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Restaurants And Cafe Dining Demand

Published : 19 October 2018 Author : Jarot Business Assessments

The main factors that are increasing consumer demand for buying meals include busier lifestyles/less time to prepare home cooked meals and a strengthening coffee/café culture. This has led to solid growth in the industry over the past five years, though it is now facing headwinds of falling discretionary income/consumer, sentiment and increased competition. The industry has possibly reached a full saturation point in terms of the number of establishments. This all points to a slowing of revenue growth going forward.

 

The Current Landscape

Busy lifestyles, with most families now having two income earners, means that leisure time has become more restricted over the past five years. Sharing a meal with friends at a restaurant, or even a coffee at a café, fits well as a way to socialise within busy lifestyles. Coffee in particular is an affordable way to catch up with friends several times a week, so much so that average annual growth in café/coffee shop revenue has averaged 5.1% per annum over the last five years. Restaurants have managed a still healthy 3.5% per annum. These average growth figures over the past five years are however somewhat misleading, to an extent, as the most recent 12 months for restaurant and cafes combined has seen growth slow to less than 1%, as saturation in the market place, in terms of the total number of establishments, has likely been reached. This also means increased competition and lower profit margins are now being endured. Further competition from “crossover industries” such as pubs providing better quality food, as well as expanding takeaway food options (including home delivery services) are also factors. Economic factors have also tightened including decreasing real household discretionary income and a fall in the consumer sentiment index over 2017/18, providing further challenges for small businesses in this sector.

 

Emerging Trends

  • Growing health consciousness amongst consumers – reducing demand for fried and fatty foods thus providing an opportunity for restaurants and cafes to serve more healthy food/meals on their menus. This trend extends to niches such as gluten free, paleo and super foods.
  • The coffee culture – consumers are becoming increasingly sensitive to the quality of coffee provided such that cafes now have to concentrate both on ensuring the quality of ingredients as well as training of baristas.
  • Trend to cheaper/mid-tier and BYO restaurants – In reaction to tighter economic constraints/consumer spending, lower priced and BYO restaurants are gaining market share. Premium restaurants are having to endure a lower spend and profit margin per customer, as consumers have less demand for high profit margin desserts and entrees.
  • Cost restructuring reactions – as profit margins tighten, restaurants have reacted by reducing portion sizes and expanding the takeaway menu. Staff working hours and wages have also had to be rationalised. There has been some assistance provided in this area via the 2017 Fair Work Commission reducing penalty rates to 25%.
  • The foodie culture – celebrity chef shows, social media websites such as Zomato and Broadstreet have increased consumer interest in looking for “trendy restaurants” with high quality food and service – it is now more necessary than ever for restaurants and cafes to maintain a favourable social media presence.
  • Coffee shop chains – these have been growing, particularly in high traffic areas/shopping centres. While there has been some high profile franchise failures in recent years, the economies of scale of some of these groups is likely to see them grow over the longer term. At the current time franchise chains still make up only a small part of the market place compared to independent operators.

 

Typical Cost Structure

 

Coffee shop/cafes

Restaurants

Purchases

37%

- 39%

33%

- 35%

Wages

23%

- 25%

33%

– 35%

Rent

14%

- 16%

8%

- 10%

Other

19%

- 21%

22%

- 24%

Profit

3%

- 5%

3%

- 5%

 

The Future

A far lower rate of revenue growth at less than 1% is predicted for the industry over the next five years. Profits are likely to decline slightly due to increased competition/tightening economic conditions, even as restaurants work to improve cost efficiencies. In the immediate term there would appear to be a saturation level of establishments within the market place. The need to offer higher quality food to attract customers in this landscape is likely to create increased competition amongst businesses in attracting good chefs and cooks. In particular, high end licenced restaurants will need quality staff in these areas, to retain demand for high margin foods such as entrees, desserts and wine offerings.

For general staff, more casual employment allowing staff to be brought in or sent home depending on immediate demand, will occur to ensure the most efficient wages cost scenario.

Main factors for business success are seen as:

Strong profile gained through good food/service and associated social media profile.
  • Niche cuisines where there is less competition.
  • The ability to alter menus to maintain interest and a point of difference.
  • Efficient cost control/staffing.
  • Training to have a multi-skilled workforce.
  • Quality of location and premises.

 

Business Values Newsletter, Issue 145. (2018). [Blog] Jarot Business Assessments.