Q2 2022 COVER STORY: THE GROWTH EDITION

Q2 2022 COVER STORY: THE GROWTH EDITION

It’s good to grow: Tina Nielsen highlights major growth trends and changes that are helping to drive foodservice businesses across the world

Growth is a focus for most foodservice operators, but how, when and where they grow will be different for all. Defined by the Cambridge Dictionary as “the process of developing or increasing in size”, growth is critical to all businesses. The opposite of growth – shrinking – is unthinkable if you want to survive and thrive; stagnating is equally unpalatable. As B C Forbes, the founder of Forbes magazine said: “If you don’t drive business, you’ll be driven out of business.”In foodservice, growth is arguably more important than in most other sectors. At a time of high inflation, and a serious shortage of staff, expanding – whether through new stores, product diversification or delivery – is the key to survival.

As the global foodservice market continues to emerge from the pandemic that caused so much damage and closed thousands of restaurants, there are plenty of green shoots to focus on and genuine hope for a return to growth and buoyancy. Without doubt there is cause for optimism. Looking at the big picture across the market, this is a sector primed to grow given the right conditions. Some indicators of growth: The foodservice industry workforce in the US – where the restaurant industry is worth an estimated $800bn – is projected to grow by 400,000 jobs to total industry employment of 14.9 million by the end of the year, according to the State of the Nation report, published by the National Restaurant Association.

In the UK, meanwhile, the foodservice industry is projected to generate sales of more than £95bn in 2022, representing a 27% increase on the year before, but not quite enough to send it back to pre- pandemic levels. The figures, detailed in The Next Era for Foodservice, 2022 to 2025 report from FutureFoodservice, indicate that a bounce back is happening. Simon Stenning, the founder of FutureFoodservice, pointed to a number of trends driving this growth – and they are different from just 10 years ago. They include the emergence of dark kitchens, virtual brands, make-aways (better known as meal kits) as well as new CPUs, food preparation systems and delivery solutions.

“While the past two years have been incredibly challenging for all in the industry, the future, from this year onwards, sees exciting new concepts growing, an increase in experiential dining providing consumers with persuasive reasons for eating and drinking out of home, and new technology enabling more efficient experiences,” he said. “Value-driven, convenient, fast-food solutions will also become more important, meeting new consumer demands, especially from those who are cash-poor and time-poor, but also as the way we live changes, and we try to fit more in.”

Evidence, if any were needed, that foodservice is an everchanging, shapeshifting sector where innovation keeps everyone on their toes.

For consultants, assessing growth in the sector is a different challenge today, according to Laura Lentz FCSI, design principal of Culinary Advisors in Maryland in the US. “A lot of the data that we have all used to assess growth in the past is now skewed or obsolete from the pandemic.

I think that we need to be considering a roadmap of the past (perhaps declines or growth) in order to map out the future,” she says. “For example, if a particular client saw great decline and is only at half population right now then that changes the parameters going forward.”

Different kinds of growth

Some foodservice companies choose to grow through international expansion. Consider the popular burger chain Five Guys – it started with the opening of five stores in Washington, DC and 20 years later counted 1,500 stores across North America, Europe, Asia and the Middle East. This year it has opened its first store in continental China.

However, as international chains go, few can rival Starbucks in its powers of growth by expansion – the Seattle coffee chain now has more stores abroad than in the US. As of January, this year, out of a total of 34,317 stores, over 17,300 were international. And the plan is to keep this growth going.

In the first quarter of 2022, Starbucks opened 484 new stores and that follows the opening of 1,173 new stores in 2021.

Outside the US, the growth rate is even greater – consider China where Starbucks added 1,200 new stores over the past two years, making up a fifth of the coffee stores in the country.

The plan for 2022 is to open 2,000 new coffee shops. In February president and CEO Kevin Johnson said: “As long as we keep delivering best-in-class profitability, return on investment, we’re going to continue to lean in on building new stores and play the long game,” he told investors. Of course, how a foodservice operator grows largely depends on the individual business, the nature of the restaurant and the founder’s ambition. While many fast-food organizations today see huge opportunities in Asia, others choose different paths to growth, closer to home. Each business will need to identify the ideal growth, says Jay Bandy FCSI, president of Goliath Consulting in the US. “Market conditions, supply chain, staff availability, cost of restaurant development and the economy all factor into a brand’s growth strategy,” he explains.

Others embrace the franchising model; and that has been a successful path – according to a report by Rabobank titled Franchising the American Dream, franchises increased their market share in the foodservice industry over the decade from 2012 when it stood at 19% to 28.4% in 2021. By comparison, non-franchised restaurants have decreased their market share by 11% over that same period.

