Restaurant Trends Reshaping the Global Foodservice Industry
Restaurant trends are moving faster than many chains can even comprehend. Important dynamics are emerging to shape up consumer behaviors and the competitive landscape across geographies globally — from Canada to the Middle East, India and beyond — and across categories of the industry, from burgers to pizza to steakhouses and casual dining; from QSR in Europe to coffee in the UAE (and so much more).
Back in 2015, we published 10 Trends Reshaping the Restaurant Industry. Many of the forces covered in this piece are still very relevant today— from “fresh” being the most bankable word in foodservice to the Freakonomics of Netflix.
Restaurant trends are shifting billions of dollars within the $3.5 trillion foodservice industry globally, making and re-shaping categories and segments.
Leaders of established and emerging restaurant chains are thinking: What is shaping up in terms of consumer trends, food trends, evolving dining behavior and consumption patterns, categories, segments, competitive dynamics, and macroeconomic conditions that may be relevant to our forecasts and future strategy?
Here are some of the answers.
Quick-Service Industry Trends: The Dominance of Large Chains
Globally, the quick-service restaurant (QSR) industry — or commonly referred to as “fast food” by consumers — claims 25% of restaurant sales. Given this prominence, QSRs have a strong influence on food service trends.
Even though quick service is traditionally related to foods like burgers, subs, and pizza, they are largely influenced by food trends which result in menu updates and are being leveraged by some players better than others. For instance, in the U.S., the chicken segment is outgrowing the burger and sandwich categories among the top QSR players.
Other interesting stats related to fast food trends:
Pizza chains are largely influential to QSR trends. Domino’s, Pizza Hut, and TelePizza claim 85% of the sales of the top 30 delivery-only restaurant chains in the world. (More on pizza industry trends here.)
Each of the three largest consumer foodservice chains (McDonald’s, Starbucks, and KFC) are quick-service-restaurants, collectively with global sales of more than $130b.
McDonald’s and its cohort of mature fast-food burger mainstays have maintained almost complete dominance over the burger segment. McDonald’s sales in the U.S. alone exceed $37.6b, amounting to about 5.5% of what Americans spend at restaurants in total. The leader in the burger segment has sales equal to those of the next 10 largest chains, combined. (More on burger industry trends here.)
Casual Dining Restaurant Trends: Still Relevant in Key Geographies
Many casual dining restaurant chains are still misreading the trends and business dynamics impacting their performance; often hoping promotional tactics can hurl them out of trouble. As a result, many of the category leaders are struggling.
One of the restaurant trends that has received the most coverage is casual-dining stagnation: the cumulative growth in same-store-sales equals 0% (considering U.S. chains with $1b in sales or more). That is, a typical restaurant in this segment would have a similar average unit volume as it had ten years ago, evidence of a sharp deterioration in margins.
In the U.S., the rate of closures for casual dining restaurants surpassed the rate of openings in 2017 for the first time in at least ten years.
The closure trend affects chains operating in the full-service environment with average transaction values between $15 and $20 most severely.
Casual dining trends vary across geographies. In some countries like the UAE, Colombia, and France, full-service restaurants continue to claim a large share of transactions (around 30% or more of consumers’ dining-out occasions).
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Fast-casual restaurants resulted from the confluence of two consumer trends: the desire for convenience and better quality (oftentimes fresh) ingredients. This service model has consolidated as a growing segment in the last twenty years in the U.S. and will penetrate emerging markets at an accelerated pace.
Considering only same-store sales, the top fast-casual chains (those with more than $1b in sales) grew their sales by 45% between 2007 and 2017 — more than any other category.
Among the top 25 fastest-growing fast-casual restaurant chains in the U.S., pizza continues to come out on top with five concepts accounting for 39% of all sales of the top 25 brands, as of 2017. (More on fast-casual restaurant trends here.)
The fast-casual segment remains a source of concepts for investors to fund, particularly driven by attractive unit-economics. The first unicorn in the restaurant space was the fast-casual chain sweetgreen.
Food Delivery Trends
Delivery is only one of the forces shifting billions of dollars in the foodservice industry from traditional players to new channels and formats. To illustrate the strength of this foodservice trend: Uber Eats, one of the leading food delivery players globally is now delivering food from 200,000 locations worldwide. This is staggeringly equivalent to the global footprint of the nine largest restaurant chains (in terms of number of outlets), combined.
