Restaurants have been among the most high profile victims of the European economic crisis. Empty restaurants in Spain have become a symbol of the country’s economic trials. In January 2009, the British media bemoaned the struggles of London’s culinary scene, as 100 eateries closed in just that month alone. 2013 was also a tough year. That said, with signs of revival in some areas, experts have started making positive predictions about what this year has in store.
“The market made progress in 2013 and it will continue to grow in Europe,” says Riccardo Basile, a director at business advisory firm AlixPartners. “We should see growth in the restaurant industry, which is on a similar scale with current economic growth – in other words it should be decent,” he adds.
Moreover, NPD’s CREST consumer panel has also found that consumer spending between 2012 and 2013 rose in the UK by 0.6 per cent, Germany by 1.8 per cent and Russia by 7.8 per cent.
In contrast, consumer spending dropped in France by 0.4 per cent, Italy by 2.4 per cent and Spain by 3.4 per cent. NPD estimates that the number of restaurant visits made in the big five European countries (UK, Germany, France, Italy and Spain) decreased by 1.5 per cent.
Nonetheless, analysts do expect to see improved results this year. “We do anticipate the picture to be slightly better in 2014 compared with 2013. In countries like Germany and UK where the restaurant sector grew very slowly we are expecting slightly stronger growth. In places like Italy and Spain where the market was down, we may see them flat or only a small minus,” says Jochen Pinsker, the Senior Vice President of the European foodservice division at NPD group.
There are likely to be quite sharp geographic discrepancies however, with northern Europe outperforming other regions. “We are likely to see different speeds of recovery for the restaurant industry in different areas of Europe,” says Mr Basile from AlixPartners, who points out that while southern Europe is not faring very well, it’s a very different story in the UK where two thirds of mergers and acquisitions in the restaurant industry are taking place. “Interesting things are also happening in countries like Germany and France but it is nowhere near the same scale,” he says. In Germany the restaurant market is growing in terms of volume, in contrast with 2010 when the country’s restaurant industry experienced negative volumes and revenue. Revenues have been rising since 2006 consistently. The number of outlets has also spiked 6 per cent since 2006, according to management consulting firm AMATI Associates. North and South American chains have been at the forefront of growth in Germany’s casual dining market. Pizza chains have enjoyed the biggest improvement in turnover per outlet in the country.
Despite the different growth levels across Europe, commentators emphasise that prospects for the restaurant industry should be at least slightly improved for almost all countries and a number of factors are driving this recovery. Returning consumer confidence will be a central growth driver, argues Mr Pinsker. “The restaurant industry is very sharply dependent on how people feel and how optimistic they are. Also, the restaurant industry has been declining for some years and reached rock bottom in 2013, which is another reason why expect slight growth,” he adds.
Chains look set to enjoy the lion’s share of growth in Europe, however. According to Allegra Strategies’ Project Restaurant 2013 Report, branded chains have performed particularly well recently, and claimed market share from independent outlets. In 2013, branded chains had a 14 per cent market share – up 2.4 per cent since 2007 – and a 35 per cent slice of total turnover value- up 7.3 per cent over the same period. Allegra Strategies predicts that the market share of branded chains will rise to 16.4 per cent in terms of outlets and 43 per cent in terms of value by 2018. Branded and managed pub restaurants have also been robust, increasing their overall slice of the pub market by 3.1 per cent to 16 per cent in 2013, and their value share has also increased 8.8 per cent since 2007, climbing to 48 per cent.
“Overall, there is a significant gap between chains and independents. In tougher economic times, big brands know how to react more quickly to changing needs. They also have a much stronger focus on price value and easier access to better locations and capital. It is hard for an independent restaurant owner to take the best location in a given city,” says Mr Pinsker.
Mr Basile also says that “availability of good real estate makes a massive difference between winners and losers,” adding that larger chains have the advantage as getting the best locations requires serious financing. But he also argues that smaller and mid-sized chains could do better than larger ones over the course of this year.
“There is more interest in these smaller chains, they are more innovative and there are people who are willing to invest in them,” says Mr Basile. “Strategically they are often very strong. For example, they can operate in segments and they can discount in an effective way.”
Similarly, full service restaurants have been struggling in contrast with cheaper, fast food options. For example in Italy their sales and the number of full service restaurant outfits is expected to dip, according to research by Euromonitor. In France, where unemployment reached 11.1 per cent in December, and VAT was raised to 7 per cent in January 2012, people are frequenting full service restaurants less – the number of people dining out shrank 13 per cent in July 2013 compared with the year before. People are also spending less per visit. In contrast, the fast food industry in the country is booming and in 2012 the sector claimed 54 per cent of restaurant turnover in the country, taking a greater slice of turnover than brasseries for the first time ever. Overall, the convenience food industry in France is two and a half times bigger than 20 years ago. As well as the cheapness factors, experts claim that fast food is gaining popularity in France at lunch time in particular because, in a country with high unemployment, people are conscious of job security and increasingly reluctant to take long lunch breaks.
