Bridging The Atlantic: U.S. And U.K. Restaurant Trends

Bridging The Atlantic: U.S. And U.K. Restaurant Trends Hudson Riehle, Senior Vice President, Research & Knowledge Group National Restaurant Association Peter Backman, Managing Partner Peter Backman FS May 22, 2017

U.S. Restaurant Industry 2017

State of the industry

$799 Billion *Projected

Restaurant Industry 2017

Employees

14.7 million

More than 1Million

Tableservice Restaurant Sales 2016

2017

$254 billion

$263 billion +3.5%

Source: National Restaurant Association

Limited-service Restaurant Sales 2016

2017

$222 billion

$234 billion +5.3%


Source: 7-Eleven and Flirtey

Snack and Nonalcoholic Beverage Bar Sales 2016

2017

$38.4 billion

$40.8 billion

+6.0% Source: National Restaurant Association

11

Projected Restaurant Sales Growth in 2017 National Average: 4.3%

DC 5.5% or more 5.0% to 5.4% 4.0% to 4.9% 3.5% to 3.9% 3.4% or less Source: National Restaurant Association projections

Disruptive trends

Are Consumers Finally Warming Up to the Economy? Consumers’ assessment of the national economy: 2010 – 2017

2017 2016

25%

44%

29%

27%

46%

22%

2015

40%

40%

2014

39%

44% 50%

2013

Poor

10%

34%

Fair

Source: National Restaurant Association, National Household Survey, 2010-2017

Good

2%

12%

27%

58%

2010

2%

15%

36%

65%

2011

2%

17%

37%

53%

2012

2%

1% 1%

7%

1%

8%

0%

Excellent

GDP Growth Expected to Remain Moderate in 2017 U.S. Real Gross Domestic Product – historical and projected growth rates 3%

2.5%

2%

2.4%

2.2%

2.6% 2.2% 1.6%

1.7%

1.6%

1% 0% -0.3% -1% -2% Projected

-3%

-2.8%

-4% 2008

2009

2010

2011

2012

Source: Bureau of Economic Analysis; National Restaurant Association projections

2013

2014

2015

2016

2017*

U.S. Presidential Campaign Dampened Consumers’ Spending Confidence More Confident 14%

Less Confident 31%

Source: National Restaurant Association, August 2016

No Change 55%

16

Economy is Now 7.6 Million Jobs Above Pre-Recession Peak

44 states and D.C. have more jobs than before the jobs losses started in Feb. 2008

Source: Bureau of Labor Statistics

Urban Areas Registered Stronger Job Growth During the Economic Recovery Average annual job growth: Metropolitan Statistical Areas vs. Non-Metropolitan Areas 1.9% 2.0%

1.2%

1.5%

1.0%

0.5%

0.0% Metropolitan Statistical Areas

Non-Metropolitan Statistical Areas

Source: National Restaurant Association analysis of Bureau of Labor Statistics data, 2010-2016

Where Consumers Spent in 2015 PERCENT OF TOTAL

CATEGORY Housing

33%

Transportation

17

Food

13

Insurance/pensions

11

Healthcare

8

Entertainment

5

Contributions

3

Clothing

3

Other

7

Total

100%

Source: Bureau of Labor Statistics, Consumer Expenditure Survey – 2015, National Restaurant Association

Gas and Diesel Prices Projected to Rise in 2017 Annual average price per gallon for regular gasoline and diesel fuel $4.50 $3.92 $3.51

$3.83

$3.36

$2.71

$3.00 $2.43

$2.39

$2.69 $2.31

$2.15

$1.50

$0.00

Regular Gasoline

2013

Diesel Fuel

2014

Source: U.S. Department of Energy, Energy Information Administration

2015

2016

2017* *projected annual average

Wireless Spending Up (Total Revenue, Billions $)

$191.5 2015 $113.5 2005

$0.5 1985

Source: CTIA – The Wireless Association

45%

45 percent of adults would like to pick an exact table from a website seating chart when making a reservation.

14% 14 percent of adults would pay a fee, such as $10, to get a better table.

Source: National Restaurant Association, 2016

3 out of 4 consumers say they would go to a restaurant during offpeak times if they received a discount.

