New Frontiers Shaping Food Service Industry

Foodservice, defined as the industry that serves food outside the house (HoReCa), as well as the service providers that cater to the HoReCa industry (food wholesalers, logistics providers, and so on), is a growing sector all over the world. The Foodservice (FS) market continued to perform well in 2019, both in value and transaction volume. From the standpoint of sector development, foodservice showed exceptional vitality, generating new paradigms and cross-industry contaminations. After all, the foodservice industry is one of the most important contributors to GDP at both the global and national levels when the whole volume of activity is taken into account. In this case, the spread of Covid 19 has significantly impacted the balance of 2020, which is one of the toughest years in recent history. Even during the recent financial crisis, the market did not emerge so quickly with so much uncertainty. The unstable global trade, political and macroeconomic environment has brought major challenges to the foodservice industry players. Their strategies, business models, supply chains, and employees have all been under varying degrees of pressure. The impact of this ever-changing global landscape is rapidly laying the foundation for new areas in the foodservice industry, where more and more disruptive technologies, digitization, and the pursuit of new overall experiences have affected the major players and their business models.

Establishment Type Analysis:

• Full-Service Restaurant - FSR encompasses all the sit-down establishments and is characterized by table service and relatively high food quality compared to fast service units. The menu offers a variety of choices, including breakfast, lunch, and dinner. The types of restaurants cataloged in this section are only related to table service (waiters serve customers and accept orders at the table). It includes fine dining and casual dining options.
• Quick Service Restaurant - It combines fast food and 100% delivery/takeaway service. These stores offer limited menus that are quickly prepared. Quick service restaurants usually focus on one or two main dishes, such as hamburgers, pizza, or chicken, and usually offer drinks, salads, ice cream, desserts, etc.
• Cafés And Bars include all places where drinking is the main focus (alcoholic beverages or soft drinks). There are food counters/stalls where customers can pick up the food they need and put it on the tray when they walk
• Street Food - A small, sometimes mobile food service provider characterized by a limited range of products and low prices. Including street stalls, street vendors, and foodservice kiosks, where food is prepared in a certain way and served through hatches or takeaway displays. It also includes external or internal kiosks and shopping carts (for example, in shopping centers, etc.).

Figure: Global Foodservice Industry Revenue Share, By Type Of Restaurant And Geography, 2019

Food Service Occasion Analysis:

• Freestanding - Standalone food and beverage establishments are not operated in tourism, leisure, accommodation, or retail establishments
  
  
• Retail - Establishments in the retail locations include grocery stores, supermarkets, hypermarkets, convenience stores, department stores, and mass merchandisers.
  
  
• Travel - Facilities in tourist locations, including highways or gas stations, airports, railway stations, and bus terminals. This segment also includes businesses located in hotels.
  
  
• Entertainment – Food Service establishments located in the recreational facilities, including museums, health clubs, cinemas, theatres, theme parks, and sports stadiums.

• On-Site - Food and beverages consumed in the foodservice establishment.
  
  
• Takeaway - Meals and beverages consumed outside the home (not including home delivery). This includes purchases made by customers from their cars, usually through a dedicated intercom system.
  
  
• Delivery - Food and beverages delivered to the consumer by an outlet employee or by a third party.
  

• Independent - Independent units are small businesses with up to 10 points of sale, including branded stores.
  
  
• Chain - 10 or more units define chained units. An exception is made for international chains with fewer than 10 units in a country. In this case, they are still considered to be chained units.