Publicly traded food delivery companies globally are growing their market cap at a median 29% CAGR – considering the time period from their IPOs to 2018 for Grubhub, Delivery Hero, Just Eat, and Takeaway(.com).
Online ordering (for food delivery and takeout) it’s expected to grow at a 21.7% average annual growth in the five years to 2022 in the U.S. (More on food delivery trends here.)
Deliveroo, the UK-based food delivery service, is among the fastest-growing companies in Europe. The business expanded at an astonishing 923.5% CAGR from 2013–16. Of these fast-growing European companies, 4.4% are in F&B or eCommerce related to food delivery.
Hotel Food and Beverage Trends
With $140b in global foodservice spend taking place at lodging establishments, restaurant trends have an increasingly strong impact on hotels’ revenue. Across the globe, Hotel F&B is being reshaped by powerful forces — Airbnb, food delivery, and technology among them. While some savvy companies are responding to these (and other) trends, many hotel food and beverage programs continue to lag behind. These are some of the food and beverage trends in the hospitality industry globally:
In Europe (the UK, Germany, and France, specifically), foodservice sales through hotels, hostels, and bed-and-breakfasts are projected to be flat over the next three years.
In some geographies, in particular, hotels have realized that food and beverage can be more than a cost center, loss-leader, or amenity. In the United Arab Emirates, for example, international visitors allocate more than one-fifth of their total spend on a trip to F&B.
Online travel agencies were as disruptive for the accommodations and air travel industries as food delivery aggregators are becoming to restaurants. In 2008, Booking and Expedia represented about 11% of the enterprise value of four of the largest publicly traded hotel and airlines companies (Marriott International, United Airlines, Southwest, and Delta Air Lines – Hyatt and Hilton were not public at the time); ten years later that share has increased to 70%.
Restaurants naturally are continuously looking to include new food trends on their menus, and even entire concepts can be born from emerging and evolving food trends. Great campaigns (leveraging social media and digital marketing as tools) with the influence of the consumer space can turnaround sagging sales in the short-term and buy time and build momentum toward long-term initiatives, running on parallel paths. But if consumers become excited about new product offerings and the customer experience is negatively influenced through run-down locations or poor service, there can be a negative effect in the longer-term. Even if promotions work for a quarter, it can devalue a brand if not executed effectively across all functional areas of an organization. There is a balance to be reached between operations being able to keep up, and responsiveness to changing food and consumer trends.
Salads and Bowls
A leading food trend reflecting the consumer desire for fresh and healthful meals.
In September of 2019, sweetgreen closed a $150m funding round, earning a valuation of $1.6 billion. This puts their enterprise value per unit at about $16.5m per store — more than 80% higher than that of Chipotle and more than three times the value per unit of McDonald’s. (Here are some more insights on how vegan diets are impacting restaurants.)
In the U.S., close to one-third of the footprint of the fastest-growing emerging brands (chains with 60 units or fewer) belongs to health-focused or Mediterranean/Middle Eastern concepts. These segments are expanding faster than this group’s median rate. This growth shows how consumer preferences can drive double-digit growth, even in a mature industry.
Meat substitutes have been making headlines for a while now. This food trend (also aligned with consumer trends for a healthier lifestyle) has received a lot of attention from foodservice investors and CEOs.
In 2011, Don Thompson (McDonald’s CEO in 2012–2015) told investors that vegetarian options would not soon be a staple on McDonald’s menus — at least in the U.S. — saying that they “ended up serving four a day” when discussing veggie burgers. It’s a far cry from that stance in 2011 to now, where Thompson invested early in Beyond Meat — one of the leading producers of alternative protein meat substitutes. Beyond had one of the strongest IPO day performances in recent history, and it’s been mostly up from there.
The Impossible Burger (another meatless option) is being sold at Red Robbin, Burger King, White Castle, Qdoba, The Cheesecake Factory, and Little Caesars, among other chains.
Coffee and snacking is a consolidated segment now, with coffee consumption reaching more than 2.2 billion cups daily in the world.