Source: National Restaurant Association 2016

Consumer Interest in Restaurant Meal Subscriptions Adults who say they would join a monthly program that pre-pays for restaurant meals and includes benefits like discounts, exclusive offers and skip-the-line privileges

60%

52% 42%

41% 36%

40%

20%

0% All Adults

Millennials (18-36)

Generation X (37-52)

Source: National Restaurant Association, National Survey of Adults Conducted May 4-7, 2017

Baby Boomers (53-71)

Restaurants Remain Extremely Labor Intensive Average sales per employee, 2015

Eating & Drinking Places

$56,000

Grocery Stores

$226,000

Gasoline Service Stations

$478,000

Auto Dealers

$769,000

Source: National Restaurant Association, based on Bureau of Labor Statistics and US Census Bureau data

Four in Five Restaurant Operators Agree • Technology Helps Increase Sales • Technology Makes Their Restaurant More Productive • Use of Technology in a Restaurant Provides a Competitive Edge

Source: National Restaurant Association, 2016 Restaurant Technology Survey

(Mostly) Yes to Restaurant Tech Consumers who agree with the following statements

All adults

Age 18-34

Technology increases convenience

66%

76%

Technology speeds up service

61%

68%

Technology increases order accuracy

56%

66%

Technology makes dining out more fun

35%

42%

Technology makes you dine out or order takeout/delivery more often

30%

40%

Source: National Restaurant Association, Technology Consumer Survey, 2016

Restaurant Smartphone Tech Consumers who use smartphones or tablets for these activities occasionally Percent of adults Look up restaurant locations, directions and hours

88%

Look at menus

72%

Order takeout or delivery

63%

Read online reviews

58%

Use loyalty programs and rewards

56%

Make reservations

46%

Look up restaurant nutrition information

44%

Pay for meals

34%

Source: National Restaurant Association, 2017 Restaurant Industry Outlook – Base own/use smartphone/tablet

Menu Price Growth Continues to Outpace Grocery Store Prices Annual growth in Consumer Price Index – Food Away From Home vs. Food At Home 4.8%

5% 4%

2.9%

2.8% 3% 2.3%

2.5%

2.6%

2.4% 2.4%

2.1%

2.4%

2% 1.3%

1.2%

0.9%

1% 0.3% 0% -1% -1.3%

-1.3%

-2% 2010

2011

2012

Menu Prices

Source: Bureau of Labor Statistics

2013

2014

2015

2016

2017*

Grocery Store Prices

*year-to-date growth through April

What’s Hot in 2017 TABLESERVICE RESTAURANTS 1 New cuts of meat 2 Street food-inspired dishes 3 Healthful kids’ meals 4 House-made charcuterie 5 Sustainable seafood Source: National Restaurant Association, What’s Hot in 2017 chef survey

What’s Hot in 2017 LIMITED-SERVICE RESTAURANTS

1) Natural ingredients/minimally processed food

2) Organic items 3) Gluten-free items

4) Artisan/house-made items 5) Healthful kids’ meals Source: National Restaurant Association, 2016

What’s Hot in 2017 ALCOHOL

1) Craft/artisan spirits

2) Onsite barrel-aged drinks 3) Local wine/beer/spirits

4) Regional signature cocktails 5) Culinary cocktails Source: National Restaurant Association, What’s Hot in 2017 chef survey

Wrap-up

Americans Love Restaurants Percent of consumers who say they enjoy going to:

90%

66%

Restaurants

Grocery Stores


Pent-Up Demand for Restaurant Services Remains Elevated Two out of five adults are NOT dining on-premises or using take-out as often as they would like

Source: National Restaurant Association, 2017

Projected Growth in Total State Population 2016 to 2026

35

DC

15% or more

8% to 14.9% 5% to 7.9% 2% to 4.9% Source: Moody’s Analytics

U.S. Population: 8%

Less than 2%

2017-18 U.S. Economic Outlook Continued moderate growth ahead

INDICATOR

2016

2017

2018

Real Gross Domestic Product

1.6%

2.2%

2.5%

Real Disposable Personal Income

2.8%

2.0%

2.4%

Consumer Price Index

1.2%

2.6%

2.5%

Total U.S. Employment

1.7%

1.5%

1.5%

Source: National Restaurant Association projections, May 2017

Wrap-Up •

2017 = moderate industry growth with strong geographic variations sustained.

•

Converging disruptive macro trends include: economics, demographics, workforce, technology and food.

•

Menu price growth to continue: sourcing, eco-friendly, and ethnic dishes remain key menu trends.

•

As restaurant labor costs advance, greater emphasis on value-added products as recruitment challenge grows.

•

With consumers still managing their check and needing “nudging,” technology can offer distinct competitive advantages with patrons’ acceptance growing.