Similarly, in Spain where 26 per cent of the working age population is unemployed, full service restaurants have been struggling – their sales decreased by 6 per cent in 2012, whereas fast food sales increased 1 per cent in the same year, according to Euromonitor. McDonalds, Burger King, Agrolimen and Rodilla Sanchez made up 77 percent of value sales in 2012.
Open all hours
A number of interesting trends across all restaurant types are on the horizon in Europe. Experts think that more outlets will be keen to get a bigger slice of the breakfast market. Because competition has become so intense for other meals of the day, such as lunch, and the demand for breakfast offerings is increasing, many experts think that the breakfast arena offers potentially lucrative profit opportunities. Allegra Strategies argues that many leading casual brands in the UK will struggle to offer a good value, fast breakfast menu and this will affect their performance. It cites JD Wetherspoon as a leading brand which has succeeded in crafting high quality breakfast offerings. “Breakfast will continue growing. A lot of restaurants that used to be closed until 12pm are now opening to serve breakfast and this is opening the way for innovation,” says Mr Basile from AlixPartners. While Mr Pinsker from NPD also says that the trend is down to “changing demographics. More households are single and a single household is twice as likely to eat breakfast away from home.” Many commentators believe that alternative options to conventional restaurants, such as street food and pop-up restaurants, will continue to thrive.
In the UK, pop-ups have made a splash over the summer season in the past. More famous examples include Street Feast, a London market that launched in May 2012 and offers an outdoor night-time street food eating experience every Friday and Saturday, and the roaming night-time London street market The StockMKT. Nor has the trend been restricted to the capital as there has also been activity in big UK cities like Manchester and Birmingham. Some street food enterprises have proved so successful that they have opened restaurants – such as Patty and Bun burgers, which recently opened a restaurant near Bond Street, London. There are signs that the trend is spreading in other European cities too. Mobile restaurants serving American-style food in particular have gained popularity in Paris. Better known examples include Le Camion Qui Fume (The Smoking Truck) and Cantine California.
Mr Basile of AlixPartners wonders how much “headroom for growth” there still is for pop-up restaurants and street food, however. “These outlets are doing well in certain places. My question is whether the places where stuff like this really works have been exhausted. And are those who already go to pop-up restaurants or eat street food going to start choosing that option any more frequently than they already do? I have to ask myself: how many times in a year do I really eat outside?” he says.
Another trend that experts are focusing their attention on is fusion food. Fusion food has been gaining traction in Europe for some time and people are predicting new mix-ups and flavours for 2014 and beyond – such as Japanese and Peruvian and Italian with Cajun. Another trend that has caught the attention of many is the rise of the Asian gastro-pub. High profile examples include the Duck and Rice in Soho, London. “We should see more fusion, and a lot more creativity in this area,” says Mr Basile.
“In parallel one can anticipate an internationalisation trend. So we should see more chains that are not particularly big – maybe with ten or twelve restaurants, taking their brand international whether in Europe, the US, China or India. We’re also seeing people involved in the food industry travelling more to find out about what is going on in different markets and learn best practices. For example, we are seeing more Americans come to Europe to learn about what is going on here on the restaurant scene,” Mr Basile says.
The foodie generation
Other crazes that have caught the attention of industry experts include eastern European food and Peruvian fayre. The latter cuisine has made a storming introduction in London in particular with the opening of restaurants such as Lima, which opened its doors in May 2012 and Ceviche, which Martin Morales opened in March 2012. Outdoor cooking and a wider range of barbecue foods on menus could also be something to look out for, along with more use of “natural” cooking – for example with wood or charcoal.
Mass localisation, which commentators on the food industry have been talking about for some time will continue to be an important tendency this year. “There is still a real need for outlets to tailor their products to their customers’ specific requirements. We should see a lot of interesting things happen in this area – like experimentations with new products and chains offering more choice in terms of specific flavours and add-ons, and giving the consumer the ability to tailor a meal to their preferences.”
Finally, in the long term, the restaurant industry should be reassured by the fact that interest among ordinary people is becoming more intense with the years. “The future generation are foodies,” says Mr Basile. “Youngsters – from toddlers to teenagers – are more interested food and they have been exposed to more interesting and fascinating food. That youngsters have become used to a wide range of food and good food at that will certainly help the industry going forward.”