2019 Has Been A Positive Year For The Foodservice Industry In The World:

In 2019, the global food services industry reached US$3,052.28 billion, of which the Asia-Pacific region accounted for 45% of total sales. Both in terms of market share and historical growth, it has consolidated its number one position. In this context, the North American and European markets remained stable. The latter is dominated by full-service restaurants (41%). With almost half of the market share at the global level, Full-service restaurant is the most widespread Foodservice model, driving growth together with the quick-service restaurant segment. Full-service restaurants are concentrated in the top 10 countries, accounting for over 80%. China (37%), the United States (28%), and Japan (7%) are on the top, while Italy ranks first among EU countries, accounting for almost 30% of the world market. However, North America is the region with the highest market penetration rate (55%). Focusing on the type of ownership (chains vs. independent), chains represent nearly 30% of the worldwide market, displaying a faster growth in comparison to the overall average, driven by the Asia-Pacific and Europe. However, North America holds the highest chains penetration (55%). Growing consumer awareness of Quick Service Restaurants is one of the crucial factors advancing the chained Foodservice market’s expansion, coupled with the increasing demand for fast foods and casual dining. Looking at the type of occasion, the Retail category followed by entertainment propels the growth of the foodservice industry, mainly preferred by the spread of grocerant formats. In terms of consumption modes, instead, home delivery services boomed in the last 5 years at a double-digit growth rate.

A Significant Contraction In The Global Foodservice In 2020

So far, the consumer foodservice industry has encountered the most serious crisis after World War 2. In 2020, the Covid 19 pandemic resulted in the shutdown of millions of restaurants and other foodservice establishments globally, with a noteworthy percentage that didn’t open by the end of 2020. Efforts to prevent the spread of the virus have focused on controlling public gatherings, from encouraging consumers to practice “social distancing” all the way up to businesses being ordered to shut down for months. The economic impact of the Covid 19 crisis forced the downward revision of the development prospects of foodservice, which made the foodservice market reach $2,354.96 billion in 2020, losing from the previous year.

Figure: Expenditures For Food At Home And Away From Home, 2015 - 2020

Figure: Number Of Foodservice Establishments In Selected Regions Worldwide In 2020

Foodservice Will Be Back To Pre-Crisis Levels Between 2022 And 2023:

Global Foodservice market is expected to reach a pre-crisis level between 2022 and 2023, with a recovery period that may vary according to the development of the health crisis. The roll-out of the Covid-19 vaccine in the first half of 2021 smoothened the limitations and restrictions applied to the Foodservice industry and boosted consumer confidence. However, a delayed containment of the pandemic could hinder the global economic recovery, shifting the Foodservice realignment to its pre-crisis levels by 2023.

Figure: Global Foodservice Industry, 2019, 2020 And 2027

 Changed Patterns Of Consumption Will Persist In The Medium Term:

The economic and monetary shocks that shook the industry stem from the comprehensive impact on supply and demand. On the one hand, due to pandemic containment measures, millions of foodservice establishments suffer as they re-design their value propositions. On the other hand, experts claim that the patterns and consumer behaviors (at home and away from home) that can be sustained in the medium term have undergone significant changes. In this special case, the intention to show net expenditures related to foodservice consumption gradually returns Global trust, especially among 18 to 34-year-old young consumers attracted to restaurants and similar establishments. Despite the crisis, the only market segment that has consolidated its position is food delivery, which continues to rise amongst citizens, growing on a global scale. However, this type of consumption, especially the one valued by millennials (58%), has brought many challenges for some cuisines, especially those that are considered not very “delivery-friendly” by the operators.

Joined Forces To Fulfill Sustainability Of The Foodservice “Ecosystem”

All the Foodservice value chain stakeholders will continue to experience the devastating effects of the pandemic in the short and long term, which means that business models must be re-think and innovations must be sought. The changed scenario comprises novel methods implemented by food & beverage manufacturers as well as distributors. New associations with the “radically transformed customer,” technological advancements as well as the launch of new collaborations between foodservice players will play a major role in combating this situation. Technology and business model innovation opportunities support foodservice operators to maintain a positive outlook in the medium and long term. This applies both to foodservice providers and food manufacturers all over the world.

