supplying the foodservice industry brings with it good working relationships. “Larger customers tend to set up longer contracts for supply, and that allows suppliers to build up a very good working relationship with their customers, and equally with the customers’ patrons,” she explains. “I have to understand what their customers want or, more to the point, what they do not want. It is very important that we, as suppliers, can advise the caterer and provide the expertise in fresh fruit and vegetables that the customer may lack.”
When it comes to fresh fruit and vegetables, the foodservice industry focuses on the flavour and taste quality of the product, rather than any external quality. This has obvious benefits for suppliers, and is one of the reasons Fresh World dedicates a third of its business to supplying foodservice distributors and manufacturers. “When supplying fresh produce to foodservice, the emphasis is on the internal quality of the product, not its appearance,” says Colin Galbraith, the company’s chairman. “It is more to do with the flavour, rather than the produce looking pretty. Retailers want produce to look good on the shelf, but foodservice looks for flavour, which is a big advantage when sourcing fresh produce.”
With consumers taking more notice of whether their food is locally grown and sustainable, as well as wanting to know how many food miles it has accumulated, fresh produce suppliers in the UK are proving to be an asset to foodservice operators. “It is a very competitive industry and chefs are looking for different dishes and ingredients,” says Galbraith. “The list of demands is endless. It is important to keep ahead of the competition, as a supplier.”
The Compass Group is a foodservice provider that is employed by more than 7,000 businesses and organisations across the UK and Ireland. The company provides a facility’s foodservice needs on site at workplaces, hospitals, schools and police and prison facilities, and looks for a high level of service and produce from its fresh produce suppliers. “We need to balance the demands of quality, service, availability and price when sourcing fresh produce,” says Christine Forder, the Compass Group’s fresh produce buyer. “We have seen increased demand for locally sourced produce, and are committed to sourcing from the UK where seasonality, availability and quality allow, while meeting our wider business targets. It is important that we don’t compromise on safety, quality and availability, as we continue to provide the highest service to our clients and customers.”
The company, which sources a large percentage of fresh produce from suppliers in the UK, believes that a good relationship with suppliers is the way forward. “We often develop long-term partnerships with our suppliers, as reliability and quality is particularly important to us,” continues Forder. “However, we are always keen to understand what new suppliers, both large and small, can offer us in terms of innovation.”
There may be trouble ahead
But suppliers have to remain ahead of the game, especially in the current financial climate, says Galbraith. Even though the sector has seen a terrific increase over the last five years, foodservice is at the beginning of a lull that some believe could last through this year and into the next.
“Until now, foodservice has very much been an expanding sector, and demand has risen over the last five to six years,” says Galbraith. “We are only experiencing a lull now the recession has started to hit. The first thing people cut back on is eating out. We have seen order volumes drop since Christmas, more than we would expect for the season. Foodservice is not necessarily an easy business to be in, but it has had a good run over the last five years, and will be hit hard by any kind of recession this year.”
Backman agrees that, after five years of growth, the foodservice industry may have a rough time ahead of it. “Food inflation has increased by six per cent as far as the foodservice market is concerned, and that is quite a bad sign when output prices are only three per cent,” he says. “There has always been problems surrounding pricing costs, but now it is a significant issue, and margins will be squeezed. Profitability in the foodservice business is going to be harder to achieve, and companies will go out of business.”
Fresh Direct is already feeling the squeeze, according to Harris. “People are now incredibly cost conscious,” he claims. “The customer is aware of what it costs to construct a meal, and we are more educated about the ways in which we can reduce costs. For example, we have developed more realistic methods like prepared products, which are both prepared in the field and in the factory. The customer is now also very conscious of packaging, and their active involvement in best practice environmental solutions in getting those products delivered.
“The rising cost of products is not down to the grower, but is rather being absorbed through increasing costs related to packaging, labour, fuel and transport, and therefore both sides are looking at more effective means of getting the product through the supply chain.”
Cooper believes that suppliers will no longer have to bear the burden of price increases in the industry, and says that foodservice can be a difficult sector to supply. “The euro has gone up by 17 per cent, and suppliers can no longer take the hit on that,” she says. “Fuel, travel costs, labour - it does not seem to be getting better. Prices have got better this year, but they had to be put up.
“The trouble comes when your customer does not understand the product they are buying, and wants it at a cheap price above all else. It is a competitive industry, but as long as your customers consider quality, service and price as their top priorities, in that order, then everyone will receive value for money,” adds Cooper.
Harris fears that the customer’s preoccupation with low prices is going to dominate the foodservice industry for years to come. “It has become a cut-throat industry, and the number of advantages seen a few years ago, like daily pricing and the requirement for high-value, out-of-season products, are no longer there,” he explains. “We are not trying to promote out-of-season products, but customers used to be hungry for new-season products. However, because of price restraints and budget situations, customers now put price before quality and service, which is a sad situation.
“The same situation is apparent if you are a wholesaler, a supermarket or supplying to retail - the price of the product has not moved in 10 years, but the cost of supplying the product has quadrupled. Now the key to success is about the effective management of costs.”
