Luxurious vs. Value Experiences in Foodservice
In this episode, SLD’s Jean-Pierre Lacroix has a conversation with Simon Stenning, a consultant who works exclusively in the foodservice and hospitality sector, providing brands with actionable market intelligence. Simon’s background includes working with huge names like Hilton and Compass.
Melinda: Hi, I’m Melinda from SLD, and you’re listening to Think Retail. Today, SLD’s president, Jean-Pierre Lacroix, is going to be a guest moderator and he’ll be speaking to Simon Stenning, a consultant who works exclusively in the foodservice and hospitality sector providing brands with actionable market intelligence. Simon’s background includes working with huge names like Hilton and Compass, and he’s speaking to us today from his office in the U.K.
Jean-Pierre: Good day, Simon. Thank you very much for joining us for this podcast on the future of the foodservice industry. I’m very excited about hearing what you have to say. Before we start, could you give us a little bit of a background on yourself and your organization?
Simon: Yeah, sure. Thanks, JP, and thanks for inviting me on the podcast. My business is all about forecasting the future of the U.K. foodservice market. It’s something that has never been done before. I’ve spent about 12 years, the last 12 years of my career, providing market data, market intelligence to the foodservice markets, across all sectors of it from coffee to hotels to pubs and restaurants. And all of the market intelligence concentrates on what’s happening right now with a forecast, maybe, for the next year or two. And what was missing, and what the opportunity was, was to look at a 5 to 10-year horizon and look at the key drivers of change, the macro factors that will change how things happen, who’s doing what, why they’re doing such things, the consumer trends, and so on. And I’ve pulled that all together into a report on the future of foodservice.
But my background is not just in market intelligence in foodservice. I started off with a degree in hotel and catering management. I ran hotels for the first few years, and then I went into the retail foodservice sector by working with a very embryonic prêt-à-manger in the mid-1990s. Worked with them for 5 years, growing the business to over 80 stores, and then with Compass Group, moving into more of a marketing development role, and since then moving into market intelligence.
Jean-Pierre: So, Simon, what is the current state of the industry from a standpoint of trends, growth, and potential challenges?
Simon: Well, here in the U.K., the headlines for the foodservice market have really all been taken up by something which has been described as the casual dining crunch, and that’s because of the failure of several brands within the branded restaurant sector to keep pace with changing consumer demands, the changing economic factors, and some of them have ceased completely. Many of them have had to regroup their estates, close some sites to work on concentrating their work on developing the offer and making sure that the core of their estate is performing really well.
The factors that have driven this, regrettably, is our decision to leave the European Union, and that’s led to a terrible drop-off in consumer confidence, going into negative territory since June 2016. And whilst all the other economic factors have been great, you know, there’s the lowest unemployment levels, there’s wage growth, we’ve got higher disposable income because inflation is low, GDP’s still quite strong, everything points to it being a good time, but consumer confidence is negative and as a result, we kind of hunker down a little bit, just stop going out and treating ourselves so much.
So, we had that from an economic and consumer perspective, but at the same time, for the industry, there are things that have been cyclical. You know, there’s a good opportunity, so money piles in, investment piles in, expansion gets underway. That puts demand on property, and therefore, rents go up. But at the same time, we’ve had a little bit of devaluing of sterling, we’ve therefore had food price inflation, and we’ve had business rates going up as a tax on property, with there being the national minimum wage increases. And whilst most of this, as I say, is cyclical, most of this can be absorbed by businesses by passing on in the way of menu price increasing, the 2.5 percent, 3 percent that is tracked sort of every season.
When you get that all happening at the same time, and consumer confidence is plummeting, it’s created a perfect storm, and that’s why some brands have failed. But they don’t tell the whole story because there’s other operators that have been doing particularly well, some at the value end of the chain: McDonald’s, Greg’s, JD Wetherspoons. And McDonald’s is a fantastic success story, and I think the U.K. has been helping with the overall McDonald’s performance around the world, achieving high single-digit growth on a like-for-like basis.
