Editor’s note: Bob Goldin is an executive vice president of TechnomicInc., a Chicago-based research and consulting firm that focuses on food and director of the Food Supplier Practice. He is the founder of the firm’s Nutritrack Program, iLAB, Foodservice Benchmarking Center, Takeout Packaging Consortium and Distributor Intelligence Service. Goldin has 30 years of broad-based experience in the food industry and has been with Technomic for 24 years.
The chef contestants on Bravo’s popular reality TV show “Top Chef” compete against each other each week by completing culinary challenges. These tasks include everything from designing a menu for a finicky bride and groom to getting a restaurant up and running in four hours. Currently in its fourth season, “Top Chef” features well-known food world judges and awards its winning contestant with seed money to open his or her own restaurant.
While “Top Chef” contestants are unlikely to encounter theses types of challenges (or awards) in real life, the show’s high-stakes pressure and spirit of competition are in fact a common occurrence in the foodservice industry. The food industry currently sees its share of intimidating challenges - and foodservice operators and suppliers can expect to see more.
Throughout the past 25 years, the foodservice industry has capitalized on consumer demographic and lifestyle trends, aggressive unit expansion and operator ingenuity to capture a growing share of consumer food expenditures. In fact, in 2007 foodservice had a 51 percent share of the $1.1 trillion food and non-alcoholic beverage market.
Foodservice still has a disproportionately strong hold on the “hearts and minds” of consumers - after all, consumers like to eat out a lot more than they like to shop for groceries - and it has generally outperformed retail as well. Still, we have to recognize that a far larger portion of foodservice expenditures are more discretionary in nature than they are for retail. Therefore, given the weakened state of the economy, record high fuel and commodity prices and the huge drop in consumer confidence, the industry is more highly vulnerable to a downturn.
As the data in Table 2 illustrate, this downturn actually began in 2007, and we expect it to worsen in 2008.
The signs of the industry slump are evidenced by unfavorable changes in consumer demand patterns with respect to both traffic and spending levels. At the same time, operators are faced with the most unfavorable cost environment imaginable - forcing them to raise prices, cut costs, increase operational effectiveness and elevate focus on value options to maintain business viability.
Our research shows that the economic stimulus checks will do little to boost the fortunes of the beleaguered industry. Further, regardless of the election outcome, consumers do not appear to expect any improvement in their situations for the foreseeable future.
Thus, it is increasingly clear that the foodservice industry will be challenged for the remainder of the year and perhaps well into next year. Unless there is some significant relief from the seemingly endless upward spiral in fuel costs and a sharp boost in consumer sentiment, spending for foodservice will be restrained. Even lower-price venues will feel the squeeze.
Consumer demands for convenience, healthy and nutritious options, nutritional disclosure, environmental responsiveness, real value and good service only will intensify in this environment. Operators will have to work “harder and smarter” to satisfy these demands.
On a broad basis, value-oriented segments - such as many quick service restaurants - will achieve a relative benefit from consumers trading down and from their location advantages. Retail meal solutions, especially those perceived to be freshly prepared, also will accelerate.
In general, chains should do better than independents due to their financial wherewithal and marketing clout, but major chain categories (such as casual dining) remain mired in a slump. They will need to continue to increase emphasis on renovation and innovation efforts.
Still, we generally remain optimistic about the long-term attractiveness of the foodservice industry. It is an industry that traditionally has adapted to meet changing market demands. While the present situation indeed is discouraging and will lead to some shakeout, we fully expect that with appropriate course corrections and increased collaboration among trading partners, the industry will get back on course, albeit with new realities to face.