Operators: Good Market Gets Better

As Donald Rumsfeld once famously said, “there are known knowns, known unknowns, and unknown unknowns.” For example, we don’t know what he’s doing these days. That said, we do know things are good in foodservice, and 2016 looks even better.

“We see the economy slowly building, gaining momentum,” says Joe Pawlak, V.P. at foodservice consulting/research firm Technomic Inc., Chicago. “What drives our business is disposable income and jobs, and both grew last year. Continuing low gas prices helped too. Add those three together, and the picture is rosy.

How rosy? According to Technomic data, foodservice sales in ’15 saw real growth of 2.3%—significantly stronger than originally forecast, and the highest rate since ’07. Technomic predicts even better real growth for ’16 at 2.5%.

Corroborating the data, the National Restaurant Association’s Restaurant Performance Index has shown positive growth every month since the last time it went just barely negative in February ’13. As of press time, that was 35 months through November. The past two years were strongest.

Strong Segments
The limited-service segment continues healthy growth, with real growth rates above 2%, but the story behind the story is that traditional quick service is grinding out a good-but-not-great 1% real growth, while the much smaller fast-casual category is exploding at 8% real!

“We have talked about ‘fast casual’ in the past,” Pawlak notes, “but we will be seeing new segments of fast casual blow out.” Pawlak says he’s seeing distinct menu sub-segments emerge in fast casual. “One to watch is fast-casual pizza,” he says, pointing to concepts like Blaze Pizza, Pie Five Pizza, Pizzeria Locale and others. He also sees fast-casual Mediterranean developing.

Another positive story is the rebound of the full-service segment in the past couple of years. As the job picture began to improve, the trade-down migration from full-service to quick-service restaurants stopped and then reversed. Consumers began returning to casual dining (full service with alcohol) in particular—real growth was 2.5% last year and is projected to reach 3% in ’16. The midscale restaurant segment has grown at a slow, steady rate (1.5% in ’15), and fine dining, with its higher-end clientele, continues to be healthy and is sailing along at a 5% real clip. Overall, full-service restaurants turned in a very respectable 2.5% real growth last year, and Technomic expects a slightly higher rate this year

Several other categories have shown extra oomph too. “We saw some segments do especially well,” Pawlak says. “One that did better than expected is supermarkets. We knew it would do well, but it exceeded our expectations. More consumers are gravitating to supermarket foodservice, and supermarkets are doing more gourmet and upper level foods like what you’d see in fi ne dining.” The segment chart shows an eye-popping 5.5% real growth last year, and even higher for ’16.

Boomers Booming AlongBaby boomers are impacting other segments’ performance. As they retire, not only are they driving down the employment participation rates as measured by the Bureau of Labor Statistics, but they’re driving up foodservice real growth in two notable segments: Healthcare foodservice grew at 3.5% real last year, and it’s projected for the same in ’16. Meanwhile, senior-living foodservice is growing at a breakneck rate—6% last year—and it’s expected to grow even faster this year. 

Transformations Coming
What’s down the road? Change, according to Pawlak. Rising minimum wages “absolutely have an impact,” he points out. “Operators say they will have to make cuts in the number of employees and raise menu prices. The future will entail fewer employees and more new technologies.

“The foodservice industry is transforming,” he says, noting the economy, consumer patterns and regulations all are changing the business. Among the things he sees coming: branded foodservice without brick and mortar; rented/leased kitchen spaces; more trucks and other forms of mobile preparation—all will grow. “People will buy a meal and heat and eat it at home. Footprints will be smaller.”

And then there are the unknown unknowns. …

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