Foodservice analyst Peter Backman has warned that the outlook for the foodservice sector “continues to darken” amidst Brexit uncertainty and is unlikely to lift until at least the end of the year, even though there are signs of margin pressure easing.
This could dampen the number of new opening and refurbishment projects that are the lifeblood of many a dealer across the country.
In a review of the eating out sector during the first quarter, Backman said that January was slower than usual, but the better weather generated a small boost in March.
Growth for food and beverage sales for the whole foodservice sector in the first quarter was +2.6% versus the same quarter a year ago (but excluding inflation there was zero growth). The market value in the quarter was £11.7bn, though that this quarter is always the lowest of the year.
At face value, growth figures are positive compared to last year, but sales plummeted during the onset of the ‘Beast from the East’ cold weather spell in the same quarter in 2018 and overall growth this year was not as great as the fall last year, leading to poor comparative figures for the quarter.
“The threat of the unknowns surrounding Brexit are likely to be a major contributing factor,” said Backman.
“Operators have held back on new marketing initiatives, outside of the traditional discount offers, and consumers have reined in their spending fuelled by low confidence. Suppliers have ramped up stock holdings to prepare for the unknown, incurring considerable costs which will affect profitability.
“The outlook for the foodservice sector to continues to darken amid the debilitating effects of Brexit on consumer and business confidence. The market will continue to point downwards for the next two quarters.
“On a positive note, the squeeze on operator margins has eased over the quarter and sales in some sectors have outperformed the overall eating out market, such as food-to-go and food sales in pubs.”
He confirmed: “I expect the market to grow by 2.0% in Q3 this year with inflation at 2.6% – which means a net fall of -0.6%.”
Delivery continued to expand amid indications that the costs of delivery are hurting many operators, while the rise of dark kitchens operating under “virtual brands” is providing “unwelcome competition” for high street restaurants, Backman said.
He predicts things are likely to remain tough in the coming months for the commercial sector. But he points out that figures and trends indicate that food-to-go, food in pubs and restaurant delivery will continue to do significantly better than the overall market.
“The non-commercial sector – including B&I – will also feel pressure due to cutbacks in government expenditure and in the case of staff catering, competition from the high street desperate to take business wherever it can find it,” he added.