“The state of franchising is incredibly strong,” said Tom Bailey, senior analyst, consumer foods with Rabobank and the author of the report, but he added that part of the reason large franchisors have seen such growth is the global growth element.

Diversify or die

For independent restaurants, staying afloat is a challenge in this post-pandemic world, diners’ shrinking spending power combined with higher food prices means diversification is crucial.

For some, this has meant opening more casual and accessible operations, to attract higher footfall and increase revenue. An example is Spanish chef Dabiz Muñoz, the chef behind three-Michelin-starred DiverXO in Madrid. Dining at his flagship restaurant will set you back €300 per person before drinks, but Muñoz opened StreetXO several years back as a more casual and accessible concept serving similar avant-garde cuisine to a larger crowd. “We took our one-of-a-kind cuisine and made it available to more people,” the chef said.

It’s just one example of a genuinely global trend – in the US, David Chang, of Momofuku fame, opened his take on a fried chicken joint FuKu.

Of course, when speaking of growth in the foodservice sector in 2022 it would be remiss not to mention the Covid-19 pandemic that stopped everyone in their tracks for two years and changed so many things about the way we eat and interact with each other and hospitality. Before February 2020, restaurants had faced few threats that pushed them to diversify to the same degree. In the diversification drive, the pandemic also brought us meal kits from high-end restaurants – while lockdowns kept dining rooms shut the chefs got to work putting together meal kits, allowing diners to eat the food from the restaurant by cooking it themselves at home. A great success for most and it is no surprise that as a pre-emptive strike against any potential future pandemics, this means of achieving growth is part of what we now call “the new normal”. Should the sector be hit by another pandemic, operators will have the tools to stay afloat.

Despite the new ways of diversifying, tens of thousands of restaurants across the world closed permanently during the pandemic, unable to keep going through successive lockdowns and long spells of restrictions. But some market segments have capitalized on opportunities.

“Business conditions and recognizing what’s the best and worst environment for your brand to grow must be a part of growth strategy. Covid and its impact on restaurants over the last 24 months is an example,” says Bandy. “Some brands retracted and lost units, others took the opportunity to grab market share and open restaurants.”

Some of those new restaurants were virtual, brands created out of ghost kitchens – another area that saw massive growth in the pandemic. The figure of $1trn is often quoted as an estimate of the potential growth of ghost kitchens globally.

It’s hard to pinpoint when the first ghost kitchen opened, but there’s no doubt about the accelerated growth of the model, massively propelled by the pandemic.

Intrinsically linked to ghost kitchens is the delivery segment. Reports show that the first online food ordering and delivery service was launched in 1994 by Pizza Hut. In the intervening years, as online services have become sophisticated and WiFi connections much faster, it has grown.

The pandemic turned many more people to online delivery – the number of consumers using online food delivery services globally surged from 1.17 billion in 2019 to 1.46 billion in 2020. This is one trend that is set to continue to grow.

According to the Business Research Company, by 2025 delivery is expected to grow to a 21% share of the total restaurant market. Lentz of Culinary Advisors says those that have adapted are the winners here. “Those that have been creative and thought outside of the box have grown,” she says. “I have also felt that even within some market segments the solutions are no longer universal – for example, within the workplace segment: We have to treat a manufacturing facility with 100% on-site population as different to a banking company that may only have 50% on site on a given day.”

It means the consultant has to bear in mind that the same populations assigned to a building may now have very different foodservice results in order to be successful. “We can no longer assume that everyone comes into work every day and in fact it is safer to assume that they do not,” she says.

Growing global footprints

Fast-food chains are poised to capitalize on the opportunities, and many have stated bold plans to grow. According to Market Data Forecast, the rapid expansion of fast- food chains will be a major contributor to their future, which is envisioned to reach $931.7bn by 2027, an almost $300bn growth from 2021.

And it is not only western brands heading east. Jollibee is the largest fast- food chain in the Philippines, where it operates over 1,300 locations. It is perhaps not so well known in the US, but that could soon change. The brand, which specializes in Chickenjoy, a signature fried chicken described as “crispylicious on the outside and juicylicious on the inside”, is planning a major expansion in America. The company currently operates just 63 US locations and 25 in Canada but is planning to increase its presence in North America to 300 by 2024.

One very well-known chain in its home country, Wendy’s started the year making bold statements too, saying, it will be opening 1,200 new locations by 2025. And in a development completely in keeping with current trends, not all of those locations will be restaurants. 700 of them are going to be opening in the form of ghost kitchens. These locations will grow Wendy’s global footprint by a third, and especially help to serve the urban communities without the expense of opening additional restaurants.

