In 2018, the foodservice industry has grown along with the Irish economy. Executives in this industry have noted that the overall health of the food industry is the result of significant growth in employment and in turn income, and also healthy tourism figures. This can be seen particularly in Large cities such as Cork and Dublin, however other areas in both urban and rural Ireland have also been performing at exceptional levels, those of which have not been seen in many years. In the last year, overall growth in total spending for the foodservice industry was 6.1% in the Republic. This industry in the North of Ireland has also seen impressive growth at 4%. Approximately 91% of consumer spending happens in commercial segments such as restaurants and pubs, coffee shops and hotels. The remainder is spent in the non-commercial segment such as healthcare and business.
In the commercial segments, just under 40% of consumer spend is in Limited Service Restaurants. These are restaurants where customers select their items, go to the counter to place their order and pay before eating. 19% of consumer spend is found in pubs with a further 13% accounted for by Full Service Restaurants. Within the commercial channel, the fasted growing segment is coffee shops, which are up just under 9% in ROI and just under 6% in NI. Growth within Institutional foodservice is healthy; however, growth is still lower than that of commercial. The category leader within this channel is Business and Industry which in responsible for a massive 42%. This area is also seeing the most growth as tech firms are continuing to improve their foodservice offer. Healthcare is close behind with 32%, and education following with 20% market share. Slower growth is expected for the next three years, with a forecast of 4.7% growth in ROI as a result of saturation and uncertainties.
Limited Service Restaurants
In 2018 the Limited Service segment was valued at €2.9bn in consumer spending. This segment includes a number of different sub-segments such as food on the go, quick service restaurants (QSRs) and fast casual restaurants.
QSRs account for over 75% of total consumer spending, followed by food on the go at 16% and fast casual at 6%. QSRs can be largely characterised by providing counter service and drive thrus. They also tend to refer to food which has preheated or precooked ingredients. This segment is valued at over €1.6bn in ROI and €588m in NI.
Fast casual restaurants are similar to QSRs in that they are limited service. However, they are usually more upscale, with more focus on design and atmosphere and the food is thought to be of better quality. The total value of consumer spending in this segment is €137m in ROI and €46m in NI.
The food on the go segment includes the likes of supermarkets and convenience stores. Usually the food in this segment has been pre-packaged, however recently there has been a significant focus put on adding prepared food offerings and hot beverages. Supermarket prepared foods are becoming more popular, especially for people looking for a quick meal solution. The food on the go segment in the ROI is worth €386m in consumer spending, whilst in NI it’s value is €71m.
These types of establishments are QSRs minus the table service. They put an emphasis of hot beverages, however they often have a selection of food such as sandwiches, pastries and breakfast items. The difference with these types of establishments is that they allow customers to relax and socialise on their premises without the pressure of having to leave immediately after eating. The consumer spending value of this segment is €342m in ROI and €114m in NI.
Traditionally pubs had very little to offer in terms of food, and in many pubs this offering is still very basic. However recently a significant number of pubs have invested in upgrading their food offering. Consumer spending in this segment is €1m in the ROI and €372m in NI.
Full Service Restaurants
These establishments tend to focus on lunch or dinner service. The menus usually have a complete range of items, for the most part using fresh ingredients. Consumer spending in ROI for this segment was €694m, whilst the value of consumer spending in NI was €299m
Challenges Facing Foodservice
Although industry performance is strong, everyone in this industry needs to understand what will drive or inhibit growth moving forward. There are a number of issues emerging which the Irish foodservice industry will need to deal with.
- Boom drives growth but creates challenges.
- There has been continued investment in new outlets as a result of the economic growth which has taken place, this is particularly evident in city centres. As a result, all segments, particularly coffee cafes and QSRs are facing increasing competition. It is likely that industry growth will slow as a result of this saturation and urban areas will be less likely to open outlets and will see market volatility.
- Furthermore, there are shortages in finding, as well as keeping, qualified staff as a result of the tightening labour market. These workers are finding it incredibly easy to find new opportunities and so turnover is and will continue to be high. Every business in this industry will have to compete for qualified employees and so higher wages are a likely outcome in this situation.
- Over the last number of years, increased tourism has driven growth within a significant number of businesses. This is set to continue in the coming years.
- Foreign Investment equals changing competition.
- As a result of the strong economy of the foodservice industry, foreign investment in the industry continues and is likely to continue into the future. Consequently, this could be bad for smaller local suppliers as they struggle to compete with larger players.
- As a result of foreign investors pumping their money into the Irish distribution industry, foodservice distribution has strengthened. Many distributers are now acquiring competition to grow and in turn offer a wider range of products. As a result, it is likely the industry will have a small group of ‘mega’ distributers. This will mean that mid-sized distributors will have to become part of an acquisition or acquire themselves.
- Blurred Channels
- It is important to note that segments such as pubs are becoming more focused on food, this is because consumer demands are moving away from alcohol. Other segments are also placing much more of an emphasis on their food offerings as a driver of satisfaction and profitability.