U.K. Restaurant Industry 2017

What I’m going to talk about • • • • •

“Restaurants in the UK” – what they are What’s going on and why The players Disruptors and other things Some takeaways

The UK in context • •

• • •

•

No. of times you can fit the UK into Texas 3 The furthest you can drive in the UK 874 miles The furthest a crow can fly over the UK 603 miles The furthest from the sea you can get 90 miles The UK population 64 million People per square mile 685

UK Foodservice – the last 25 years 12% UK Nominal

10%

UK Real 8%

Linear (UK Real)

6% 4% 2% 0%

-2% -4% -6%

Source: Market Structure and Trends

3 Disruptors right now Brexit Home delivery Tesco / Booker

F&B Sales in PQR (Pubs, Quick Service, Restaurants) Food and Beverage sales - nominal prices 1981-2016

35

30

£ Billions

25

20

1.2% CAGR

15

10

5

0


Restaurants European-Ethnic-Pizza/Pasta-In-Store-Themed, inc Pub Restaurants

Facts • 30,818 Outlets • 12% of the total • 789 million meals • 10% of the total Key Considerations • Several groups own a range of brands • New vibrant food trends emerging • Wide cuisine type drives menu offers • New day parts opening up • New formats adapting to current trends • Vouchers in use to drive footfall Source: Market Structure and Trends

2.7% Nominal 2016 v 2015

% of F&B sales 24%

Quick Service Restaurants Fast Food-Cafes–Take Away-Ethnic-Sandwich

Facts • 34,260 Outlets • 13% of the total • 2,202 million meals • 27% of the total Key Considerations • Global brands dominate this sector • Strong growth of coffee shops • Burgers leading the way • Health trends also driving growth and innovation • Food to go increasing • New delivery options evolving Source: Market Structure and Trends

2.7% Nominal 2016 v 2015

% of F&B sales QSR 26%

Pubs

“Brewery” owned-Pubco owned-Managed-Tenanted-BrandedUnbranded-Freehouses-Night Clubs-Wine Bars

Facts • 42,240 Outlets • 17% of the total • 802 million meals • 10% of the total Key Considerations • Food provides the route to survival • Different operating models - Tenant v Managed • Pressure on tenants • Branded pub chains driving growth • Consideration to back of house (chef skills/space limitations) Source: Market Structure and Trends

-0.5% Nominal 2016 v 2015

% of F&B sales Pubs 11%

The Casual Dining market continues to grow £10

20%

15%

£6 10% Total Casual Dining £4

5%


2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

£0

2003

£2

2002

Food and Beverage Sales £ Billions

£8

0%

Casual Dining as % of Total

What’s on Menus: Headline News PERSONALISATION AND SHARING ON THE UP

Bye bye burgers, hello low’n’slow Powerfoods leave the gym and enter the high street Source: Menurama

What’s on the drinks list?

£ F&B Sales £ Million

The Top 15 Players

• •

2,000

•

1,600

•

1,200

800

400

0

Source: PeterBackman.

These companies represent 36% of the F&B sales of the total market Global players dominate with 5 players UK Pub Groups follow with 4 players Some are coming to a site near you! Pret a Manger, Wagamama, Yo! Sushi, Caffe Nero, Carluccios

US brands in the UK

Numbers of outlets

2,000

1,500

Arrivals • Before 1980: McD, BK, KFC, Pizza Hut, Taco Bell • 1980s: Subway, Domino’s, TGI, Baskin Robbins • 1990s: Starbucks, Papa Johns, Ben& Jerry, • 2000s: Krispy Kreme • 2010s: Five Guys, Taco Bell, Chipotle Some who have been and gone • Wendy’s • Arby’s • Dairy Queen

1,000

500

0

Source: PeterBackman.

Some who recently arrived • Shake Shack • Smashburger • Wingstop

Fastest growing small brands (by new site openings 2013-2016) Rank

Brand

Type

Outlets

New outlets since 2013

1

Kaspa's

Dessert café

25

23

2

Red Kiosk Company

Coffee shop

20

20

3

Burger Shack

Burger fast casual

18

18

4

Cau

Steakhouse casual dining

20

17

The Stable

Pizza casual dining

17

13

Chatime

Bubble tea

13

13

Wahaca

Mexican casual dining

23

12

Coast to Coast

American casual dining

21

12

Joe and the Juice

Juice bar

17

12

Chozen Noodle

Pan Asian casual dining

16

12

5

7

Source: Ones To Watch

Tomorrow’s players today

Kaspa’s

Chicken Shop

Bob and Berts

Dunkin’ Donuts

Toro’s Steakhouse

Red’s True Barbeque

Source: Ones To Watch

Funding and growth models •

Start up • • •

•

Family and friends, bank loans Angel investors Crowdfunding

Serious investors • •

PE IPO, Float

•

The “British” way • •

Franchising Pubs • Tenancy, leasing

The scorecard for Casual Dining operators Plus • Long term history of growth • Delivery will add to growth • Good – not great - customer understanding • Innovation continues

Minus • Fragile consumers • Uncertainty • Pressure on costs • Question marks over investment

Margins are being squeezed 15%

10%

5%

0% J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J M 2006

2007

2008

2009

2010

2011

2012

2013

-5%

-10% Margin Squeeze

Source: ONS and PeterBackman.

