What’s on the menu? Outlook 2024 – Foodservice update Q4 2023

In foodservice, a return to “normal” may be a moderate top line growth and costs that are still elevated but increase at a slower pace than in 2023. However, we aren’t going back to the consumer choices or cost structures of 2019, and that means that performance among operators can differ broadly. Occasions, choices, and execution will determine shifts in market share. Financial viability under the new sales and cost parameters and access to funding are also reshaping the competitive landscape.

Report summary

Turnover: Stable traffic and lower inflation, but prices still higher than average

Macroeconomic projections for 2024 point to a lacklustre year in terms of economic growth but with modest improvements in disposable income and private consumption to limit the downside risk in terms of traffic. Average selling prices in the industry are expected to edge up, even if inflation will be lower than in 2023: Prices will reflect the annualized increases of 2023. Additionally, many players will see new price increases as unavoidable to protect margins.

Costs remain elevated

Despite lower agricultural commodity prices, input prices for the industry are still increasing. The rate of increase will gradually go down, but an overall food cost deflation is less likely. Labor costs, which for the industry represent an even larger share of the total than food, will increase further in 2024. Other costs, such as occupancy and taxes, are also likely to increase, in some cases due to indexation. And funding costs will also edge up, even if reference interest rates don’t increase any further.

Occasions, choices, and execution determine shifts in market share

Revenue performance may differ significantly among players. With regard to convenience-related demand, 1H growth should reflect the full impact of the return to office work and travel recovery. Discretionary demand will remain very selective. Rather than a segment choice, it will be an execution-driven shift. Further trading-down from current levels is less likely as affordability improves and the price gap between QSR and the most affordable concepts in table-service will narrow.

Viability and access to funding are also reshaping the competitive landscape

On the supply side, more ailing players will abandon the market. Some expansion strategies need to be adjusted. Some investments aren’t attractive anymore with the current profitability, discouraging new openings or even upgrades. At the same time, external funding providers demand better earnings visibility than in the past to provide financing. For the industry, this means further consolidation and potentially a reduction in total outlets. This benefits the stronger players.