With household budgets under pressure, almost three out of ten shoppers are saying they have eaten out less over the last six months.

So what has this meant for the foodservice sector, how have food retailers been turning this to their advantage, and what are the implications for retailers that have been investing in food-to-go?
 

Food-to-go offers generate valuable footfall and associated purchases

Foodservice under pressure

As household budgets have come under greater pressure, consumers have sought to make savings in many aspects of their discretionary expenditure. Non-food retailers have certainly felt the brunt of this, and many have brought forward their post-Christmas sales and run special discount weekends as a result.

However, IGD’s recent shopper research, Adapting to Change, reveals that almost three out of ten shoppers claimed to have eaten out less over the last six months, and half of these indicated that they would cut back further over the next six months.
 

Value for money and innovation important

Whilst a number of foodservice chains have found the going tough, and some have resorted to '2 for 1' dining deals to encourage diners into their restaurants, many continue to prosper. As within the food retail sector, operators with strong value for money credentials have been amongst the most successful.

McDonald’s noted a strong performance in the UK in October, helping to drive a 9.8% increase in like-for-like sales across Europe, while Domino’s Pizzas reported that like-for-like sales in the UK increased by 8.8% over 13 weeks leading up to 28th September 2008. In the casual dining sector, Mitchells & Butlers' preliminary results for the year to 27th September 2008, revealed that food sales increased by 3.5% on a like-for-like basis, driven by its 'value and volume' strategy across its businesses, which includes the Harvester and Toby Carvery chains.

Trading in the third quarter has continued strongly and is particularly encouraging given the strong comparatives during the same period last year. We are very pleased with the momentum in the business and the resilience of our business model during these more challenging economic times.     Chris Moore, Chief Executive Officer, Domino's Pizza UK

Other operators have responded to current trading conditions with special menus, innovative promotions and the introduction of limited period new ranges. Others have been increasing their appeal by broadening their menus, such as Pizza Hut’s new pasta range, or attempting to attract customers outside of their traditional visiting times with new day-part menus.
 

Retailers have been investing in food-to-go

However, the fact that consumers are indicating they are cutting back on eating out will potentially be of concern to food retailers that have been developing their own foodservice offers. This has been a prevalent trend in the convenience sector, with numerous operators investing in hot food-to-go, building on their more established ranges of sandwiches, snacks and chilled drinks.

Many retailers have prioritised investment in food-to-go in order to respond to changing consumer eating habits. A move away from formal dining occasions towards more grab-and-go based eating has fuelled strong growth for quick service restaurants (QSR), such as EAT and McDonald’s, and coffee shops such as Costa Coffee and Starbucks.

Convenience store operators have identified that due to the high degree of cross-over with these types of outlets in terms of location, shopper missions, and product offer, they are well positioned to grab their share of the foodservice market. This has especially been the case within the forecourt sector, with operators tailoring their offers to appeal to consumers on the move.
 

‘Eating-out-at-home’ provides a new opportunity

As consumers cut back on eating out and seek to replicate the dining out experience at home, an opportunity for food retailers is created. One of the most active retailers in this respect has been M&S with the promise of “restaurant quality food in the comfort of your own home” through its ‘Dine in for 2 for £10’ promotion.

…restaurant quality food in the comfort of your own home.

Although like-for-like food sales continue to fall at the retailer, this promotion has been a great success and continues to stimulate shopper interest, with its latest execution featuring a broader range of products. Last month, Sainsbury’s reported strong growth of takeaway boxes as shoppers bought into its ready meal ranges.
 

Scope for further growth

Retailers are unlikely to be deterred from continuing to develop their food-to-go offers by the current downturn. Not only do they provide an important new income stream, but they also generate valuable footfall and associated purchases. There is also significant scope for further expansion as the penetration of hot coffee and hot food within convenience stores remains relatively low, particularly in comparison to the US.

There also remains an opportunity to replicate many trends from the traditional foodservice sector. Developing menus to appeal to new eating occasions will help to drive footfall during different times of the day, particularly as the majority of food-to-go offers within the convenience sector are heavily focused on lunchtime eating occasions. Breakfast, for example, is a relatively untapped opportunity within the convenience market beyond the forecourt sector. Operators can also tap into those consumers seeking to replicate the eating out experience at home through improving the portability of their products.

UK's leading QSRs and coffee chains   Operator Outlets Subway 1,300 McDonald's 1,266 Greggs 1,209 KFC 772 Costa Coffee 775 Starbucks 665 Domino's Pizza 535 Burger King 512 Cafe Nero 393 Wimpy 197 Prêt a Manger 178 EAT 90 Source: IGD Research

Although market conditions remain challenging, operators with a strong value proposition will continue to prosper. Consumers will carry on buying into food-to-go, providing the ranges available offer great value for money. Offering good value food-to-go is a complex equation, because beyond price and quality, operators must consider issues including taste, service and environment, all of which are important for consumers.
 

More information:

	Convenience on the Forecourt 2009	27 January 2009
	A one-day conference focusing on the convenience opportunities within the UK forecourt sector, this event is your chance to hear how businesses including oil companies, symbol groups, independents and multiple operators are responding to the challenging trading climate. Speakers include BP, Esso, The Co-operative Group, P&H and him!

	UK Convenience Outlook
	IGD's UK Convenience Outlook report includes convenience sector size & structure, profiles of convenience operators and outlook for the market

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Stewart Samuel is a Senior Business Analyst at IGD. He is responsible for UK research, publications, training and conferences and the publication and presentation of strategic analysis. In addition to being the lead author of UK Convenience Outlook, he is co-author of IGD's UK Grocery Retail Outlook report.