Magazines Archives - 2009 June

FMCG and the recession – how are consumers of food and drink products responding?
Story 11 - Retail Asia-Pacific Top 500 Spotlight

Consumer Food Service - Cutting back, ordering take-aways and trading down

Elizabeth Higgins, Euromonitor International’s expert on consumer food service says: “Consumers are cutting back on eating out and this is particularly hurting full-service restaurants and cafe/bars. We are seeing some trading down but, in some cases, lower-income consumers are choosing not to eat out altogether and, in many countries, this was the group that was really boosting value for food service.”

One of the key advantages during a downturn for any lower-priced operator is the trading-down effect, whereby many consumers remain unable or unwilling to cook many meals at home, yet increasingly look for ways to cut back on spending, often by eating at lower-priced fast-food and takeaway locations. While trading down is quite apparent in some markets, in others this is not always the case:

In Italy, consumers are expected to eat out less often in times of a crisis, treating themselves occasionally to a mid-priced meal rather than trading down to a lower-quality fast-food meal.

In other countries, we are seeing consumers return to cheaper and familiar foods; in some countries, this might be turning to street stalls and kiosks. In Brazil, this has benefited the Kilo restaurants where consumers can find affordable meals, including many national specialities, for a low price.

Other sectors that have benefited to date include the 100% home delivery/ take-away sector in the UK, where Domino’s Pizza has seen strong growth attributed to the downturn, citing that during a six-week period in January/February like-for-like sales increased by 15% as consumers traded down from restaurants to delivery.

Operators across all sectors have responded by emphasising their value positioning:

Starbucks has introduced its own value offering, advertised as “something good to eat for less than $4” in a response to McDonald’s, which has taken shots previously at the former’s average-priced beverage costing around US$4 during a recent McCafé marketing campaign, which offered espresso-based beverages starting at US$2.25.

Full-service restaurants are also offer ing a range of promotions, including a half-priced bottle of wine and free entrees; some independents in the UK have even asked consumers to name their own price for a meal. In Mexico, full-service restaurants such as VIPS operated by Wal-Mart, are offering meal combinations for less than the price of a Big Mac meal at McDonald’s.

In the Philippines, fast-food operator Jollibee launched a new lower-priced concept, called Manong Pepe, which offers home-cooked meals similar to those offered by street stalls or kiosks. Meanwhile, Jollibee has steadily expanded its core Jollibee brand, adding to its breakfast and snack selections, and steadily rolling out 24-hour operations at outlets targeting traffic among consumer groups such as students and call-centre operators looking for late-night meals.

Outlook - Slow revival of consumer eating out habits with faster demand for discounted, on-the-go options

Overall, the food-service industry is not expected to pick up again until 2010 with a stronger recovery projected for 2011 and 2012, although a lot still depends on each country’s recovery and the effectiveness of the various stimulus plans that have been implemented. It is likely that consumers will be slow to return to previous eating-out habits. Fast casual chains could also receive a sales boost from lower-income families who may choose to forego the occasional luxury of a full-service restaurant for a less expensive fast casual meal.

One potential bright side for operators is consumers’ continuing demand for on-the-go options. While consumers are cutting back, without question, consumer food service remains a virtual necessity for working urban residents, who remain willing to spend money at chains perceived as offering good value. Thus, many fast-food chains have been able to keep traffic growing with a selection of heavily discounted items, coupled with longer hours and broader menus — from light snacks and indulgences to full meals — designed to capture sales at all times of the day and all meal occasions.

However, there are still many emerging markets with low levels of food-service spending overall and, as a result, opportunities still do exist for growth.

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