Great recessions…challenged consumers…slow job growth… polar vortex…all have slowed but not stopped a 30+ year march of U.S. consumers spending more on food away from home than at home. With a slow but improving economy, a transformative event in foodservice distribution and myriad competing consumer trends, L.E.K. conducted a survey of operators to obtain their perspectives on growth, changes to their menus and thoughts on the Sysco / US Foods merger.
The results from our 2014 survey of 250 foodservice operators and decision makers suggest a growing optimism. After several years of relatively modest growth, nearly 75% of senior foodservice decision-makers believe business will be better over the next three years than it was during the past three.
They also believe that healthier eating is here to stay. Specifically, farm-to-fork matters. A growing demand for health foods, locally-sourced items, cleaner ingredients, value products and gluten-free foods has caused many restaurants to change their menus to keep up with consumers. More than 50% of operators say that in the past three years they’ve added gluten-free, vegan or all-natural items to their menus, and operators don’t think those shifts in consumer tastes are going away anytime soon.
Waves were made earlier this year with Sysco’s announcement of its intention to acquire US Foods. Over 60% of those surveyed are feeling that the consolidation of these two giants would mean higher prices for their businesses. Operators expressed the concern of being pushed into private labels with higher profit margins for distributors who are less concerned with local, sustainable and artisanal products. Worried that their choices will diminish, restaurants are already saying some of their preferred products have been taken away and they no longer have access to many locally grown items. Sysco acknowledges that it may lose some customers, thus creating opportunities for other distributors and second tier outlets. However, combined, Sysco and US Foods cover nearly 25% of the market — the largest share in the industry.
Another interesting trend: Operators are not happy with their relationship with manufacturers. It is time, they say, for food makers to start paying closer attention to operators’ needs and preferences. Operators told us what they really want is more customized solutions to their problems. If manufacturers want to remain in the game, they need to appease foodservice operators by gaining a better understanding of their needs and delivering more customized solutions (less off-the-shelf choices).
The only hindrance to growth, according to those surveyed, would likely be the cost of business, especially labor and supply prices. Solutions to help them manage a costlier labor force and better weather the commodity volatility are also needed.
We see this as a time of great opportunity and optimism for the food service industry. Operators are challenged to evolve their businesses to better meet consumers’ needs and manage labor costs while navigating a consolidating supply chain. At the same time, manufacturers have an opportunity to better help operators succeed in this complex landscape through a stronger understanding of their needs and by delivering solutions to address their primary concerns. Looking forward to the next three years, deep experience and knowledge of the players and the changing dynamics will be necessary for success.
Manny Picciola is a managing director in L.E.K. Consulting’s Chicago office and leads L.E.K.’s Food & Beverage efforts. He has more than 13 years of experience managing and directing client engagements that include corporate and business unit strategy, channel management, consumer segmentation, corporate turnaround and merger and acquisition transaction support. Manny is a frequent publisher in the food & beverage space including most recently in Harvard Business Review, “Why the Greek Yogurt Craze Should be a Wake-Up Call to Big Food.”
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