The Foodview: The Mid-Year Health of Foodservice
The U.S. foodservice economy is poised for a solid performance in the second half of 2024, at least in Foodservice IP’s opinion. Despite the uncertainties of a heated election year, key economic indicators such as unemployment, inflation, supply chain costs, and consumer spending have shown remarkable stability.
We want to highlight the major and current factors influencing the industry, from political impacts on consumer behavior to economic growth, supply chain challenges, and the continued volatility of food prices. We expect the hospitality sector is to thrive, bolstered by both technological advancements and the enduring consumer preference for human interaction.
Key Takeaways
- Economic Stability: The U.S. foodservice economy shows stability despite political and economic pressures.
- Consumer Spending Resilience: Election year politics influence consumer perception, but spending remains robust.
- Economic Growth: The U.S. GDP rose significantly in Q2 2024, driven by increased household spending.
- Supply Chain Challenges: High distribution costs threaten foodservice margins, calling for innovative cost-cutting solutions.
- Food Price Volatility: While grocery prices have moderated, overall food prices remain high due to lingering global conflicts.
Election Year Impact on Consumer Spending
A recent KPMG poll indicates that consumers feel better about their financial situations than the overall economy, reflecting political divides. Republicans tend to rate the economy worse under a Democratic president and vice versa. Additionally, states with strong Republican leanings, experiencing high inflation and in-migration, face increased living costs. Wealthy newcomers drive up shelter costs, complicating financial stability for existing residents.
Economic Growth
The U.S. gross domestic product (GDP) increased by 2.8% from April to June, reaching $22.9 trillion. This growth surpassed the 1.4% rate from the first quarter and exceeded economists’ expectations of 2.1%. Household spending, the primary driver of the economy, rose as Americans’ incomes continued to grow.
Supply Chain Costs Tighten Operator Margins
The foodservice distribution industry faces significantly higher expenses than dry-goods distribution, with a typical delivery yielding a slim gross margin of $90 compared to $681 for grocery distributors. This disparity, highlighted by Richard J. Schnieders of Sysco Corp., underscores the vulnerability of the foodservice sector to competitors who can lower costs. The industry’s survival hinges on addressing these high sales costs and adapting to potential cost-cutting innovations.
Food Prices Reflect Global Conflicts
Food prices have been volatile, exacerbated by the pandemic, inflation, supply-chain disruptions, and tariffs. Despite slowing inflation, food prices have risen by 26% since 2020. While grocery prices have stabilized and some national retailers offer summer discounts, dining out costs continue to climb. Persistent issues that drove food price increases are unlikely to be fully resolved in 2024.
Concluding Remarks – Hospitality Reins
The National Restaurant Association forecasts continued growth for the restaurant and foodservice industry in 2024, with sales expected to exceed $1 trillion and the addition of 200,000 jobs, raising total employment to 15.7 million. Operators are increasingly leveraging technology to address challenges, reduce labor, cut costs, and enhance business operations. However, consumers still prefer human hospitality in their dining experiences over technological solutions.
Tim Powell is a Principal at Foodservice IP.
Foodservice IP is a professional services firm based in Chicago, aimed at delivering ideas for managers to guide informed business decisions. To learn more about FSIP’s Management Consulting Practice, click here.
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