Foodservice: Eating out growth will be harder to find in 2024

Source: IGD, 12 April 2024

Our latest report, “Eating out in 2023, reality vs expectations” analyses how the eating out market performed last year with a particular focus on the performance of the second half vs the first half.  We compare these findings to the assumptions made in our 2023 forecast, and provide a view on how this will impact 2024. 

Key findings:

1. Eating out in 2023: a year of two halves

Last year between January and July visits to eating-out establishments increased as consumers’ financial confidence rose.  However, the second half of the year saw a reversal of this trends across all sectors, with full-service restaurants being hit the hardest. Gathering momentum behind a return to offices boosted contract catering sales and initially food-to-go, but this has also declined as consumers became accustomed to their new routines and adopted cost-saving habits.

2.    Q4: consumers feel the pinch at Christmas

The Christmas period saw an increase in consumer spending on eating out, with positive sales vs 2022 in pubs, bars, entertainment and quick service restaurants. However, full-service restaurants continued to struggle despite year-on-year inflationary price increases and the favourable comparison against December 2022, which was impacted by travel disruptions. Less affluent consumers in particular felt the pinch of festive spending. With short-term debt levels and interest rates at a high, this will continue to affect their ability to spend on eating out in 2024.

3.    Growth harder to find in 2024

A continuation of the frequency and spending trends from the second half of 2023 is expected as cost-of-living struggles continue. More consumers coming to the end of favourable fixed-term mortgage rates, alongside higher insurance and living costs, will mean the typical consumer will have little or no growth in their discretionary spending.  Value-led chains offering targeted deals and promotions will have the upper-hand, as will operators who capitalise on special occasions to entice consumers.

What is driving the market?

To understand how the market is performing we break down the analysis into three key categories: Penetration, Frequency, and Spend.

The first two categories will ultimately affect volume of meals and drinks sold, whereas spend will affect transactional value.

Penetration Frequency and Spend

Penetration: the proportion of consumers who eat out 

To determine if consumers have the financial capacity and interest to dine out, we look at their disposable income levels and their perception of their financial situation. 

When looking at a typical mortgage-holding household, the reality of how the cost of living has affected many consumers in the UK becomes clear.  A typical household earning nearly £33,000 back in 2021 could now be spending £5,126 more on essential living expenses than they were in 2021. Even factoring in two average pay rises in successive years, this results in that household being £1,160 worse off than they were nearly three years ago. In this scenario, workers would have had to have two successive 7.5% pay rises to have ‘broken even’. 

Source IGD Research All prices based on latest prices vs 2021 equivalents

This stark reality for the majority of UK consumers will have a significant effect on the number of consumers able to go out to eat.

Frequency: how often consumers eat out

To understand the frequency of when consumers are visiting or using eating out venues, we review key data points such as number of transactions, footfall and changing consumer habits.  

The change in number of transactions via card data shows that Q4 did not perform as well as the first three quarters of the year, with full-service restaurants being the hardest hit sector.  This slowing of the market is supported by other similar data sources and starts to show a real switch in fortunes for the hospitality market when comparing the second half of the year to the first.

  Source Barclaycard Consumer spending report

Spend: how much consumers spend when they eat out

ONS data on the total turnover of the hospitality market shows healthy year on year growth of +11%, as do many publicised operator results.  However, it’s price increases implemented by operators to help them offset the many cost increases they have been facing that is driving this nominal value growth.  In 2023 average eating out market inflation was circa 9%, matching our IGD forecast.

In this chart we can see the comparison of consumer price inflation vs the foodservice price index (FPI), which represents “kitchen door” food costs for operators, and although there is still a significant margin gap, this is gradually closing.

Source IGD Research Consumer Price Inflation ONS Dec 2023 CGA Prestige FPI Dec 2023

This stabilisation of ingredient prices will be a relief for many operators. If it continues it will enable many to start to recover profit margins through continued small incremental menu changes and price increases. 

Although spend per eating out transaction is becoming higher through inflation, consumers are counteracting this with downtrading some of their choices and meal occasions.  Our quarterly food-to-go shopper research shows the average spend on food-to-go as an evening meal or snack has decreased in Q4 compared to Q2 2023. Although it appears that the lunchtime occasion is experiencing an increase, this is more than offset by inflation.  This suggests that consumers are saving money on food-to-go across all of these key dayparts by downgrading their purchase choice.

Source IGD ShopperVista Foodtogo Q4 2022 Q4 2023 Base 1000 foodtogo customers