Key Trends And Consumption Shift

Consumers of functional and anti-aging foods are increasingly aware of and are looking for products beneficial to the body (such as anti-aging skin, mind, muscle tissue, etc.). Convenience food products such as pasta, bread, or coffee are no longer just considered conveniences but become truly premium products in their most popular variants. Consumers are increasingly being inclined to try new flavors and ethnic foods. In fact, more and more supermarkets are introducing the International Cuisines Department. Further, the reduction in mealtime increases the consumption of snacks and pre-packaged products that can be eaten on any occasion. The consumption of healthy snacks is also increasing. Furthermore, the offer of “free-from” products is widening to respond to consumers’ demand with food intolerances or those who want to avoid a certain ingredient such as gluten or lactose. Consumers are paying more and more attention to product labels to understand the origin of ingredients and prefer products that meet ecological standards in terms of packaging and production technology.

New Perspectives For The Foodservice Market

• Grocerant: Grocerant stores blur the line between restaurants and grocery stores, bringing the appeal of freshly prepared food in a convenient setting. A grocery store is a way to buy a meal that a person doesn’t want to cook themselves, making it an attractive option for many people. According to the National Restaurant Association, three out of four consumers prefer dining with family and friends than staying home and cooking. As the grocerant grows in popularity, not all grocery stores will install coffee seating and hire waiters, but many will certainly continue or add to their freshly made offerings.
  
  
• Heavy Chef Rotation: It is always difficult to surprise customers. One trend that is adopted to suffice this issue is, changing chefs and bartenders in the foodservice establishments and taking turns welcoming new guest chefs who suggest different menus each time.
• Green Packaging & Waste Reduction: Consumers are paying more attention to the environment and prefer products with a reduced environmental impact (from packaging to production). More and more measures are being adopted to reduce food waste, from doggie bags in restaurants to single-serving containers.
  
  
• Restaurant Holistic Experience: Visiting a restaurant is no longer an experience to taste and food only. In recent years, it has become a prospect to spend moments of relaxation and fun. Customers enjoy the environment, ambiance, design, music, and entertainment of foodservice establishments.
  
  
• Menu Optimization: Restaurants are placing increasing emphasis on efficiency, perfection in meal implementation, and cost optimization, thus, focusing menus around the few favorite dishes has another key trend in this sphere.
  
  
• Cashless & Digitalization: Digitization is making its way into the foodservice with different paradigms and perspectives. From innovative payment systems to artificial intelligence or the introduction of new formats such as “dark kitchens” and “ghost restaurants,” it will make an impeccable contribution to the foodservice industry in the long run.

Figure: Current Measures Due To Covid 19, Food Services And Drinking Places Compared With All Businesses (%)

New Digital Paradigms

• Artificial Intelligence: On-demand food ordering has been made possible through technology. The foodservice industry is pivoting in the direction of more ground-breaking methods for meeting and exceeding customer expectations. Thus, artificial intelligence applications are progressively paving their way in the foodservice industry for production, delivery, and understanding of the nutritional value of the food. For instance, TellSpec, an AI organization established in 2013, uses AI in its handheld Food Sensor scanner to identify food contents at a molecular level. Present applications of AI in the foodservice sector can be categorized into four main categories:
  
  
• Chatbots and Apps – Restaurants utilize virtual assistants to react to customize and process client orders. A New York-based startup Say2eat and Dominos are a few foodservice organizations utilizing chatbots to streamline their client experience.
  
  
• Robots – Restaurants are utilizing AI-driven robots to speed up food readiness and conveyance. For example, California-based Miso Robotics is a startup centered around AI-driven robotic solutions for the kitchen. Cali Group, the group behind the fast-food chain CaliBurger, declared a partnership in March 2017 with Miso Robotics to increase the efficacies of its cafés. Likewise, Japanese innovation firm SoftBank has teamed up with MasterCard to produce an AI-driven humanoid robot called Pepper. Pepper is a robot waiter that measures client orders, gives item proposals, and permits clients to make payments by means of their Mastercard account by utilizing the robot’s handheld tablet.
  
