Beyond Uncertainty

Breakfast BriefingBarber Surgeons’ Hall23 September 2011

Philip ShawThe UK recovery – perceptions, facts and fears

23 Sept 2011

Certainty, Uncertainty – and Beyond

Peter BackmanManaging Director

What I’ll be covering

• Fundamentals of the market today

• Looking forward

• What this means for tomorrow

Source: Horizons

Background

• Times are tough• The economy• The High Street• Foodservice

• But it’s not all bleak

• Lessons to be learned

Source: Horizons

Food and Beverage Sales in Recession

Source: Horizons Market Dynamics Toolbox

20032004200520062007200820092010£20

£30

£40

£50

Current/Nominal PricesConstant/Real Prices

£ B

illio

n

• Nominal prices: Growth plateauing• Real prices: Market below pre-recession levels• Foodservice losing out to Retail

YoY Quarterly changes are small

Source: Horizons Market Dynamics Toolbox

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

0.0

2.0

4.0

6.0

8.0

10.0

12.0

£ B

illio

n

• Q1 and Q2 2011 in growth

+3.7%

So what’s going on?

• Overall• Stable/ declining market• Small quarterly changes• Recent real growth• Unpredictable

• Why?• Costs/prices

• VAT• Input prices• Selling prices

• Special factors

Source: Horizons

The Margin Squeeze

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Selling pricesFood pricesMargin Squeeze

2008 2009 2010 2011

Source: Horizons

Vouchers – Getting off the Drug?

0

10

20

30

40

50

60

Other offer%/£ OffMeal Deals2 For 1

No.

of

vouch

ers

2009 2010 2011

Source: Horizons

Divergence – a check list

• Restaurants – Quick Service• Chains – Independents

• Pubs• Managed – Tenanted

• Hotels• Budget – Big brands

• Contract caterers• “Owner-driven” – Large companies

• Driven by• Concentration on core abilities• Creating gaps• Flexibility – grabbing opportunities• Restructuring• Innovation

Pricing strategies – opposing views

Source: Horizons Menurama

• QSR• Converging

prices

• Restaurants• Covering all

the bases

Similar outcomes

• Emergence of distinct Fast Casual• Spend £5-10 per head• Sales in 2010 £6.8 Billion

• Consolidation of Casual Dining• Spend £10-20 • Sales in 2010 £3.7 Billion

• Restaurants £2.1 Billion• Pubs £1.6 Billion• Growth 2008-2010 +2.2% pa

• Ones To Watch

Source: Horizons

Geographical divergence

London• Food and Beverage sales £12.1 billion

• Share of UK 29%

• Growth 2008 - 2010 pa• Total +0.5% (-1.5%)• Restaurants +1.0% (-0.2%)• Quick Service +0.6% (-0.2%)• Pubs -2.6% (-4.5%)

Source: Horizons Market Dynamics Toolbox

Share of F&B Sales 2010

London S EastRest of England

Other countries

Special factors

• “Wedding holiday” in April• Fine for outside seating

• May• Return of the Ash Cloud• E Coli in Germany

• Riots in July• Geographically - and time - limited but …

• But there are always “special factors”

Source: Horizons

Things to look out for

• Companies/sectors able to benefit from:• Strong overseas economies• Weak £• Corporate spending

• B&I – Government-funded• Being hit hard• And worse to come

For the future

• We have been “here” for a couple of years• Maybe we’ll be “here” for a couple more years

• Next year:• Royal Jubilee• Olympics

• Beyond• Economy• Election

Source: Horizons

What does this mean for you?

• Times are tough• And won’t get much better soon

• However, we’ve now had almost 3 years to get used to things• Real YoY decline• Cost pressures• Pricing pressures• Continuing competition

• The outlook is more of the same

• So how can we unlock Divergent Opportunities?

