This January has been tougher than most for the foodservice sector, with the big freeze across the UK extending its icy reach at the same time as the traditional period of belt-tightening following the festive excesses.
So far this year, the foodservice sector has been left out in the cold as consumers have reined in their spending, concentrated on their New Year detox and in many cases, been snowed in or reluctant to venture out in sub-zero temperatures.
In fact, the last year or so has been one of the most challenging for the foodservice sector as a whole, with all levels hit in one way or another against the backdrop of supermarket-led dine-in-for-two deals aimed at reintroducing nights in.
So what can the industry expect in the next 12 months? And how can fresh produce suppliers make the most of the opportunities coming their way?
Two recent reports by Global Market Direct in association with iCD Research showed that prospects look promising for the foodservice sector this year. The studies, themed under UK Foodservice Industry Outlook to 2010, focus on both buyer spend and procurement strategies, as well as marketing and sales strategies, each considering the impact of the recession. The findings show that of the 300 industry executives surveyed for each report, 56 per cent of foodservice owners/operators expect to increase their procurement spending over the next 12 months and 29 per cent of industry buyers are seeking to engage in partnerships to optimise working capital and reduce costs, with closer co-operation between buyers and suppliers. At the same time, the surveys show that 37 per cent of industry players are looking to increase their marketing expenditure, while half of companies believe that the demonstration of confidence to their customers from increased marketing activity in the current business climate can give their company an edge.
However, many fear that the post-New Year market will see consumers cut their spending considerably as the reality of continued economic uncertainty and fear of unemployment remain.
Horizons managing director Peter Backman said at the end of last year that he anticipated renewed belt-tightening in the aftermath of the festivities. “We would also anticipate that people will cut back much more in January as VAT rises, credit card bills start arriving, the weather gets colder and strike action from the likes of British Airways depresses the nation’s mood,” he explains. “The more formal sit-down restaurants are likely to suffer most during January and February, although takeaways could see trade rise, as they did during the heavy snowfall of 2009.”
In fact, the foodservice analyst’s QuickBite survey considered more than 1,000 consumers and showed that between the second and third quarters of 2009, eating out increased by 8.1 per cent, but sales were still 4.2 per cent lower than they were during 2009. On average, the consumers surveyed are eating out 1.58 times a week and spend per head also showed a slight increase, up from £10.76 in June 2009 to £10.80 in September last year.
“Overall, the market is bottoming out - and [this] year may see some growth,” Backman says. “More likely though, year-on-year figures will bounce along the bottom for most of 2010. However, there is a danger of some growth followed by a further downturn due to growing unemployment, more corporate failures, a hung parliament and the much-anticipated growth in GDP not arriving, which will dent confidence further.”
Tony Reynolds, managing director of Reynolds Catering Supplies, maintains that the recession has had a significant impact on business, but he stresses that those who have been prepared to keep investing will be well positioned to see their way through to the other side of the recession. However, he admits that the majority of businesses will have a cautious outlook in the next six months, even though some have been hit worse than others.
“We have all had to look at cost to service and get closer to the causes of cost and ask questions about them,” says Reynolds. “It is about understanding the cost implications of the recession and how it affects business. In some sub-sectors, we have not seen a dramatic fall because these customers have gone on big promotions, so they have kept footfall up and the orders coming in - some say the deals are dangerous, some say they have no choice, but they are keeping volumes up. On the other hand, public sector customers such as hospitals and schools have carried on as normal because they still have staff, patients and children to feed, so this sector has been the most recession-proof. However, when it comes to catering big events and corporate hospitality, there has been a big impact.
“We are all still looking very cautiously at the next six months and there could be some casualties as businesses are still struggling to come to terms with the financial situation. There is some evidence that even when we come out of the recession, companies can get into trouble because of cash flow.
“But some of our customers are more confident about expanding their businesses and that is good for us. I hope that we start to see some changes mid-way through the year, with a bit of sunshine, the possibility of a new government and England hopefully doing well in the football World Cup, when things might start looking up.”
It is worth remembering that even with the challenges thrown up by the economic downturn, the food industry as a whole is faring much better than other sectors that have suffered real blows in the face of the recession.
