Foodservice Equipment Reports

Brexit Fallout Looks Mostly Negative For UK Foodservice, But Uncertainty Still Reigns

With the turmoil of the June 23 referendum in the United Kingdom to pull out of the European Union playing out worldwide, FER Worldwide asked Peter Backman, principal at London-based foodservice research firm Horizons FS Ltd., for his views on the potential impact on foodservice in the UK.

The key word is “uncertainty.” Horizons issued a report on the day after the vote and was just about to release an update as we uploaded this Worldwide Report. Backman shared some of the highlights with us.

He said uncertainty not only reduced consumer confidence in the week after the vote, but also has already undercut investment in unit growth and innovation, which has been a recent bright spot in a foodservice market with very moderate sales growth during the past decade. Horizons saw a slight softening in commercial foodservice sales, especially outside London, in the week following the vote, but nothing very significant. Backman said sales seem to have stabilized since. But the longer term outlook is not so rosy.

The NPD Group, which tracks consumer foodservice traffic and sales the UK (see story this issue) also has not seen much immediate negative impact on visits, according to Bob O’Brien, the American-based research firm’s senior v.p.-global foodservice.

Backman said the political situation is clarifying, with Theresa May now taking over as prime minister. But even with that, economic uncertainty is continuing and will likely continue for months. “Since the direction of the foodservice sector depends on the economy—and its sibling, consumer confidence—the outlook for the sector will remain unclear.”

Backman detailed some of the impacts already apparent. “Property prices will change, maybe towards the more affordable end, but that’s not good news for businesses that have already invested. Prices of imported food and equipment will rise as the pound weakens. So far it is about 13% lower than it was before the referendum (June 23 to July 12). Staff costs, already rising as result of the increase in the Living Wage (the UK’s minimum wage), will likely rise even faster as the labour pool reduces (by a slowdown on EU immigrants).

“Consumer (and operator) confidence has taken a knock. Although the immediate post-referendum fall in confidence is unlikely to be typical of how confidence will play out in the coming weeks, we believe the levels will remain depressed.” Backman said this is unfortunate since confidence had been running at historically high levels, above even pre-recession levels.

“Amid all this there are also bright spots. For example the reduced value of sterling makes the UK a more affordable destination for overseas visitors which will have a positive impact on hotels.

“There have already been examples of Brexit fallout. For example, Revolution Bars (a UK-based bar operator) pulled a deal to acquire a small group of bars in Scotland and gave the result of the Brexit vote as the reason. Rick Stein, a respected celebrity chef and restaurateur, announced, that he stopped plans to open a seafront restaurant in Eastbourne, a south coast town, blaming Brexit. It is too early to say whether this is a trend but we believe that one of the more immediate results of the referendum vote for the eating-out sector will be pressure on margins (prices to go up and revenue to fall) and this, in turn, will influence deal-making across the sector.

“A slight bit of clarity arises from pledges (by politicians not yet in a position to deliver) to increase funding on the NHS (National Health Service). Some of this increase, should it materialise, could find its way to an increase in food provision in hospitals.

“But for right now, rising costs and falling sales will lead to reduced appetite for expansion which has been the core driver of the period of innovation and growth that we’ve seen in the eating out sector over the last ten years.

“For the slightly longer term, eating out will broadly follow the overall development of the economy although, as in the past, it will not be an exact reflection as to timing or movement. Since we believe it is likely that the economy will turn down, we expect the eating-out market also to turn down over the next few months.”

Horizon’s 2016 foodservice forecast, released in March this year, was for 1.8% real growth following 2% real growth in 2015. The current outlook is for a substantial slowdown.

“It’s too early to say whether this is going to be an eating-out recession but we strongly suggest operators and suppliers start to think about how they will boost their business in an increasingly challenging market.”

Updates on the UK foodservice market and information on Horizons’ wide variety of research products can be found at hrzns.com.  

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