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Price competition among foodservice operators set to intensify

19 May 2017 by
Price competition among foodservice operators set to intensify

Foodservice price competition is set to intensify, with rising costs, economic uncertainty and changing consumer habits mounting pressure on operators, according to market intelligence agency Mintel.

In Mintel UK's latest British Lifestyles report, it reports the UK foodservice market is forecast to grow by 26% by 2021, much of which will come in the form of traffic increases, helped by the expansive store presence of leading players and overseas investors that are keen to muscle in on a cheaper UK market as a result of a weakened pound. Meanwhile, operators' concerted efforts to push digital innovation and e-commerce with advanced technology will also help support growth.

The categories expected to slow are burger and chicken bars (which were down from 4.8% growth in 2015 to 3.4% in 2016), ethnic restaurants (from 9.1% growth in 2015 to 4.7% in 2016), pizza and pasta restaurants (from 8.9% growth in 2015 to 7.2% in 2016) and pub catering (from 5.1% growth in 2014 to 4.8% in 2015), with a raft of non-specialist venues now featuring burgers, ethnic dishes and pizzas on their menus.

The ethnic restaurant sector, traditionally dominated by independents, is facing intense competition from fledgling casual dining brands competing in terms of geographical reach.

The current level of investment pouring into high-quality branded concepts and those run by emerging entrepreneurial operators will likely see the market share increasingly challenged. Casual dining brands' proposition of purported quality assurance of food and hygiene combined with the quick service of fast food operators are likely to be seen as offering better value for money than independents.

Although multi-site casual dining restaurants may become a key engine for growth within the ethnic restaurants category. The national expansion of casual dining chains such as Chilango (Mexican), Rosa's (Thai), Turtle Bay (Caribbean) and Wagamama (East Asian) announcing expansion plans in 2017 could be the bellwether of growth in the wider foodservice sector.

Meanwhile, the new rating list provided by the Valuation Office Agency in April 2017 will see business rates increase significantly across London as well as cities including Manchester and Newcastle. Small, independent restaurants in the hardest-hit areas are likely to be forced to close or relocate to cheaper areas if the government fails to ease rising rents and business rates on food operators.

One of the markets on the rise is takeaway/home delivery, benefiting from its purported cheaper costs, with 30% of users citing home delivery as being cheaper than eating at a restaurant. And while pizza and Asian takeaway/home delivery foods are commonplace, more and more branded chains are now offering delivery services to create an additional revenue stream for dine-in venues.

Third-party delivery services, such as Deliveroo, are acting as a bridge between restaurants and customers. However, an in-house delivery model could also benefit operators that already have the business capabilities to drive customers to their websites or digital apps to order home delivery directly from them instead of third-party delivery companies that charge a premium for their services.

Mintel predicts that casual dining restaurants should continue to do well, as many leading restaurant chains remain committed to their food offering and price promotions to buoy footfall when household finances tighten. Given that many casual restaurants already have websites and apps, rolling out an online click-and-collect menu and ordering function may also boost revenue among 29% of consumers who typically order takeaway directly from a venue.

Ultimately, 49% of consumers say they spent roughly the same amount on eating out in 2016 as before, and 14% say they spent more. However, more people are spending less; 31% of consumers spent less in 2016, compared to 28% in 2015, signalling that dining out is likely to remain in the line of fire among consumers most concerned about their finances.

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