By 2010 retail food stores and foodservice operators will be one and the same. The era of women as shopping and cooking mules is over.”
While some may disagree with the timescale stated by David Hughes, professor of agribusiness and food marketing at Imperial College London, few doubt the boundaries between food retail and foodservice are blurring.
Much of the activity to date has been from foodservice brands developing products for retail, such as Pizza Express, Nando’s or YO! Sushi and, most recently by Planet Hollywood, which has launched a range of its products in Sainsbury. In addition retailers have installed rotisseries, sandwich or meals-to go areas to cater for the growing out-of-home market.
But it cannot be long before a food retailer takes a bigger stake in foodservice. After all, growth in the retail market is being ever-more stymied by Competition Commission inquiries, planning restrictions and deflation. Why would Sainsbury, seeking a way out of its current woes, not use its credentials to move into foodservice through an acquisition, joint venture or distribution network?
Paradoxically, the growth in out-of-home consumption has been seen as a potential threat to many food retailers. In a white paper from private equity company 3i and The Economist Intelligence Unit, McKinsey says that out-of-home consumption rose from 32% of total European food and drink consumption in 1995 to 35% in 2002. It is predicted to approach 38% by 2005. Estimates vary from 10-30 years as to when it
will surpass food consumed in the home, but it is agreed that the day will come.
Consultants Richard Maude-Roxby and John Black, both of whom have worked for more than 35 years in the food industry, during which time they together developed Bookers’ delivered foodservice business, caution that the market is poorly researched and a health warning needs to be added to all statistics. They say they take a conservative view but believe foodservice will overtake retail in 2017. What Price Solutions’ Alistair Price, ex-Cadbury Typhoo and with more than 30 years experience in the out-of-home market, believes consumer foodservice expenditure will grow to 50% of total food spend by 2020.
He says food sales by caterers amount to £23bn and there are nearly 270,000 outlets. According to Maude-Roxby Associates (MRA), about 200,000 are independents. Caterers’ purchases of food and consumables, not including tobacco and alcohol, amount to £10bn. Chains (of 10 or more outlets) make up 27% of the market but 60% of purchases. MRA believes that after a difficult 2002 the UK foodservice market will grow 1% in 2003 and 2% each year to 2006.
What is perhaps surprising is that food multiples are already taking about 14% of this expenditure at wholesale prices, says MRA. “Small caterers and fine dining establishments in particular are buying fresh foods from the retailers,” says Black. “Produce, bakery and chilled foods are the leading groups and there is a big demand for ready-meals from M&S and Waitrose.”
He points out these caterers buy for that evening’s menu and rarely have much room to store food, so quality, refrigeration and
availability are key. This is an area in which retailers excel and one where the traditional catering distribution network falls short.
Bakery, in particular, is an opportunity because most caterers buy par-baked bread. Chilled foods account for 23% of caterers’ purchases and produce for 16%, adds MRA. Then there is the de-skilling of catering staff so operators seek added value, such as pre-prepared washed and cut salads.
According to Price, delivered wholesale makes up 60% of sales value, direct from supplier 17%, cash and carry 14% and retailers 9%. A small number of wholesalers dominate the market, notably 3663, Brakes, DBC and Big Food Group’s Woodwards.
But Price, Maude-Roxby and Black all agree the opportunity for multiple retailers to take a bigger share of the market is there. This could be through using more sophisticated means to target local caterers via the store network, for example loyalty cards; using their online delivery vans for direct delivery; working in partnership with the wholesalers or by acquisition.
“Retailers’ margins are under pressure and their suppliers are already under much pressure, so they are looking outside their existing food and drink remit,” says Price. And Maude-Roxby adds: “I am surprised no-one entered when Brakes was up for sale.”
Cash and carries and retailers such as Tesco already offer big catering-size packs but Black says the packs are not the issue. “It is about product development, supply chain and the right-size packs, whatever that size is.”
And complacency must be guarded against. It is not enough to understand the food market and consumers and so assume an understanding of foodservice. It is a complex market, with different drivers depending on sector and operator, and caterers are loyal.
They don’t change suppliers easily unless they have had bad service. The worst thing that could happen is for an order not to turn up on time.
And retailers should not underestimate the existing foodservice suppliers. They understand the market and most importantly the personalities within it.
Of course, the only major example to date of a food retailer taking a giant leap into foodservice (Big Food Group aside) is not a happy one. Ahold, which last week posted a massive E1.2bn net loss for its restated 2002 figures, expects further losses relating to its US Foodservice unit where financial irregularities surfaced earlier this year.
But this should not put off the multiples. The opportunity is there for the taking. Some multiples are already believed to be conducting the research.