Bord Bia’s 2022 Irish foodservice Market + Consumer Insights Report contained a series of fascinating revelations around the hospitality industry. Here we present an edited version of the report, highlighting the particular areas to look out for.
This article was originally published in the Winter 2022 issue of Hospitality Ireland Magazine, in December of 2022.
Following a massive decline in 2020, driven by Covid-19 restrictions, the foodservice industry in Ireland has been on the rebound. last year on the island of Ireland, the industry grew by 14.1%, and in 2022, the revised figure increased by 61%, to a value of €8.2 billion, across both the Republic of Ireland and northern Ireland.
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This growth is a result of a significant release in pent-up demand, as Covid-19 restrictions have all but been removed throughout Ireland. In many ways, this growth has nearly returned the industry to the value that it was pre-pandemic, although sizable headwinds have appeared in 2022 that will have a significant impact on future growth. These challenges include ongoing food, wage, energy and other inflation, margin compression, and the ongoing conflict in Ukraine, all of which indicate that economic growth is likely to significantly slow down throughout the next several months and into 2023.
In looking ahead to 2023, projections are perhaps just as challenging as they were at the heights of the pandemic. significant economic headwinds remain in place, including higher inflation, rising interest rates (intended to dampen consumer spending and curb inflation), global uncertainty (particularly around Ukraine), currency fluctuations, supply chain issues (including Brexit, which remains an ongoing challenge to manage) and rising energy prices, which are likely to create huge consumer and industry retrenchment. Still, expectations are generally positive, although most expect that growth will return to some levels closer to pre-pandemic ‘normality’.
A slowdown in consumer visits is expected, and, as a result, much of the growth in value in 2023 is expected to be driven by higher menu prices and inflation – most observers agree that the pent-up demand that was unleashed in 2022 is largely spent. Certain sectors are expected to accelerate well past pre-pandemic turnover levels, including most limited-service sectors, coffee shops, and some institutional feeding, which was less impacted by the pandemic. The biggest sector waiting on recovery is business and industry, as long-term return-to-work trends remain soft.
With the strong performance in both the Republic and the north, an optimism has returned to the industry, but there are also significant challenges facing it as it enters the winter months. Certainly, for many companies, the boom seen in 2022 has been a welcome return to growth, but most acknowledge that this unleashed pent-up demand won’t carry on into 2023, and many challenges await the industry as that demand tapers off. Many of these are issues with which the industry has been grappling, even as recovery has occurred rapidly, but they are more acute and create multiple obstacles to successfully running a business.
Simply put, the cost of energy is the biggest issue facing the industry today. There is some relief in response to the recent energy support commitments announced by the government, but many operators will still feel a significant pinch. Many are also worried about the impact of energy costs on households and believe that this could cause pullback in discretionary spend from consumers during the winter months.
Beyond energy, broader inflation continues to bite every company in foodservice, as global commodity costs remain at historically high levels. These costs are generally being passed straight on to the foodservice operator and menu prices have been rising as a result (although most believe that the full amount of all types of cost increases are not reflected in menu prices, and operators are generally taking lower margins as a result). few see any signs of abatement and believe that inflation will be a significant headwind into 2023 and beyond.
Ongoing Labour Issues
Labour challenges are not new – the industry has been plagued by culinary staff shortages for many years – however, while these shortages remain, low unemployment means that many other types of roles – unskilled frontof-house staff, servers, stewards, and so forth – are now also finding limited supply. Within other parts of the industry, distributors are still challenged by a paucity of warehouse pickers, drivers and other support staff, and suppliers are still working to fill production roles. In some instances, they are offering housing – particularly to foreign workers – and wage rates have increased dramatically, to lure new applicants and retain the existing workforce.
VAT Increase In 2023
As outlined in the September Budget, the current plan is for the ROI hospitality VAT to rise from 9% (which was lowered during the heights of the pandemic) back to 13.5%, beginning in March 2023. This will be hitting as inflationary pressures remain acute, and there is concern that this will dampen consumer demand.
Supply Chain Disruption
Companies in Ireland have been dealing with supply chain challenges for years (Brexit was approved by UK voters in 2016). The sudden increase in demand following the removal of Covid-19 restrictions and the resulting imbalance in supply, coupled with other issues, have meant that continuity of supply remains front of mind. still, it appears that most companies have learned to deal with supply issues – menus are more flexible, alternative suppliers have been located, and warehouse stocks have increased. Importantly, all of these issues have been occurring even as the industry has achieved double-digit growth and recovery, and have not sidetracked the industry boom. The worry is that these issues are not going away and will be harder to address as consumer demand plateaus and huge growth figures are no longer being recorded.