Input prices

Selling prices

2014

2015

2016

2017

Balance of positive and negative responses (%)

Consumer confidence is fragile 100 80 60

Unemployment expectations over the next 12 months

40 Statement on financial situation of household

20

0 Consumer Confidence

-20 -40 J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J 2006

2007

2008

2009

2010

2011

Source: Eurostat and PeterBackman.

2012

2013

2014

2015

2016 201 7

Why confidence matters - a tale of 4 recessions

120

110

100

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Banking crisis 2005

2004

2003

2002

2001

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985


2000

Consumer confidence

Cyclical 1984

80

1983

Cyclical

1999

90

1982

F&B Sales Restaurants / QSR / Pubs

Restaurants / QSR / Pubs always do well – except when there is a crisis of confidence

1981

Meals - Total Market

Start of each recession = 100

130

Where is eating out going in 2017? 1.8%

1.8%

1.3%

0.3%

£14

Food Sales £Billion 2017

-0.9% £12

-0.2%

-2.0%

-2.0%

Total F&B Sales in 2017 0%

£49.1 Bn

-1.9% -10%

£10 -20%

£8

Ind. Sales £Bn

£6

-30% Gp. Sales £Bn

£4 -40% £2 £0

-50%

Real growth

+0.9%

% change 2016-17

Groups

+2.3% Source: Market Structure and Trends 2016

How to bring products to market

Food Purchases / Sales by suppliers:

£ Billion

£8.0

£6.0

Del Whlsl

Delivered Wholesale / Broadline + Logistics From 37% share to 72%

Logistics

£4.0

C&C Retail/Other

Growth built on: Market growth Expansion of chains / groups Partnering with chains Constant cost reduction

£2.0

£0.0


Changing distributor muscle Brakes – acquired by Sysco Brakes Bidfood Booker All Others


Bidfood - BID floated on JSE

Booker being acquired by Tesco

Brexit – The time frame •

Pre-referendum – Project Fear and more up to July 2016

•

Phoney war - ended with Article 50 in March 2017

•

Brexit negotiations – end in March 2019

•

Trade negotiations – and more

•

Unpicking the mistakes – a generation?

What was the political take away from the referendum? •

Politicians say “Immigration”

•

It’s become the red line

•

It’s the political lens

How will Brexit play out in foodservice? “No battle plan survives contact with the enemy”

What happens to:

The unexpected – is very likely

• • • •

Helmuth von Moltke

Danger of arguing from “known knowns” Time scale • •

Medium term to March 2019: Brexit negotiations Long term: The next 15 years

• • • • • • •

Immigration Falling / volatile £ Consumer confidence Brexit-induced effects on the UK economy Government investment Trade arrangements Changes in food law / regulations Changes in duties / taxes Private sector investment in foodservice London Foodservice trading

Technology What’s standing in the way? •

•

•

Are the right products in play? Multiple launches, fragmentation … limited scale Walled gardens

What’s it being used for? • • • • • •

Information Employee engagement Collection Table ordering Payment Delivery

Delivery – a 2 way disrupter Changes to operating patterns • Reduced need for restaurant space • Distribution becomes efficient • More “Dark kitchens”

Losing contact with the customer • “Man on a bike with a bag” • Not “like real life” • Not always “immediate” • Impact on the brand?

It’s not only about home delivery Traditional

Aggregators Aggregator / Deliverers

Specialist aggregators / deliverers

Concierged

Consumers Offices B2B

Tensions for aggregators For aggregators • Is the delivery method an internet play? • Does the delivery team understand food? • Scale requires an international landgrab • Implications for HR management • Fight back from retailers

For operators • Who “owns” the customer? • Maintaining order size … • … and margins • Adapting the offer • Dangers of hollowing out • Which deliverer?

The Delivery scorecard for operators Plus • •

Increased sales Potential cost reduction

And • • • • • •

Changing business models Limits to growth Limits to geographic expansion to “borderline” towns Does it become a drug? Retailers to fight back? Multiple opportunities for third parties

Minus • • • •

Losing contact with the customer Race to secure customers Increased costs Not all products “deliver” well – pizza yes, fries no

Some takeaways • • • •

•

The UK is like the US – except it isn’t Rule of 8 Entering a period of instability, caution and lack of confidence 3 Big Disruptors • Brexit • Delivery • Changes in distribution muscle Contact me for information www.peterbackmanfs.com

Bridging The Atlantic: U.S. And U.K. Restaurant Trends Hudson Riehle, Senior Vice President, Research & Knowledge Group National Restaurant Association Peter Backman, Managing Partner Peter Backman FS May 22, 2017