- New channels are emerging. Segments that are usually not foodservice competition are becoming more prominent. Food to go is becoming a major area of growth for retailers struggling with grocery sales. As a result, ‘traditional’ foodservice operators are facing huge competition from other operators who are now providing more convenient options.
- Consumers have new demands
- Consumers today are looking for food on the go, and foodservice has benefit because this. Emphasis on convenient options will drive growth in every segment including the ones that don’t traditionally cater to off-premises solutions.
- It is important to think about the age demographics of consumers. Younger consumers like tech-enabled solutions, whilst older consumers are often more traditional in their use of foodservice and restaurants.
- Traditional ways of dining are changing. Consumers are no longer considering three meals a day the norm. They want food wherever they are, whenever they want it. Snacking is continuing to grow in importance and on the go dining is also going to continue its growth.
- Foodservice and restaurants are seen more and more as ‘entertainment’ and as a result, consumers are willing to spend a bit more on something that is different. Consequently, occasions will be divided into instances where consumers demand something unique or those which are convenience driven.
- Growing on-demand foodservice culture
- There has been a huge increase in the popularity of cashless transactions. Every segment will not go cashless. However, more operators will go cashless in order to make transactions smoother and reduce the handling costs, as well as to increase safety for the operator.
- Click and collect may be moving from retail to foodservice. Consumer are getting so used to ordering in advance and collecting items from retailers. Although in it’s infancy, this trend is gaining momentum in foodservice. It is convenient for consumers and in other countries can be found in QSR, convenience and fast casual outlets.
- Third party delivery is growing in popularity. This is probably one of the biggest disruptors in the industry, as technology can now provide app-enabled ordering from third parties such as Just Eat and Deliveroo. In some QSR segments, delivery has consistently been a driver for growth. However, this is now growing into segments which don’t traditionally deliver.
- Adopting the Millennial state of mind.
- Online and app ordering has begun, however operators are reporting a mixed success to this approach to date. Although adaption has been quite slow, young consumers are looking for tech solutions such as online and app-based ordering. We will expect to see foodservice operators continue to invest in this technology.
- Throughout the supply chain, overall productivity is increasing. Throughout manufacturing and distribution, technology will continue to positively contribute to margin growth and profitability. The issue here will be for small businesses as larger establishments will be better able to invest in the required tech and as a result, smaller businesses will be challenged.
- Technology is also allowing companies to better comply with government mandates. Issues such as nutritional labelling and other mandates drive costs and consequently companies look to technology for support. This tech will allow greater transparency into nutritional info, costs and other important information.
- Diets Re-defined.
- There has been strong growth in ‘fresh’ healthy items. This trend will continue to pick up as young consumers are looking for more natural items and older consumers who are facing health issues as they age. Fresh sourcing has and will continue to have a significant impact on distribution as more refrigerated transport and ware house space will be needed.
- Consumers generally are looking for different alternatives to meat, not for every meal but on occasion. We can expect to see an increasing consumer demand for both vegan and vegetarian options, particularly from millennials and Gen Z. This will also mean more foodservice operators and restaurants will need to create better vegetarian and vegan options.
- Operating with a conscience.
- Reduce food waste is a huge concern for operators who have expressed concern regarding the amount of waste which in generated by the industry and consequently they are working to reduce it. This will be an important issue for the industry to address.
- Compostability has become a key issue in a very short amount of time. Operators who are involved in takeaway are looking to find environmental solutions to paper waste, particularly paper cups. Operators are working on new ways to reduce packaging.
- Consumers want ‘something’ to be done but often don’t have all of the information. Few consumers understand the wider infrastructure needs to compost foodservice waste or to recycle. The industry however, has responded well to the demand and managing consumer expectation will be vital in the future.
- The biggest Issue here will be sourcing and cost. The uncertainty surrounding it at the minute, requires the ability to plan longer term and ultimately decide where products should be sourced. Despite Brexit costs are expected to continue to rise in this industry and sourcing from other countries in Europe is likely to become a greater option.
- Logistic delays are becoming a greater concern. This focuses particularly on those sourcing from the UK. Issues surrounding new logistics requirements could add both time and cost to the supply chain. Consequently, businesses will have to prepare themselves for complex trading practices. Companies who had intended to expand are now putting them on hold until the outcome of Brexit becomes clearer.
- With so much uncertainty surrounding Brexit, companies are finding it difficult to develop specific strategies. Even after Brexit this is likely to continue as political negotiations and changes to the agreement continue.
As previously mentioned over the next three years the foodservice industry is expected to continue growing. However, given the uncertainty over Brexit and the VAT increase, the growth may not be as significant as it has been in the last number of years. Within the ROI 4.7% growth is expected, with the commercial segments continuing to drive the industry. The industry is also expected to grow in NI at 3.7% per year between 2019-2021.
Board Bia, 2018. Irish Foodservice Market Insight. [Online] https://www.bordbia.ie/industry/events/SpeakerPresentations/IrishFoodserviceReports2018/2018-Irish-Foodservice-Market-Insights-Report.pdf