Mounting consolidation within the foodservice sector and an increasingly competitive climate means consumers will continue to drive the market. For foodservice operators, the ability to differentiate through quality, value and innovation will be key to staying in the running. It is likely to be a tight race to the finish. Emma Johnston of Promar International outlines the key to success.

The most successful players in any market are those who respond swiftly and deftly to change and foodservice is certainly no different. Making the right decision about the future is crucial to success and with the global foodservice sector accounting for some US$1.2 trillion annually, growing at five times the rate of retail, there is an awful lot at stake. In order to formulate the best course of action for the long term it is imperative to understand the forces driving change in the market today and the likely nature of future evolution.

The global foodservice market

Foodservice spend is valued at 25% of total global food expenditure (retail and foodservice). The US, Japan and Europe are the world’s most mature markets, accounting for some 81% of the foodservice market by value.

Foodservice is the most dynamic sector of the food market and despite growing consolidation, it still offers considerable opportunity for new players, particularly in developing markets. Key factors driving growth are outlined in the table below:

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The maturity of the retail market – Growth in mature retail markets is flattening out at a fifth of the rate of foodservice making it increasingly difficult to extract value.
Promotional activity – Particularly in lower value sectors such as QSR, promotional activity is used extensively to grow sales.
International expansion – Emerging and developing markets offer attractive rewards for the foodservice operators and international expansion is facilitated by the franchising process.
Meeting consumer demands -The most successful players in foodservice are those who maintain a high level of NPD and innovation in order to appeal to a wide range of consumers and increase sales.
Increase in multi-branding and portfolio playing – This is a growing trend in foodservice and is expected to become widespread in the long term as a means of offering increased variety and targeting a number of distinct groups.
More potential delivery formats – Driven by demand for more convenient delivery channels such as home delivery and online shopping.

Given that four out of the six key drivers of growth are related to responding to consumer change, the above table highlights the growing influence that consumers have on the evolution of the foodservice market and the increased importance placed on consumer responsiveness at operator level. All of this points to the reality that the consumer is driving the market.

The influence of changing lifestyle is having a profound effect on consumer demand and consumption patterns within the foodservice sector. Consumers are spending more of their income on eating away from home, a trend driven by an increased number of single and two-person households, a flexible and fragmented labour market with a less restrictive working day and a rise in dual income households generating greater income. This change in eating habits is augmented by the progressive decline in cooking skills and a reduction in the amount of time spent on household tasks such as meal preparation. Increased affluence has led to a greater emphasis being placed on leisure activities, in which eating out plays an important part and increased foreign travel has broadened consumer tastes leading to demand for a greater variety of global cuisine. Today’s society is also increasingly time-pressured, making convenience a key priority for most consumers.

Consumers are themselves developing more diverse tastes and many of the larger mass-branded foodservice operators are coming to realise that consumers should not be considered as a homogenous group but should be segmented and individual groupings targeted accordingly. McDonald’s has taken decisive steps in this direction by extending its portfolio to include a variety of branded outlets spanning different sub sectors, such as Donato’s Pizza and Aroma café among others. This trend is likely to continue, resulting in smaller, niche targeted outlets being acquired by sector giants in order to enhance portfolios and target a broader consumer base.

The foodservice sector 2010

These changes, both industry and consumer related, all point to a new foodservice scenario for 2010. In an increasingly consumer-centric climate, the focus will shift from being able to instantly satisfy consumer requirements to having the capability to predict and provide what they want before they even ask for it. Today, basic service is taken as read, but in tomorrow’s market, foodservice operators will be required to provide a more extensive service offering with a high level of value attached. The following competencies will be key to success:

  • Taking service one step further by building individual relationships with consumers will be a key challenge. Strong and effective dialogue can be utilised as a means of moving closer to the consumer and gaining valuable market insight into consumer preferences, changes and nuances. This, in turn, will form the cornerstone of a responsive NPD and innovation strategy.
  • As the foodservice sector becomes more consolidated and competitive, operators will be required to add value to basic products through innovation, quality, variety, convenience and an enhanced service offering. Perhaps of greater importance will be to ensure that this value is communicated effectively to the consumer in order to justify higher margins.
  • Brand will be considered as an even more powerful tool in winning consumer loyalty. It will be used as a symbol to represent a specific set of values and an image that demonstrates the company’s ability to satisfy consumer needs. Effective marketing structures will be in place in order to communicate the meaning of a brand and its values through clear dialogue with consumers.
  • Scale is something that all foodservice operators in the organised sector aspire to today as a means of driving efficiency and achieving an international or even global presence. Tomorrow’s market, however, will demand scale coupled with the flexibility to tailor products and services to local tastes, as well as swift responsiveness to changes in local market conditions.
  • To get ahead in today’s market NPD must be a clear priority in maintaining consumer interest and satisfaction. Truly responsive NPD is what will be required in the future, in the form of innovation carefully tailored and targeted on a local level in response to consumer taste and demand.

In light of the growing consolidation within the sector and the increasingly competitive climate, consumers are expected to continue to drive the market in the long term. For foodservice operators, the ability to differentiate through quality, value and innovation will be key to staying in the running. It is likely to be a tight race to the finish.

By Emma Johnston, Research Analyst with Promar International

To view related research reports, please follow the links below:-

The World Market for Consumer Foodservice

Profitability in Foodservice: Maximising bottom line performance in Europe to 2005