So, the true picture of the market is, you wouldn’t say it’s in a strong place. There’s still growth. Market indicators say about 1.5 percent growth in the overall market. Like-for-like sales year-on-year are difficult to achieve. But consumers will still eat out, despite their lack of confidence, because they need it to fit in with busier lives. And of course, we’ve had delivery as a real driver of some of that growth because it’s what consumers need to fit in with busier lives, and at the same time, getting what they want.
Jean-Pierre: Well, those are great insights, Simon. The interesting point here is that we could argue that the U.K. is kind of the forerunner of what potentially could happen in the marketplace in other countries as the economic downturn is showing its ugly head. We’re hearing the word “recession” popping up in conversations in the media, etc. When you look at that, you know, the consumer’s moving towards value brands, how is that impacting… which of these categories, like fast food, fast casual, casual dining, and fine dining, in addition to the non-conventional foodservice operators, like food trucks and hotels, where do we see the winners and losers as we look forward in the future on some of these consumer trends?
Simon: Well, I think that, generally, there’s been a polarization, and with consumers moving towards more value-driven offers, and that’s actually a legacy from the recession in the U.K. in 2009, that we’re kind of driven towards that value end because we know that we can still get good quality at a low price point. And then, at the other end of the scale, the fine-dining market, I’m sort of loathe to describe it as such, but the fine-dining market is still doing really well, and that’s driven by some of the devaluation of the pound, we’re getting inordinate numbers of tourists coming into the U.K., attracted by everything that the U.K. can offer at relatively good value.
So, the fine dining premium restaurants concentrated in cities is benefiting from that. It’s those that are in the middle that caught a little bit, that have the difficulties. Now, in the U.K., that’s affected some of those branded restaurants because they haven’t contemporized. They haven’t kept pace with changing expectations, growing expectations, changing need for experiences and different cuisines and so on.
But the main middle ground in the U.K. market is the great British pub, and despite the demise of pubs in terms of numbers…and we’ve been losing, on a net basis, about 1,000 pubs a year over the past 10, 12 years. Despite that, the pubs that are left are that much better, and they’re attracting the middle market, that mass market, because they’re offering pretty good value. It’s a very simplistic service model, and more importantly, we, the British, love the pub. You know, we’ve all got one close to us because there are still 47,000 pubs in the U.K., and you compare that to about 5,000 branded restaurants. So, you can see that we’ve all got more pubs available. The pubs are dealing well with the middle market.
But the growth going forward is going to be, certainly, in the value end, fast food but a better-quality fast food, and McDonald’s is showing the way. But then, we’ve got a lot of contemporary new fast-food operators that are delivering fantastic value, brilliant quality, great experiences, and interesting cuisines, whether it’s burritos, or Korean chicken, or ramen noodles. All these things are really grabbing the appetite and attention of consumers. And then, you mentioned street food, food trucks. Again, because that’s delivering these incredible experiences, still at a good value price point, looking at average spends that are below the £10 mark, and that fits in with what consumers want to do and also have the disposable income to be able to do on a more frequent basis. So, those are certainly going to be winners.
I’ve done a segmentation of the restaurant industry, looking at 2030, and you can see that there’s still going to be scope for restaurants that meet the needs for leisure and entertainment, you know, giving that trip to the cinema with a good meal out, those that meet the needs for a special occasion, so whether it’s business or whether it’s birthdays. Those are more premium end. But in the fine-dining end of the market, I think we’ve got the situation where Michelin stars and a limited number of chefs who want to create that, who want to get to that sort of accolade, and limited number of people who want to do the bucket list, ticking off and going to every one.
But what we’re also seeing is a really good level of restaurants that I describe as “neighborhood chef-led,” great chefs who come out of great restaurants with brilliant careers with high-profile chefs. They’re not looking for the accolades. They’re not looking for recognition. They just want to run a nice business, meeting the needs of consumers in their neighborhood. And that’s where I see the restaurant industry developing. It doesn’t necessarily have to be premium-premium. It’s going to be more expensive than a pub, more expensive than fast food and branded restaurants, but something which is a little bit more niche. So, those, I think, are going to be the winners.