Source: Horizons

News From The High Street

Paul BackmanDirector of Services

News From The High Street

• Operator Trends

• Technology

• Beyond Uncertainty

Operator Trends

• Quick Service• Healthy - Bill’s, Chop’d, Pod, Tossed• Japanese - Itsu, Wasabi, Samurai• Mexican - Chilango, Tortilla Mexican Grill, Barburrito• Food To Go / Convenience - Wrapid, Little Chef’s “Good To Go”

deli Sainsbury’s “Fresh Kitchen”

• Restaurants• Casual Dining - Byron, Ego, Pho, Union Jack’s• Oriental - Banana Tree, Busaba Eathai, Ping Pong

• Pubs• Pub restaurants - Drake & Morgan, Peach Pub Company,

Brunning & PriceSource: Horizons Ones To Watch

Technology

• Mobile smartphone payments and loyalty cards

• Touchscreen ordering

• Mobile and fixed online ordering

• Location based advertising and discounting

• Recommendations

Beyond Uncertainty

• More of the same – 2012 will be tough• Consumers

• cautious spending and splurging• focus on value• expectation of something for free

• Operators• focus on cost per meal / per occasion / per consumer• brand rationalisation / consolidation• increasing private equity role• focus on the dining experience – ‘dinner and a show’

• Focus on reducing food waste?

• Importance of listening to changing consumer demands

An Insight Into Consumer Behaviour

Emma ReadDirector of Marketing and Business Development

Insights

• How consumers are behaving now

• What’s changed

• What it means

Findings from QuickBite

• Horizons consumer survey

• Now 2,000 adults, 18yrs+

• Twice a year

• Tracking:• Behaviour• Spend• Motivators for eating out

Penetration of people eating out

Source: Horizons QuickBite July 2011

Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-1165

70

75

80

70.3

75.2

70.6

74.1

70.269.1

71

Month

Perc

enta

ge

• Year on year trend continues• Christmas 2010 – no peak

Frequency of eating out

Source: Horizons QuickBite July 2011

Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-110

1

2

3

4

2.872.68

3.093.28

2.73

3.32

2.02

Month

Eati

ng o

ut

occ

asi

ons

in last

2 w

eeks

• Consumers choosing to eat out less often

Average meal spend per head

Source: Horizons QuickBite July 2011

Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-110

4

8

12

16

10.42

12.64

10.7611.69 11.53

10.29

12.69

Month

Ave

rage s

pend,

incl

dri

nk,

per

head (

£)

• Spending at a high:• More of a treat• Inflation• VAT

Why eat out?

Source: Horizons QuickBite July 2011

0%

20%

40% 32% 28% 25% 23% 19% 17%12% 11%

4%

Perc

enta

ge

• Convenience• Conviviality

And where?

Source: Horizons QuickBite July 2011

0%

20%

40% 31%22%

18% 16% 14% 13% 11%

Percenta

ge

• Habit is a strong driver• But so is spontaneity...

Who are you most likely to find eating out?By Frequency

Most likely to be:• Male• 18-24 years old• AB• Living in London• Full-time student• Never married• With 0-1 children

By Spend

Most likely to be:• Male• 25-34 years old• C1• Living in London• Working full time• Married• With 2 children

By Penetration

Equally likely to be:• Male or female

Most likely to be:• 18-24 years old • ABC1• Living in London• Full-time student• Never married• With 1 child

Source: Horizons QuickBite July 2011

Beyond Uncertainty

• Consumers still eating out• Industry positioned for recovery

• Managing stable menu prices• Cost reductions and menu adaptations • Inflation and VAT

• Developing appropriate strategies• Maintaining customers – “Habit”• Attracting new customers – “Spontaneity”

Retrospect and Prospects

Peter BackmanManaging Director

Beyond Uncertainty

• Things are uncertain

• They’re not going to improve soon

• But• Many are doing successful things• You can be one of them with insight and ambition

Q&A

Peter BackmanManaging Director, Horizons

Mike GottliebManaging Director, Christopher’s GroupNon-exec Director, 3Sixty Restaurants

Noel MahonyChief Executive, BaxterStorey

Download the presentations at www.hrzns.com/breakfastbriefing

Thank You