Foodservice Operators Less Confident as Food and Labor Costs Rise, Consumer Tastes Change and Delivery Becomes Overcrowded, According to New Survey Report
BOSTON, MA (February 26, 2020) – Expectations for growth are fading in restaurant and other foodservice industries due to an increasingly challenging environment, according to a new L.E.K. Consulting study. In a survey of over 240 foodservice operators directly involved in purchasing decisions, only 56% say they expect the industry to grow over the next three years – down from 78% in 2017, when the survey was last fielded.
“While rising food and labor costs are still top of mind, foodservice operators are seeing new challenges,” says Rob Wilson, Managing Director at L.E.K. and coauthor of How Foodservice Operators Are Finding Opportunities to Fuel Growth. “They’re concerned about rapidly changing consumer preferences, which demand constant diversification of their menus, and an overcrowded online ordering and delivery market.”
More than a third (35%) of operators say rising food costs from suppliers is the biggest barrier to growth, while more than a quarter (26%) say higher labor costs due to cost-of-living increases and minimum wage laws is their top concern. The report notes that wage growth in the U.S. foodservice industry rose 5.3% between 2015 and 2018, compared with a 2.5% median rise of wages overall.
“Although sentiment among foodservice operators is less optimistic than in previous years, they are proactively taking steps to counter the headwinds they face,” says Manny Picciola, Managing Director at L.E.K. and report coauthor. “With the right strategies, operators will still be able to remain competitive and grow for the foreseeable future.”
Some of the ways foodservice operators are growing sales, cutting costs and maintaining or increasing market share, according to the report, are:
- Reducing labor, limiting work hours and leveraging automation. To combat higher labor costs, 43% of foodservice operators say they are reducing the number of full-time employees on staff and 35% say they are limiting the number of hours all employees are asked to work. And 20% say they are using automation wherever they can.
- Using pre-prepared and private label products. With 41% saying the cost of labor is too high to prepare food in-house, operators are increasingly purchasing pre-prepared foods to offset costs. The prepared food category is expected to grow 17% year-over-year, surging from a 7% rise in 2017.
“As the quality of private label products continues to rise – with consumers largely unaware of differences between private label and branded products – we’re seeing more operators shift to private label alternatives, especially for commodity items,” says Maria Steingoltz, Managing Director at L.E.K. and report coauthor.
- Outsourcing delivery to third-party or operator-managed services. When it comes to delivery, operators are turning to third-party aggregators and delivery apps in their quest to acquire new customers and retain existing ones. Nearly three-quarters (74%) of all operators now offer online ordering, whether it’s outsourced or handled in-house. And half say they expect to increase delivery offerings over the next three years.
- Employing digital tools. Operators are finding social media to be an invaluable tool to attract and retain customers. More than a third (34%) use Instagram and over half (57%) use Facebook. Twitter remains a potent force, as shown by Popeyes’ use of the platform to needle rivals and drive demand for its products.
- Developing healthier offerings. Consumer demand for healthier options is pushing operators to implement a host of menu changes. Since 2017, the number of operators offering meat substitutes climbed six percentage points to 48%, those with organic options rose four percentage points to 62% and nutrient-rich options increased four percentage points to 68%. Operators expect to replace 37% of meat product offerings with branded, plant-based meat products in the next three years.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,600 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.