Dr. Ian Malcom – Jurassic Park
(This has been updated from an April 30, 2020 post)
Headlines across the nation claim the foodservice industry will not be the same, or worse, not survive. We’ve even seen our own industry analysts comment that “people will find out they don’t need restaurants anymore.”
But in the words of Dr. Ian Malcolm of Jurassic Park lore, foodservice, like life, will always find a way.
We understand the need to create headlines. Often, if readers journey past the first paragraph, they find headlines are not always indicative of the whole story. I would like to provide some facts as to the societal, economic and cultural need for foodservice.
More than a third of foodservice is made up of non-commercial/onsite feeding such as hospital, businesses, college and university, corrections, hotels and more.
Major Differences: Retail v. Foodservice (Pre-Covid)
|Average Gross Profit Margin (ACV)||10-20%||50%-80%|
|Total Revenues*||$780 billion||$800 billion|
|Share of Total Meals*||75%||25%|
|Number of Stores||100,000||1,330,700|
|Segmentation||8-10||80 segments and sub-segments|
|Scanner Data||Plentiful – IRI, Nielsen||None|
|Private Label Penetration||15%||55%|
|Product Selection||Consumer||Foodservice Operator|
|Trading Barriers||Shelf Space Procurement||FSMs, GPOs, Distributor Trade Dollars|
*National Restaurant Association, IFMA, Foodservice IP
With that said, let’s look at why the reduction in foodservice will be limited and return to normal:
- Anniversaries – A high percentage of special occasions, like anniversaries are, of course, spent in fine dining restaurants.
- Business Meetings – we don’t imagine businesses will stop holding meetings during lunch or catering in.
- Time with Family – personally, with a family with three kids and schedules, the best time to “connect” in the 2000s is through a family meal at a restaurant. No dishes, just discussion.
- Birthdays – this one goes without saying. We each have one annually.
- Dayparts – society tends to view “eating out” as dinner in my experience. We typically need to remind consumers “eating out” includes the breakfast sandwich from a c-store or McDonald’s, a cup of coffee from Peet’s as well as the Subway sandwich. There are three occasions per day – plus snacking – that are set for foodservice.
- Gen Z – this group is far different that other generations. Mobile devices allow for pick-up at any restaurant – or delivery (yes – delivery of prepared food is considered a restaurant occasion). Plus, have you seen a Gen Z cook or use a microwave? How often?
The Death of Foodservice? Not So Fast
There are several other examples of how foodservice and away-from-home eating will continue to thrive. One notable fact from the National Restaurant Association shows that of the $1.4 trillion in food spending, nearly half is split between grocery and foodservice. This share shifts slightly with interruptions such as Covid-19, but there are others “calamities” throughout history that were expected to derail the foodservice industry:
- The 1987 Stock Crash
- The 2000-2001 Tech Bubble”
- The 2003 Swine Flu
- The 2008 “Great Recession
- 2012 SARS outbreak
Another very important note about foodservice. Gross margins, on average, are 60% for foodservice compared to 10% for retail – from a manufacturer perspective. It’s difficult to veer from this financial benefit.
This piece is not to suggest that the economy, unemployment, discretionary income, consumer confidence will bounce back immediately. History has shown, they never do. In the last 2008 recession, it took the US until 2016 to return to 2007 unemployment levels – yet, foodservice spending started its upward climb in 2009.
The point is, ensure as a food industry pundit and stakeholder, you are well-informed and look at history as a guide. This industry could use some champions of truth and it’s no time to be shy or modest.
Note: This is an updated post from April 30, 2020.
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