What’s on the menu? RaboResearch Outlook 2024

Utrecht / NL. (rba) In foodservice, a return to «normal» may be a moderate top line growth and costs that are still elevated but increase at a slower pace than in 2023. However, we aren’t going back to the consumer choices or cost structures of 2019, and that means that performance among operators can differ broadly. Occasions, choices, and execution will determine shifts in market share. Financial viability under the new sales and cost parameters and access to funding are also reshaping the competitive landscape – according to Maria Castroviejo, Senior Analyst Consumer Foods Europe, and Tom Bailey, Senior Analyst Consumer Foods North America, at global RaboResearch in Utrecht, the Netherlands.

Turnover: Stable traffic and lower inflation, but prices still higher than average: Macroeconomic projections for 2024 point to a lacklustre year in terms of economic growth but with modest improvements in disposable income and private consumption to limit the downside risk in terms of traffic. Average selling prices in the industry are expected to edge up, even if inflation will be lower than in 2023: Prices will reflect the increases of 2023. Also, many players will see new price increases as unavoidable to protect margins.

Costs remain elevated: Despite lower agricultural commodity prices, input prices for the industry are still increasing. The rate of increase will gradually go down, but an overall food cost deflation is less likely. Labor costs, which for the industry represent an even larger share of the total than food, will increase further in 2024. Other costs, such as occupancy and taxes, are also likely to increase, in some cases due to indexation. And funding costs will also edge up, even if reference interest rates don’t increase any further.

Occasions, choices, and execution determine shifts in market share: Revenue performance may differ significantly among players. With regard to convenience-related demand, 1H growth should reflect the full impact of the return to office work and travel recovery. Discretionary demand will remain very selective. Rather than a segment choice, it will be an execution-driven shift. Further trading-down from current levels is less likely as affordability improves and the price gap between QSR and the most affordable concepts in table-service will narrow.

Viability and access to funding are also reshaping the competitive landscape: On the supply side, more ailing players will abandon the market. Some expansion strategies need to be adjusted. Some investments aren’t attractive anymore with the current profitability, discouraging new openings or even upgrades. At the same time, external funding providers demand better earnings visibility than in the past to provide financing. For the industry, this means further consolidation and potentially a reduction in total outlets. This benefits the stronger players.

The new operating environment for franchising in Europe

Franchising remains a core business model for expansion in the European foodservice industry. However, recent developments in costs, demand, and operational challenges are requiring brand owners to review and adjust their strategies. Reduced margins and moderate demand growth are putting prolonged pressure on financial returns. Higher financing costs are a hurdle for expansion and acquisitions, and brand owners need to increase involvement with franchisees to protect their brands. This more complex situation means that brand owners need to be more selective when choosing potential strategic partners. Franchisees also face higher demands in terms of investment and operational capability – according to Cyrille Filott, Global Strategist, Consumer Foods, Packaging and Logistics at RaboResearch in Utrecht (NL).

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