  
• Recommendation Engines – Developers are planning applications that use AI to assist buyers with picking meals depending on their eating inclinations. To give some examples, a Los Angeles-based organization Halla is a personalized restaurant and dining search engine. Further, working as a team with Chinese internet searcher engine Baidu, KFC fosters an eatery that utilizes AI face recognition technology to induce what a consumer might be keen on based on their sex, facial expressions, and other visual components.
  
  
• Kiosks – Food Service establishments are integrating AI-driven Kiosks for reduction of customer waiting time and augment the customer ordering experience.
  
  
• Dark Kitchens: The shoot-up in the number of home-delivery food distributors and aggregators has shaped novel circumstances in the world of foodservice. This novel circumstance includes ghost restaurants (virtual restaurants) and dark kitchens (ghost kitchens). Under this, food manufacturers that are not open to the public owing to the ongoing pandemic serve only to the delivery platforms or that belong to the platforms themselves. For instance, Deliveroo, a British online food delivery company, has launched Virtual Brands, a project dedicated to restaurants that allow to open a virtual business to offer new dishes and new types of cuisine that can hardly be combined with traditional activities. According to the platform, this solution, in some cases, leads to an increase in turnover for restaurants. Therefore, the global players are focusing on the kitchens serving only delivery customers using a combination of specialized food preparation, underutilized real estate, and algorithm-based optimization to reduce overheads and increase production. Significant investments are also being made in this direction, such as Blackstone recently invested €8 billion in a portfolio of warehouses and dark kitchens across Europe.

New Frontiers Shaped By Covid-19

Table: New Frontiers Shaped By Covid-19

Key Initiatives By Major Food Service Giants To Combat Covid-19 Situation

• Papa John’s recently completed a major initiative to reformulate its menu, which involved removing such ingredients as artificial colors, high-fructose corn syrup, and preservatives.
  
  
• McDonald’s overhauled its menu, too. The fast-food giant removed artificial preservatives from Chicken McNuggets, pork sausage patties, and omelet-style scrambled eggs. The company also introduced new buns without high-fructose corn syrup for its Big Macs, Quarter Pounders, hamburgers and cheeseburgers, Filet-O-Fish, and McChicken sandwiches. Additionally, McDonald’s pledged to source 100% cage-free eggs by 2025 in the United States and Canada.
  
  
• SPAR UK launched an online ordering platform to facilitate home deliveries
  
  
• Besides deliveries through food aggregators such as Zomato and Swiggy, Burger King introduced its own app.

Conclusion

COVID-19 had clearly hit the foodservice sector hard, and there are likely to be more casualties before we return to some kind of normality. However, with the lockdown relaxed, operators must be thinking about how to re-emerge and adapt to the ‘new normal’. ​There is increased demand for coffee shops, restaurants, and pubs to reopen, however, footfall ​will be lower than pre-COVID, meaning businesses need to act now in order to survive. There will be more cautious customers returning in small family groups, further limiting revenue. Reducing choices can channel volumes through core SKUs, helping to simplify kitchen operations but also simplify the supply chain and help defend against price increases. Sustainability was becoming more prevalent in decision-making before COVID-19 occurred. The community spirit and concern for each other during the fight against COVID-19 are also embedded in relationships between customers and businesses. As communities come together, sustainable and locally sourced products may influence menus, supporting local business. 

With the safety measures, 50% to 60% of tables will be removed, further capping revenue. Operators must manage costs, simplify operations, and potentially take unprecedented steps to increase revenues to remain viable and operate at an acceptable margin. The new normal may provide the permission for this, but will this be enough, and can all businesses achieve this? ​

​If profit is to be protected, operators must also consider simplifying operations, potentially increasing prices, and reviewing the role of promotions to increase revenues. But, in this new normal, will consumers be willing to pay more for the privilege to eat out?

Currently, there are a lot of apprehensions in the industry participants of the foodservice industry, however high hopes that things will go back to normal once the vaccine is in enough arms, including dining out, is keeping up the spirits of this industry. It leaves the industry participants with no choice but to innovate products and services with the inclusion of technology to keep growing. Faster the adoption, sooner the industry participants, as well as the industry, will grow in this new normal.