Overarching Trends and Findings
Based on the consumer research conducted, the following are the key themes and overarching trends.
- Consumers are glad to be back out socialising again. Approximately eight in ten (76%) have really enjoyed the social aspect of dining out, now that Covid restrictions have been lifted.
- Costs are the primary challenge keeping consumers away from foodservice. Approximately nine in ten (89%) say that they are noticing the rising cost of eating out, and approximately nine in ten (87%) agree that dining out has become too expensive to do on a regular basis.
- With approximately eight in ten consumers (77%) concerned about their finances, they are changing their out-ofhome consumption to reduce costs. Given these ongoing consumer concerns, takeaways have remained a popular choice. Four in ten (42%) consumers are getting more takeaways, as a more affordable option than dining out.
- Although cost poses a challenge to all consumers, it does not affect everyone to the same degree. A threesegment model identifying distinct (and equally split) consumer cohorts offers a useful lens by which to view the market.
The three segments identified are as follows:
- ‘Cost Constrained’ are most likely to be C2De females in the post-family life stage living in Northern Ireland. Cost-Constrained consumers would like to be dining out of home, but are held back by their finances, and it looks as though this will continue to be the case for the next six months. They represent three in ten (34%) members of the population and are most likely to be feeling the pinch.
- ‘Re-emerging socialisers’ are most likely to be ABC1 adults aged 45+, in the post-family life stage. Re-emerging socialisers are reconnecting with the out-of-home foodservice opportunity and are the least likely to pull back in the next six months. They represent three in ten (32%) members of the population and are seeking a formal and indulgent dining experience.
- ‘Foodservice Champions’ are most likely to be ABC1 adults aged under 45, in the pre- and young-family life stage, living in Dublin. Foodservice Champions have wilfully adopted the change in foodservice and are blending casual and formal dining. They are embracing the full range of possibilities, and operators should look to provide options that tap into their changing attitudes and behaviours. They represent three in ten (33%) members of the population and are blending dining in and home delivery.
Critical Factors Facing Foodservice
Energy bills are impacting foodservice operators at a time when all costs are increasing. The single-biggest issue noted by almost every industry participant has been skyrocketing energy bills. While government support has been welcome, it will not cover the full amount of energy increases. This will have a significant impact, particularly through the winter and early spring. Larger geopolitical issues impact energy prices, and it remains likely that the latter will remain elevated. Higher domestic energy bills are likely to suppress consumer demand during the winter. From a top-line basis, inflation has caused industry growth and valuation to recover quicker than anticipated, but it also creates challenges for consumers.
Labour shortages remain at historic highs and are expected to persist into 2023. The industry has been grappling with labour shortages for years – mostly for skilled culinary positions – however, given the low levels of unemployment, filling any type of position remains one of the primary challenges facing operators. While economic growth will slow, a widespread recession is not expected, and the job situation in Ireland should remain strong.
Labour shortages have meant that many operators have not maximised their sales potential, as they often have to close early or on certain days. Ongoing shortages will have implications on overall industry sales and on operators’ ability to drive growth. Additional labour-saving initiatives and products will remain in high demand throughout next year and beyond.
Consumers are ‘feeling the pinch’, and although cost poses a challenge to all consumers, it does not affect everyone to the same degree. Within the consumer research presented here, there are three distinct consumer cohorts by which to view the market. Cost remains the biggest challenge for the sector – consumers will need to see value in dining out, beyond just the menu price. Delivering a memorable consumer experience is still important to a cohort of diners. Takeaways have remained prevalent amongst younger consumers, and operators should continue to focus on take-home and delivery models.
Cost-Constrained consumers will be looking for low-cost options, meal deals, or offers to entice them to eat out. Having great staff and a premium dining experience will attract the Re-emerging socialisers consumer group. Foodservice Champions are embracing a blend of dining in and home delivery.
Menu Tension: Simplification V Innovation
With so much concern around cost, operators have mostly simplified their menus, and there has been limited innovation in 2022. Most industry observers note that new-product work has been limited from suppliers. While nPD activity is expected to increase, it is likely to be constrained by continuing cost, labour and supply chain challenges. There is a desire for newproduct development within the industry, but much of the innovation is around cost control. With consumers likely to pull back, there is a recognised need for new menu items to maintain consumer interest and (hopefully) drive visits.