The other area which is undoubtedly going to be a winner is the leisure industry because, in the U.K., we’ve got a growing aging population. There are some significant changes as we hit 2030 in terms of the shape of the population. So much more, percentage-wise, of the population’s going to be aged over 65. Now, some of us will still be working when we’re 65, but there’s a great deal who would have retired or will just be doing part-time work, and they will have a lot more resources and a lot more time to place on leisure. And whether that’s staycations, whether that’s leisure experiences, immersive restaurants, experiential restaurants, I think all of those things are going to do particularly well. So, my money’s certainly on the leisure market.
Jean-Pierre: So, Simon, pretend that we can do time travel, that we’ve invented this portal that both yourself and myself can jump into, and we arrive at 2035. We arrive, London, New York, Chicago, Tokyo, we arrive in those cities and we’re hungry, we want to find a place to eat, what would the foodservice industry look like in 2035? What would change dramatically? What would be the big shift, we’d say, “Oh, my God?”
Simon: Brilliant question. The big difference, really, is going to be what I’m describing as this polarization. So, on the one hand, our immediate food needs are going to be met by technologically driven restaurants, fast food, that I’m describing as social refueling. You can’t really describe those restaurants. They’re about getting great food, albeit in a social environment, but fast and tech-driven, and that’s because operators are going to not only embrace, but they need to use technology to help them from a resource perspective.
And, you know, we’re not going to see chefs as robots, but we are going to see technology replacing a lot of the menial tasks, back of house and front of house. And there are restaurants now that you can go into, they’re called a restaurant, but you can be shown to a table and then have no interaction with staff other than thanking them when they bring you food and drink because all of your interactions go through their app.
Jean-Pierre: Yeah, that’s happening in China. You know, we have an office in Shanghai, and when I go to a restaurant, I just scan the bar, the QR code, I order from my phone, they deliver it and then pay for it through my phone. I never meet…other than the food being delivered to my table, I never interact with the server.
Simon: So, I’m calling that “social refueling” rather than casual dining, and the same with fast food. Why do people need to be involved other than in final preparation, assembling of food? So, that’s going to be at one end, and then at the other end, there’s going to be the exemplary experiences that is all-around great quality. It’s where we’re really getting something that is worth paying for because we know that we can get food anywhere we want, whenever we want, but something that gives us that real experience. It could be immersive. It could be…some examples are Mamma Mia! The Party that is about to open in London where guests sit in Nikos’ Tavern whilst the actors and actresses and singers, it all happens around you and you’re a part of it. There’s a lot of examples like that that we’re starting to see now, and I believe that will go forward. So, you know, when we go out, we really get a great time.
We’ll see a lot more focus on sustainability. We won’t be getting packaged food in non-biodegradable, non-compostable plastic containers. That will have changed, and we will have a much different attitude, as consumers in 2035, about what we’re doing to the planet. So, the food will be different. Certainly, it will be much more plant-based, less meat-focused, and all about sustainability, no food wastage, and everything far better organized with the environment in mind. So those, I think, will be the key changes.
Jean-Pierre: Well, thank you very much, Simon. We’re just looking at our time, and we’ve got another five minutes. I’d like to ask, what are the key drivers of change in the marketplace that are right now just popping their head, or they could be full trends, that will significantly have a bigger impact in 2035?
Simon: I think there’s one thing which the U.K. faces particularly, but other countries have got similar challenges that are happening now. The first one is, without doubt, is resources from a staffing perspective. As I mentioned, the U.K.’s got this aging population. Well, the majority of staff working in hospitality food service in the U.K. are younger. We’re not set up to employ older people. And I think that is going to be a real challenge, that we move the direction of finding resources away from younger people, although we still need them to come into the industry, but towards employing and utilizing the skill sets of older people, adapting shift patterns, adapting working hours, and really trying to engage with older people to get them to come back into the industry or to get them into the industry because we’re not going to have the same number of young people, or we are going to have the same number, but it’s going to be an absolute same number whilst everything else is growing, and therefore, we need that older population.
So, I think that, from a resource perspective, but it’s also because technology can overly play so much of a part. You know, we are still an industry that makes things and serves things, and technology can only replace some of that. So, that’s it. I think that’s the key thing that is happening or starting to happen right now, and give it 10, 15 years’ time, it’s going to be a major, a major challenge.