Alastair Bokla, director of Pilmuir Holdings Group, which owns Presalco, Fruvegco and Graham Nicol Dow, expects that the foodservice sector will keep changing throughout the next 12 months and beyond. However, he admits that the trade has got off to a slow start, made worse by the extreme weather.
“Eating out patterns have changed and middle-of-the-road places serving average food at average prices have not done so well,” he says. “However, people are still going out to eat and when they do, they want an experience. The established, more upmarket places have not been as affected, showing that eating out is not just about food, it is about the experience, the quality of the service and about menus that change and have flair.
“I think habits will continue to change on an ongoing basis, as consumers become fussier. The next year will sort the wheat from the chaff on the supply side; it will be a tough time and getting paid will be critical.”
On the ground, the recession has made little difference to the volumes of fruit and vegetables being supplied to the foodservice sector, but firms have picked up on changing demands and tried to reposition themselves to fit in with the shifting foodservice landscape.
Cathryn Gull, account manager at Capespan, maintains that the mix of lines in demand is changing, with the firm’s most popular products remaining melons for processors and grapes for caterers, but with the likes of prepared citrus and citrus mixes enjoying a boost at the expense of more expensive or ‘superfood’ lines, such as pomegranates.
“The underlying lifestyle changes of the last decade remain, with eating on the go and time-poor, busy lives still a fact of life,” she explains. “In addition, awareness of the issues of obesity and a healthy diet have not gone away, so from a fresh produce perspective, this is an attractive and dynamic sector.
“Of course, it goes without saying that the prevailing UK economic climate is reflected in increased cost and price sensitivity, but this is merely serving to drive efficiencies and stimulate new product development to meet customers’ evolving needs.”
All in all, Gull is bullish about opportunities for growth in the foodservice sector, especially in the long term. “Volumes have not dropped, new ‘affordable’ products are being developed and we have forged closer relationships with our customers in responding to the rigours of recession,” she says. “The economic crisis has undoubtedly forced the pace of change and increased accessibility - I, for one, view this positively.
“Looking ahead, I anticipate that demand will increase as we move towards the summer, get positive stimulation from the World Cup effect and the UK moves away from recession. I believe that due to our enhanced understanding of customer needs, we are in a strong position to fully exploit the coming opportunities.”
However, in the meantime, there are still a number of challenges facing foodservice suppliers, including increased competition, price pressure and not least the ins and outs of when and how they are paid for their services.
Helen Evans from the Covent Garden Market Authority (CGMA) speaks for the market traders when she says the biggest factor that has hit foodservice suppliers in the recession is the extension of payment terms, with customers delaying payment for up to 90 days.
“This is a big issue for us on the market,” she says. “A lot of the big guys are squeezing their suppliers, playing one off against another and actively looking to extend their credit terms. The thing is that restaurants and hotels get paid up front; their customers do not leave saying that they will pay up in 90 days.
“But there is a recognition growing in the industry that people need to think about how they treat their suppliers because it is not sustainable and if you push your supplier to the wall, where are you going to go from there? It is a very big problem.”
However, Evans stresses that there are opportunities for fresh produce suppliers to make the most of their offer and emphasise value for money at a time when chefs are re-evaluating their menus. “I think the recession this time around is slightly different to the last one in the 1980s,” she says. “The whole trend for eating out has really become so entrenched in consumers’ minds that what they are doing is tweaking what they eat out, rather than stopping it completely.
“The r-word started rearing its ugly head in the autumn of 2008 and at first, there was a lot of doom and gloom. However, an article in the Evening Standard a few weeks ago said the big spenders still appreciate fine dining and from what the market traders tell me, the top end is holding its own. A lot of the initial nervousness was about being seen to be in these places, rather than about not having the money.
“The CGMA is doing its best to support tenants with two full-time business development managers, who are helping to open things up and introduce new custom to the market,” she continues. “As the landlord, we have given traders the option to pay monthly instead of quarterly and we are looking at further rebate of the service charge, which has dropped over the last few years. We want to make operating out of the market as competitive as we can and we are looking at every way in which we can do this.”
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