While operators have raised menu prices significantly, the ongoing rate of increase in all costs has meant additional margin compression. With inflation likely to rage at a high level well into 2023, costs will continue to rise for most operators. This may moderate a bit toward the second half of the year, but overall inflation is expected to remain above historic levels. As a result, expect menu price increases to continue.
Consumer value perceptions on dining out will be impacted, and a value positioning by operators will become more critical. Declining profitability can also have a potential impact on additional closures, particularly for small/independent restaurants and pubs that cannot afford significant cost increases and have a limited ability to pass on menu price increases.
Sustainability took a secondary position during much of 2021 and 2022, but, more than ever, it is being discussed (again) across all sectors of the industry. This renewed interest is also practical – most operators want to save money on energy, food waste, and other items. Consumer interest in environmentally friendly, sustainable products is higher than it was before, but there is concern about the willingness to pay, particularly if the economy softens again. In the short term, sustainability initiatives must also have cost-saving components. Longer term, most large companies have sustainability goals around areas like their carbon footprint and net zero.
Tourism and economic growth will be important factors in maintaining the health of the industry in 2023. Ireland’s foodservice industry is still heavily impacted by the success of tourism. The broader European and global economic situation will have an ongoing role in the level of success that tourism (and, in turn, foodservice) has in Ireland. The global situation remains very much in flux. Most critically, the situation in the Ukraine is one that is likely to have ongoing impacts for the foreseeable future. Many large economies (like that of the UsA) are likely to enter into a recession, if they are not already in one.
New Behaviours Likely To Remain The Norm
The industry has seen shifts in sales levels and day parts. for many operators, Thursday is the new Friday, and lunch and early dinners are often replacing evening or late-night occasions. Much of this has been driven by shifts in hybrid work and labour shortages – most industry observers do not expect a full return to work in the short term, and labour will remain challenging. The industry should work to create options and develop solutions for new and emerging day parts. One area that may start to return is breakfast, which was decimated, but is starting to return.
Seven Industry Imperatives
Recognise what remains important and what has shifted.
While the industry has seen unprecedented growth, concerns are increasing for 2023. As consumers look for more value, the experience that is part of the foodservice occasion will increase in importance. Given that experience-based occasions still matter (and will only become more important), foodservice operators – and every business throughout the supply chain – must create unforgettable premium occasions. This includes high quality, strong service, and authentic ingredients, to help meet diners’ expectations.
Help operators maximise customer spend, with options at both ends of the value chain.
Even as the experience will continue to drive consumer visits, broader perceptions of value remain critical. limited-service operators have been very good at this, and it’s something that the industry should continue to adapt, leveraging premiumisation and traditional elements of value (e.g. buy-one-get-one-free schemes, vouchers) that have served operators in previous challenging environments.
Ensure that you have solutions for delivery and off-premise.
While off-premise growth has slowed substantially, it still remains elevated, relative to pre-pandemic levels, and will likely stay at similar levels. The industry must continue to invest in solutions for takeaway and delivery, albeit not at the expense of on-site quality.
Develop day part solutions.
Breakfast and dinner dominate as lunch and late night are getting squeezed, but finding items that can excite all day will be important. Operators should consider healthy starts that can lead consumers to indulge in cravings later in the day.
Innovate, innovate, innovate.
Operators have been focused on cost containment and maximising what they have, but nearly everyone within the industry has noted that innovation and NPD efforts have gone stale. Operators will need to continue to focus and emphasise the customer experience, and new menu items will help to draw in consumers during economically challenging times.
Take relationships beyond the transactional.
For suppliers, innovating and creating closer relationships will continue to pay dividends, but this needs to be an authentic and integral part of the approach. It will be important to tap into the fundamental DNA of foodservice accounts and lean into what they do best. Then provide actionable recommendations that drive business and meet higher-level needs (e.g. food waste reduction).
Understand the margin situation.
Operators’ biggest challenge will be maintaining margin within this current environment, and suppliers will need to use this understanding to create customer intimacy and closer relationships. Many operators still think in terms of percentage margins, not actual (euro) margins, when evaluating the profitability of products. As a more competitive environment becomes prevalent, higher-cost ingredients and components become vulnerable among operators who think this way. Suppliers will need to develop a thorough and formal messaging strategy to educate operators that actual-value (euro) margins are more advantageous than percentages. This will potentially require significant one-on-one work with less sophisticated operators, to protect higher-cost items on the menu.