This post-pandemic time has been opportune for fast-food brands with capital who have been able to swoop in and take over premises vacated by branded dining chains that were unable to last the course. “A lot of these branded sites have been taken over by fast food, which has seen a lot of growth,” says Stenning. “I see that continuing – there’s a convenience, value and proven quality that means it will continue growing.”

Gauging growth

Stenning says there’s an important distinction to make when assessing growth. “Is growth delivered by volume or value?” he asks. “Of course, at the moment it is value. Prices have gone up as volume – the number of covers – has dropped out.” But, he adds, there is some volume coming back into the market.

As an example, he points to the UK pub and restaurant sector, which reported 3.7% growth in April – this growth was due to rising prices and not an increase in covers. Bettina von Massenbach FCSI, founder of Oyster Hospitality Management in Munich, Germany, suggests it is important to keep an eye on the human element. “Although revenue will always be the basic indicator of growth, it is relevant to check how staff will develop in the near future,” she says. “Therefore, sick days per annum and rate of fluctuation is a useful indicator too.”

Asked to point to indicators of growth within foodservice, Lentz says higher education and chain markets tend to be good indicators of growth in the sector. “Other than that, we know people eat and we know the number of people in our world is growing. I love hearing designers talk about spaces that can be opened or closed based on demand,” she says. “Technology and other tools enabling foodservice venues to be open and to be successful. Right now, increasing square footage is not a universal sign of good growth that applies to all foodservice markets. In some cases, good growth is actually getting smaller.”

Despite the challenging times that are now starting to fade into the background, there’s consensus that the foodservice sector is not only bouncing back but doing so with poise and growth. “There are still challenges at the start of 2022 with rising inflation, and the industry has to be careful of dampening nascent consumer demand by pushing more price rises onto them, but if the focus is on delivering exceptional experiences, then the best operators will thrive,” says Stenning.

And, according to Lentz, operators will be focused on growing in the right way. “Given the times right now I think good growth is growing with flexibility in mind, spaces that can be opened/closed based on business demand,” she says. “Bad growth might look like someone who is certain about what the future holds right now in some markets. I think the foodservice venue of the future in some market segments is a lot more volatile than any of us care to admit.”

In other words, proceed with caution, but by all means pursue growth.

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Q2 2022 COVER STORY: THE GROWTH EDITION

It’s good to grow: Tina Nielsen highlights major growth trends and changes that are helping to drive foodservice businesses across the world

Growth is a focus for most foodservice operators, but how, when and where they grow will be different for all. Defined by the Cambridge Dictionary as “the process of developing or increasing in size”, growth is critical to all businesses. The opposite of growth – shrinking – is unthinkable if you want to survive and thrive; stagnating is equally unpalatable. As B C Forbes, the founder of Forbes magazine said: “If you don’t drive business, you’ll be driven out of business.”In foodservice, growth is arguably more important than in most other sectors. At a time of high inflation, and a serious shortage of staff, expanding – whether through new stores, product diversification or delivery – is the key to survival.

As the global foodservice market continues to emerge from the pandemic that caused so much damage and closed thousands of restaurants, there are plenty of green shoots to focus on and genuine hope for a return to growth and buoyancy. Without doubt there is cause for optimism. Looking at the big picture across the market, this is a sector primed to grow given the right conditions. Some indicators of growth: The foodservice industry workforce in the US – where the restaurant industry is worth an estimated $800bn – is projected to grow by 400,000 jobs to total industry employment of 14.9 million by the end of the year, according to the State of the Nation report, published by the National Restaurant Association.

In the UK, meanwhile, the foodservice industry is projected to generate sales of more than £95bn in 2022, representing a 27% increase on the year before, but not quite enough to send it back to pre- pandemic levels. The figures, detailed in The Next Era for Foodservice, 2022 to 2025 report from FutureFoodservice, indicate that a bounce back is happening. Simon Stenning, the founder of FutureFoodservice, pointed to a number of trends driving this growth – and they are different from just 10 years ago. They include the emergence of dark kitchens, virtual brands, make-aways (better known as meal kits) as well as new CPUs, food preparation systems and delivery solutions.

“While the past two years have been incredibly challenging for all in the industry, the future, from this year onwards, sees exciting new concepts growing, an increase in experiential dining providing consumers with persuasive reasons for eating and drinking out of home, and new technology enabling more efficient experiences,” he said. “Value-driven, convenient, fast-food solutions will also become more important, meeting new consumer demands, especially from those who are cash-poor and time-poor, but also as the way we live changes, and we try to fit more in.”