In the U.S., the beverage/snack segment (not including bars or bakeries) represents more than 10% of the largest 200 restaurant brands sales. Starbucks leads the segment by quite a margin: its $19b in sales (as of 2017) account for more than half of the leaders’ sales in the segment.
Coffee shops’ popularity is growing in other geographies as well. For instance, coffee shop sales are one of the most dynamic food service segments in the Middle East. Sales at Cafés and Specialist Coffee Shops are expected to remain strong in the next few years, achieving an 8.9% CAGR (2016–2021) in the United Arab Emirates. Both independent, home-grown concepts and international chains (working through local operators) are expected to catch consumer attention.
Is your organization looking to capitalize on the trends reshaping the industry?
Business models that put the guest/customer and employee first by anticipating and responding to emerging consumer trends reshape and create markets that dethrone incumbent and dismissive brand leaders.
These are some of the trends changing the relationship between consumers and restaurants:
Via drive-thru, self-order kiosks, or other enablers is becoming increasingly important in today’s restaurant industry landscape. In the last 20 years, in the U.S. sales in limited-service restaurants and retail stores and vending have grown faster than average, resulting in increased market shares for these segments (+8.3%, +11.2%). These changes reflect the consumer demand for convenience, which is feeding into LSRs’ and retail stores’ sales.
With less time at their disposal, consumers are relying more on delivery and consumption at home. Globally, close to one-third of foodservice occasions take place off-premise. This doesn’t mean the end of full-service restaurants, but more and more consumers will dine-out only if it’s worth it as a differentiated experience.
“A Better Way”
More than 80% of Millennials expect companies to publicly commit to doing good. Large restaurant chains are taking steps to be part of this trend that emphasizes corporate social responsibility: Starbucks plans to create 10k eco-friendly stores globally, and is tracking and quantifying its environmental footprint; British delivery aggregator Just Eat is investing in R&D for alternatives to single-use plastics; and McDonald’s.
Digital Marketing Trends Restaurants Can Leverage
Not only do the number of channels available for marketing grow every year, as social media platforms pop up overnight and then disappear just as quickly (still miss you, Vine!), but new technologies, like narrowcasting, smartphone apps, and self-ordering kiosks, all demand their own approach. These are only three of the trends that need to be considered during marketing modernization:
Social Media turning conversational: brands are engaging with their customers at a new level, not only passively listening but interacting directly. With up to 25% of the marketing budget allocated to social media, large restaurant chains like Wendy’s are getting huge ROIs. In 2017, Wendy’s #NugsForCarter twitter campaign reached more than 3.6 million retweets (more than $7m worth of retweets at an estimated cost of $2k annually).
Voice Search: with about a quarter of people aged 16-24 employing voice-search, this is another digital marketing trend the restaurant of the future is likely to rely on. Domino’s pioneered voice ordering back in 2014.
AI and Machine Learning: in 2019 McDonald’s acquired Apprente, an early-stage leader in conversational technology that employs proprietary neuroscience-based artificial intelligence tech to create systems that understand and reproduce human interaction. The technology is expected to boost drive-thru order accuracy and speed, and may eventually be of use for kiosks and mobile ordering.
Restaurant Trends Driving Changes to the Investment Thesis
And even though habits might change and trends might shift, the global restaurant industry remains a force. There is an abundance of cheap capital sloshing around the global economy that’s looking into restaurant trends eager to invest in the next Yelp, Chipotle, or UberEats; when a company comes along that is potentially disruptive to the global restaurant industry, investors line up to fund the future.
This means emerging brands and new competitive threats can come seemingly out of nowhere and attack incumbent brands faster than they can react.
About Aaron Allen & Associates
Aaron Allen & Associates works alongside leaders of global foodservice and hospitality companies on strategic issues related to growing and optimizing performance and value. Specializations of the firm include multinational expansion, system-wide sales building, brand and portfolio strategy, modernized marketing, industry trends, technology, and advanced analytics. Aaron has personally led more than 2,000 client engagements spanning six continents and 100+ countries for companies collectively posting annual revenues exceeding $200 billion.
Aaron Allen & Associates is a leading global restaurant industry consultancy, helping clients around the world solve their most complex challenges and achieve their most ambitious aims.
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