And I think, sustainability, you know, that is something which we are so much more aware of, and it’s so difficult for operators. It’s almost the case, they can’t do right for doing wrong. McDonald’s, literally last week, lambasted because it was determined that their paper straws…They’ve switched from plastic straws. They moved to paper straws, but those paper straws can’t be recycled because they get too soggy. And suddenly, they’re in the press for all the wrong reasons, and that attitude has got to change. They made a little step, but they’re doing something, and everyone’s got to be doing something going forward to move away from the use of plastic and of food waste. So, sustainability, without doubt, is one of those big challenges that we’re starting to see now, and boy, we’ve got to have it fixed by 2035.
Jean-Pierre: Well, it’s interesting, Simon, when I look at the future, one of the other trends that I’m seeing that will have a huge impact is food wastage. They predict that by 2035, when you look at global warming and the agri industry under a lot of pressure, that we actually will truly have, what they’ve predicted for so many centuries, a food shortage. And food wastage, which represents 30 percent of the food produced in the world, is going to be a big issue. What are your thoughts on how the foodservice industry is going to help respond to that challenge?
Simon: Yeah, it’s really interesting because it’s a huge challenge for the foodservice industry because when we’re meeting the needs of consumers going out to eat, and all consumers have got a choice, they can eat at home, or bring their lunch into the workplace, or not go out, we as an industry want to treat them with generosity. We want to give them great big portions because that denotes value, and that’s what we’re trying to get consumers to spend more on, by giving them more. That’s got to change, and we’ve got to get consumers to recognize that value is driven not just by quantity, but by quality.
So, that’s quite a big challenge for consumers in the industry to recognize. It’s almost like moving everyone from the value end of the spectrum towards that fine dining, where we recognize that great-quality food costs a lot more money. I saw, recently, literally this week, Michelin came out in saying, “These are the best places to get a three-course meal at a Michelin starred venue for under £30.” And there were chefs who were saying, “Oh, this is not good,” because this is just saying that this great-quality food is cheap, and it’s not because of the amount of resource that needs to go in to make sure that you’re delivering quality in smaller portions. So, I think that’s a big challenge.
There are other things. You know, we have to move towards more plant-based. There’s a big challenge in meat alternatives that are processed. I think that’s going to be a real challenge coming down the track as consumers start to query, “Well, what does this processing involve?” But I think plant-based, it’s certainly the right direction from a planetary perspective, a sustainability perspective, and obviously, from a wastage perspective. I don’t think we’re going to be going down the insect route. I think that’s a gimmick. I just don’t think that we, culturally, are ready to happily, on a normal basis, eat insects, but I do believe that insects will be used…they are already, but will be used on a greater basis for animal feed to help make that more sustainable going forward.
Jean-Pierre: So you don’t like cricket crackers?
Simon: You know, they’re okay to eat. There’s nothing wrong with them, but mentally, we’ve got a block. We just know that they’re wrong. I think, you look at eating a prawn, and it’s pretty much the same, and yet we’re quite happy to do that. So, there’s this mental block, but I just don’t see us getting over that, to be honest.
Jean-Pierre: Well, Simon, thank you very much for taking the time to share your insights on the future of the foodservice industry. Thank you very much.
Simon: JP, it’s an absolute pleasure. Thanks very much for inviting me to be part of it. Let’s see what happens in the next 10 years.
Melinda: The issue of polarization between luxurious and value experiences is not unique to the U.K. In North America, better-quality fast food is also an area of growth, and the local star chef fine dining experience is also something we find happening here. This polarization is also not unique to foodservice. It’s happening in other retail categories as well. In response, brands need to think very carefully about their position in the market and how to give consumers that experience they need, whether it’s a fast fish-and-chips at the pub or a special night out. And for brands that are somewhere in the middle of the spectrum, it’s even more important. You can find a link to Simon’s website here. Thanks to JP for moderating today, and thanks to you for listening.
- Simon Stenning provides strategic advice to a range of clients, utilizing over 30 years of experience in foodservice, as an operator, marketer, in development, and analysis. He is also the author of ‘The Future of Foodservice 2025-2030’ report, providing detailed analysis of the key growth drivers, elements of change and macro trends for our industry in 10 year’s time.
- Think Retail is a podcast where top designers, strategists, thought leaders and business people discuss what’s coming next. For more information, email firstname.lastname@example.org.