Harris believes that the foodservice industry will continue to change, and will present further challenges to fresh produce suppliers. “The wholesale markets hold a fantastic range of products, and have an ability to hold a high number of brands, but many of those markets are now not able to demonstrate as high a level of accreditation as foodservice customers are looking for,” he says. “Over the last few years, Fresh Direct as a company has poured £500,000 into the appointment of new people, systems and infrastructure in order to work towards the standards equivalent to that of a high-quality meal provider. There are still thousands of restaurants and other establishments in the UK that are governed only by price, but with health risks being splashed across the media, and people more aware than ever of food safety and supplier integrity, it is important that wholesale markets obtain the investment needed to up their game.”
Education is key
Many suppliers believe that caterers and chefs need to be reminded of the many benefits of sourcing fresh fruit and vegetables for fresh produce suppliers to really excel within the foodservice industry. “As more customers become interested in locally sourced and produced food, we believe that there are a lot more opportunities to supply the foodservice industry,” says Davies. “Once the customer recognises the benefits of additive- and preservative-free products, with fewer food miles, the opportunities will become a lot wider for us as suppliers.”
Harris agrees that educating customers is the key to the future of foodservice supply companies, as the market becomes more competitive. “There are now many more suppliers looking for the same amount of work that was around 10 years ago,” he says. “Price pressures are at an all-time high, with very unrealistic offers being offered to the customer to secure turnover, and this obviously has a negative effect on profits.
“This spiralling effect is doing the industry no good at all, but until everyone in foodservice supply collectively goes about educating the customer on the real value of produce and is not afraid to broach the truth head-on, we will continue to fight an uphill battle.”
The BPC is trying to stay one step ahead, and making sure that both the potato sector and chefs know how important potatoes are to customers in restaurants and the public sector alike. In order to put potatoes firmly in the spotlight with the UK’s professional and student chefs, the BPC has introduced a number of initiatives, including its dedicated website for caterers, www.potatoesforcaterers.co.uk, and its Definitive Guide to Potatoes.
The website provides advice on the best ways to handle, cook and store different potato varieties and, according to the BPC, is proving to be a real success, with 2,000 visits a month. The site also features a number of recipes created by Michelin-starred chef Andrew Pern, helping caterers deliver consistent, cost-effective potato-based meal solutions.
The Definitive Guide to Potatoes, launched in 2007, is designed specifically to help caterers tap into growing consumer demand for potatoes. Backed by chefs such as Pierre Koffmann, Eric Chavot and Tom Aikens, the guide offers best practice advice to help improve product quality - and ultimately profits - by delivering good-quality potato dishes.
For the last three years, the BPC has also run the Great Potato Challenge competition, to encourage chefs to think about the opportunities for recipe development and increase their usage of potatoes. It also highlights the excellent potential for profit generated by potato-based dishes. And now the competition has been extended to catering students.
Come together
The lull the foodservice sector is experiencing now may end up propelling the sector further forward. After a few years of relative success, it is time for suppliers to step back and reassess the foodservice industry, and take it onto the next level. “The decline we have seen over the last couple of months may have an effect over the next year, or even two years,” says Galbraith. “Fresh World is looking at providing value-added products, such as peeled onions and mixed bags, to foodservice manufacturers. I think the future of supplying the foodservice industry relies on companies like ours supplying the end user with something that can be used in the kitchen straight away.
“Restaurants in particular need a supply of products that are fresh and partly prepped, with a substantial shelf life. It is an exciting time for us, but there is a lot of work to be done.”
Many believe that fresh produce suppliers to the foodservice industry have to work together to get through the tough times ahead. “Foodservice suppliers will be going through tight times - the industry now has to club together and give out the same message, educating customers in order to protect pricing, and those suffering throughout the supply chain - notably growers,” says Harris. “We know of a number of businesses that have entered into difficult trading situations since Christmas, a percentage of whom will end up going into administration, and the worst is yet to come. The upside is that those who do have a handle on costs, with cost-effective solutions in place, do have a future; but going forward, the industry has to take a collaborative tone - one or two attempting to lead by example will no longer cut through the tricky climate we are experiencing.”
However, the BPC is still optimistic. “Overall, foodservice holds much potential for the potato industry,” says Boelk. “There are numerous niche opportunities, but it is crucial that producers and processors understand the gaps and identify how potatoes can offer a solution and add value. Technology, innovation, provenance and a commitment to service are all areas to consider for potato suppliers wishing to continue growing their business within this profitable sector.”
But Galbraith believes that profitability is going to be a problem for suppliers this year. “Suppliers have to be profitable in the current economic climate, and companies are not going to make money from increased demand this year,” warns Galbraith. “It will become more important to innovate and adapt, and those that can do that will succeed. We are not going to see the foodservice industry march ahead this year, as we have done in the past; growth is going to halt. But the industry will survive.”
Backman has a similar outlook on the future of foodservice. “We think the foodservice industry’s success will continue into 2008, but purchase prices are going to increase, and fast,” he says. “It is going to be a tough year, and whether it will continue to be hard past 2008 - we will see.”
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