By Mark Dempsey
When was the last time you visited a quick-service chain, a sit-down restaurant, or a supermarket? Depending on your answer, it may or may not come as a surprise to you that total traffic to the Canadian commercial foodservice marketplace was flat this last year versus the year before.
While traffic is down, dollar growth has remained in line with inflation. A new study from research firm NPD Group’s “2020 Vision: The Future of Foodservice” report says the overall foodservice industry will experience only modest growth, at best, over the next five years. Made up of three segments – quick-service restaurants (QSR), full-service restaurants (FSR), and retail outlets – the commercial foodservice industry is expected to grow at a mere 0.9 per cent per year until 2020.
Winners and losers
“There are going to be winners and losers in the restaurant industry this coming year,” says Robert Carter, executive director of the NPD Group’s Canadian food service team, in the report release. “Restaurant operators who remain relevant by giving consumers what they want can be the winners, but it will require continually staying on top of trends and understanding what is resonating most strongly with consumers.”
QSR accounts for two-thirds of commercial foodservice traffic in today’s market; however, quick-serve traffic has slowed and the segment will continue to be challenged with a forecast of about one-per-cent growth per year moving forward. Growth in this segment will be led by off-premise visits, namely carry-out and drive-through. Fast casual will be a key contributor to growth; in fact NPD sees the fast casual segment as the light at the end of the tunnel for foodservice.
Surge in popularity
Those QSR operators that do manage to drive significant growth will be doing so through improved food quality and innovation in menu offerings. Fast casual restaurants are well positioned to capitalize because quality and menu innovation are at the forefront of everything that we see in fast casual, be it from coffee to burgers. NPD projects that fast casual will continue to grow significantly in popularity as consumers seek out convenient, affordable, yet high-quality offerings.
Competing against both QSR and FSR, fast casual consumers have higher customer satisfaction on any given measure than their counterparts’ consumers. Seventy-seven per cent of fast casual customers say they have an excellent overall experience compared to 62.9 per cent and 69.9 per cent at QSR and FSR, respectively. Traffic growth will lead to increased store counts for fast casual outlets – a double whammy in their battle against QSR and FSR. Leading the charge in fast casual operators are Five Guys Burger and Fries with 38-per-cent share of fast casual traffic, followed by Mucho Burrito, Williams Fresh Café, and Sushi Shop. Expect to see more fast casual outlets capturing the foodservice market in coming years, as this segment is continually on the rise.
Closing the gap
Fast casual restaurants, with their positioning of having a better perceived quality of food, fresher ingredients and a more unique atmosphere, will help blur the lines between industry segments. Fast casual, and indeed all quick-serve chains, must embrace the upscale décor of casual-dining competitors. Restaurant architecture will embody technological advancements with old-fashioned touches. Full-service restaurants too will seek and adopt new tools to speed up service.
The fast casual segment is quickly filling the void between QSRs and FSRs. Compared to a relatively low average eater bill of $5.66 at QSRs, fast casual operators seek to provide a premium experience, which allows for a higher average eater check of $9.33. While this increase is substantial, it is still well below the average eater bill at FSR of $15.63. Premiumization and a focus on higher priced options have helped to drive dollar growth at QSR, despite relatively flat traffic. QSR dollars continue to close the gap on FSR dollars.
Currently the fast casual segment is relatively small in Canada. However, if the U.S. market is any indication of the future, this segment could become a formidable competitor for both quick and full service restaurants, driven by consumers looking to trade up from QSRs and trade down from full service options.
Food remains the most important factor in foodservice, regardless of the segment. This is especially true in the full service restaurant segment. “2020 Vision” forecasts that FSRs such as family and midscale concepts will experience higher traffic growth than it has over the last three years, with a focus on differentiation from QSR. Outpacing all other segments, casual dining is expected to recover losses from 2006.
Within FSR, “food taste” remains the key differentiator. Expect to see more restaurants drawing attention to their meals, their menu, and their cultivated eating experience. Of course, “good atmosphere” is table-stakes for delivering consumer satisfaction but the “must have” that differentiates FSR from QSR ultimately is perceived food quality.
A new threat emerges
Increased competition will come from supermarkets, discount stores, membership retail outlets such as Costco, and convenience stores as they all continue to emphasize their fresh prepared food offerings as convenient meal solutions that are less expensive than eating out. QSR and FSR operators will have to communicate their competitive points of difference to drive traffic and increase dollar spend.
With the tightening gap between QSR and FSR, it will be a challenging environment for business growth for both operators and manufacturers to stay at the forefront of consumers’ minds. In this marketplace, we will see foodservice marketers modifying their tactics and business strategies to succeed and stay ahead of competitors.
Keys to growth
The NPD Group’s “2020 Vision” forecasts that the foodservice industry will be held back by the somewhat lighter use of some restaurant categories by consumers as they age. However, whatever can be done to make the consumers’ experiences easier and meet their value expectations will succeed in drawing them back into restaurants for a sit-down meal. Food quality, restaurant atmosphere, polite, courteous service and speed all factor into consumer perceptions of value and we will surely see more of this. This also means re-attracting those who are now more willing to satisfy their meal needs at home, by catering towards their perceptions of value, affordability, convenience, and an enjoyable experience.
In NPD’s 2016 report on the habitual lunch consumer, it is noted that only 21 per cent of consumers visit a QSR, fast casual or home meal replacement operator at least twice per week for lunch. These are the consumers that will provide new opportunities for growth for operators, as they spend more and visit more frequently. Be sure to understand what these consumers need because their needs are different to the more standard lunch consumer. One key to success for operators in coming years will be winning with the so-called habitual lunch consumer (hint: they want fresh, customizable, quality options…stay tuned for more about this in a future article).
Delivering the goods
The path to growth will also be paved with loyalty. In this flat marketplace, a restaurant operator’s growth depends on winning a greater share of frequency. The key to repeat visits and frequency is not just good food, but also pricing and friendly, efficient service. These features are the driving forces to bring consumers back, and we will see more of loyalty cards, promotions, and knowledgeable, attentive staff. Going forward, creating new ways to entice consumers to visit with loyalty rewards will be a part of any restaurant’s marketing plan to encourage repeat visits.
Expect to see operators and manufacturers working together to provide consumers with an experience they crave that will keep them coming back for more.
About the author:
Mark Dempsey is former Director, Foodservice Canada for The NPD Group. The NPD Group has more than 25 years of experience providing reliable and comprehensive consumer-based market information and insights to leaders in the foodservice industry. For more information, visit www.npd.com.