Evidence, if any were needed, that foodservice is an everchanging, shapeshifting sector where innovation keeps everyone on their toes.

For consultants, assessing growth in the sector is a different challenge today, according to Laura Lentz FCSI, design principal of Culinary Advisors in Maryland in the US. “A lot of the data that we have all used to assess growth in the past is now skewed or obsolete from the pandemic.

I think that we need to be considering a roadmap of the past (perhaps declines or growth) in order to map out the future,” she says. “For example, if a particular client saw great decline and is only at half population right now then that changes the parameters going forward.”

Different kinds of growth

Some foodservice companies choose to grow through international expansion. Consider the popular burger chain Five Guys – it started with the opening of five stores in Washington, DC and 20 years later counted 1,500 stores across North America, Europe, Asia and the Middle East. This year it has opened its first store in continental China.

However, as international chains go, few can rival Starbucks in its powers of growth by expansion – the Seattle coffee chain now has more stores abroad than in the US. As of January, this year, out of a total of 34,317 stores, over 17,300 were international. And the plan is to keep this growth going.

In the first quarter of 2022, Starbucks opened 484 new stores and that follows the opening of 1,173 new stores in 2021.

Outside the US, the growth rate is even greater – consider China where Starbucks added 1,200 new stores over the past two years, making up a fifth of the coffee stores in the country.

The plan for 2022 is to open 2,000 new coffee shops. In February president and CEO Kevin Johnson said: “As long as we keep delivering best-in-class profitability, return on investment, we’re going to continue to lean in on building new stores and play the long game,” he told investors. Of course, how a foodservice operator grows largely depends on the individual business, the nature of the restaurant and the founder’s ambition. While many fast-food organizations today see huge opportunities in Asia, others choose different paths to growth, closer to home. Each business will need to identify the ideal growth, says Jay Bandy FCSI, president of Goliath Consulting in the US. “Market conditions, supply chain, staff availability, cost of restaurant development and the economy all factor into a brand’s growth strategy,” he explains.

Others embrace the franchising model; and that has been a successful path – according to a report by Rabobank titled Franchising the American Dream, franchises increased their market share in the foodservice industry over the decade from 2012 when it stood at 19% to 28.4% in 2021. By comparison, non-franchised restaurants have decreased their market share by 11% over that same period.

“The state of franchising is incredibly strong,” said Tom Bailey, senior analyst, consumer foods with Rabobank and the author of the report, but he added that part of the reason large franchisors have seen such growth is the global growth element.

Diversify or die

For independent restaurants, staying afloat is a challenge in this post-pandemic world, diners’ shrinking spending power combined with higher food prices means diversification is crucial.

For some, this has meant opening more casual and accessible operations, to attract higher footfall and increase revenue. An example is Spanish chef Dabiz Muñoz, the chef behind three-Michelin-starred DiverXO in Madrid. Dining at his flagship restaurant will set you back €300 per person before drinks, but Muñoz opened StreetXO several years back as a more casual and accessible concept serving similar avant-garde cuisine to a larger crowd. “We took our one-of-a-kind cuisine and made it available to more people,” the chef said.

It’s just one example of a genuinely global trend – in the US, David Chang, of Momofuku fame, opened his take on a fried chicken joint FuKu.

Of course, when speaking of growth in the foodservice sector in 2022 it would be remiss not to mention the Covid-19 pandemic that stopped everyone in their tracks for two years and changed so many things about the way we eat and interact with each other and hospitality. Before February 2020, restaurants had faced few threats that pushed them to diversify to the same degree. In the diversification drive, the pandemic also brought us meal kits from high-end restaurants – while lockdowns kept dining rooms shut the chefs got to work putting together meal kits, allowing diners to eat the food from the restaurant by cooking it themselves at home. A great success for most and it is no surprise that as a pre-emptive strike against any potential future pandemics, this means of achieving growth is part of what we now call “the new normal”. Should the sector be hit by another pandemic, operators will have the tools to stay afloat.

Despite the new ways of diversifying, tens of thousands of restaurants across the world closed permanently during the pandemic, unable to keep going through successive lockdowns and long spells of restrictions. But some market segments have capitalized on opportunities.

“Business conditions and recognizing what’s the best and worst environment for your brand to grow must be a part of growth strategy. Covid and its impact on restaurants over the last 24 months is an example,” says Bandy. “Some brands retracted and lost units, others took the opportunity to grab market share and open restaurants.”

Some of those new restaurants were virtual, brands created out of ghost kitchens – another area that saw massive growth in the pandemic. The figure of $1trn is often quoted as an estimate of the potential growth of ghost kitchens globally.

It’s hard to pinpoint when the first ghost kitchen opened, but there’s no doubt about the accelerated growth of the model, massively propelled by the pandemic.

Intrinsically linked to ghost kitchens is the delivery segment. Reports show that the first online food ordering and delivery service was launched in 1994 by Pizza Hut. In the intervening years, as online services have become sophisticated and WiFi connections much faster, it has grown.

The pandemic turned many more people to online delivery – the number of consumers using online food delivery services globally surged from 1.17 billion in 2019 to 1.46 billion in 2020. This is one trend that is set to continue to grow.

According to the Business Research Company, by 2025 delivery is expected to grow to a 21% share of the total restaurant market. Lentz of Culinary Advisors says those that have adapted are the winners here. “Those that have been creative and thought outside of the box have grown,” she says. “I have also felt that even within some market segments the solutions are no longer universal – for example, within the workplace segment: We have to treat a manufacturing facility with 100% on-site population as different to a banking company that may only have 50% on site on a given day.”

It means the consultant has to bear in mind that the same populations assigned to a building may now have very different foodservice results in order to be successful. “We can no longer assume that everyone comes into work every day and in fact it is safer to assume that they do not,” she says.

Growing global footprints

Fast-food chains are poised to capitalize on the opportunities, and many have stated bold plans to grow. According to Market Data Forecast, the rapid expansion of fast- food chains will be a major contributor to their future, which is envisioned to reach $931.7bn by 2027, an almost $300bn growth from 2021.

And it is not only western brands heading east. Jollibee is the largest fast- food chain in the Philippines, where it operates over 1,300 locations. It is perhaps not so well known in the US, but that could soon change. The brand, which specializes in Chickenjoy, a signature fried chicken described as “crispylicious on the outside and juicylicious on the inside”, is planning a major expansion in America. The company currently operates just 63 US locations and 25 in Canada but is planning to increase its presence in North America to 300 by 2024.

One very well-known chain in its home country, Wendy’s started the year making bold statements too, saying, it will be opening 1,200 new locations by 2025. And in a development completely in keeping with current trends, not all of those locations will be restaurants. 700 of them are going to be opening in the form of ghost kitchens. These locations will grow Wendy’s global footprint by a third, and especially help to serve the urban communities without the expense of opening additional restaurants.

This post-pandemic time has been opportune for fast-food brands with capital who have been able to swoop in and take over premises vacated by branded dining chains that were unable to last the course. “A lot of these branded sites have been taken over by fast food, which has seen a lot of growth,” says Stenning. “I see that continuing – there’s a convenience, value and proven quality that means it will continue growing.”

Gauging growth

Stenning says there’s an important distinction to make when assessing growth. “Is growth delivered by volume or value?” he asks. “Of course, at the moment it is value. Prices have gone up as volume – the number of covers – has dropped out.” But, he adds, there is some volume coming back into the market.

As an example, he points to the UK pub and restaurant sector, which reported 3.7% growth in April – this growth was due to rising prices and not an increase in covers. Bettina von Massenbach FCSI, founder of Oyster Hospitality Management in Munich, Germany, suggests it is important to keep an eye on the human element. “Although revenue will always be the basic indicator of growth, it is relevant to check how staff will develop in the near future,” she says. “Therefore, sick days per annum and rate of fluctuation is a useful indicator too.”

Asked to point to indicators of growth within foodservice, Lentz says higher education and chain markets tend to be good indicators of growth in the sector. “Other than that, we know people eat and we know the number of people in our world is growing. I love hearing designers talk about spaces that can be opened or closed based on demand,” she says. “Technology and other tools enabling foodservice venues to be open and to be successful. Right now, increasing square footage is not a universal sign of good growth that applies to all foodservice markets. In some cases, good growth is actually getting smaller.”

Despite the challenging times that are now starting to fade into the background, there’s consensus that the foodservice sector is not only bouncing back but doing so with poise and growth. “There are still challenges at the start of 2022 with rising inflation, and the industry has to be careful of dampening nascent consumer demand by pushing more price rises onto them, but if the focus is on delivering exceptional experiences, then the best operators will thrive,” says Stenning.

And, according to Lentz, operators will be focused on growing in the right way. “Given the times right now I think good growth is growing with flexibility in mind, spaces that can be opened/closed based on business demand,” she says. “Bad growth might look like someone who is certain about what the future holds right now in some markets. I think the foodservice venue of the future in some market segments is a lot more volatile than any of us care to admit.”

In other words, proceed with caution, but by all means pursue growth.

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Place comment