Eating pasta and risotto, having two courses instead of three: Why consumers are spending less in restaurants and cafes

The Australian foodservice industry has been in decline for five years and the eating habits of cautious consumers have made 2011 a tough year for the food industry, according to research by BIS Foodservice.

In the 12 months prior to June 2012, BIS found the number of food service outlets in Australia shrank by 1% overall, with restaurant numbers down by 2.6% last year.

Tim Emmerson, project manager at BIS Foodservice, told SmartCompany consumers were still dining out for lunch and dinner, but they were trading down in their choice of outlet and not dining out as often or spending as much money.

“Consumers are being more frugal when eating out; pasta and risotto is up and fillet steak is down, when buying an entrée they are buying a soup or salad,” he says.

“You see it in the number of courses. They are having two courses rather than three and there are changes in the amount of alcohol being consumed; once they would have had a bottle of wine and now a glass will suffice.”

The BIS Foodservices report found retail turnover of restaurants, cafes and takeaway services fell by 1.3% in January 2011, during the only peak season on the Australian foodservice market.

It rose 1% in February and flatlined in March, before an unexpected decline of 2% in December 2011 was offset by a 4.2% spike in January this year.

Profit margins among outlets have been hit hard, with some operators reporting that profit is down by up to 50% as consumers continue to be cautious in spending.

The industry is feeling the pinch and the report found restaurants are keeping staff numbers at a minimum, with staff expected to multitask.

At some restaurants, chefs are now expected to take orders, wash dishes and make coffee.

There was some upside in the BIS Foodservice report. It found there was a rise in the number of café chains, which grew by 5.2% in 2011, although independent cafes and bakeries with cafes declined.

“The one thing that is positive is coffee continues to rise and seems to show no sign of slowing down,” says Emmerson.

A spate of recent high profile restaurant collapses in Sydney, including Justin North’s Becasse group are symptomatic of the tough times high-end restaurants are facing, according to Emmerson.

“What you are seeing there is consumers are not eating out and there is the trade down effect, once they would have gone to upmarket restaurant and now they are trading down to suburban restaurants and the amount of food consumed is less,” he says.

Emmerson’s advice to high-end restaurants is to create a competitive advantage by making more food in house and utilising Facebook and Twitter to connect with customers.

“You would be surprised how much is bought in. Things like bread and desserts can be made in house,” he says.

“In the old days, as long as they were producing good food with good customer service, they would be doing OK. But these days they have to look at the way they operate and look at ways they can connect to more consumers and one of those ways is through the internet.”

Emmerson recommends that cafe’s try to leverage strong coffee consumption to sell other products.

“Coffee is a product that continues to increase in consumption, so look at cross-marketing strategies with the coffee. If I go to a local cafe for a coffee there has to be a reason to buy something else there like a muffin or a pie,” he says.

“That product has to be equally as good as the coffee.”

BIS Foodservices is predicting the food services industry will pick up after a “lean and trim” year in 2012.

“Food services is one of the first to feel the pinch when times are tough but also one of the first to improve when the economy starts to improve, albeit slowly,” says Emmerson.

John Hart, chief executive of Restaurant and Catering, told SmartCompany the negative figures were likely to be a result of the first part of the year traditionally being a lot softer than the second half of the year.

“There is seasonally a reduction in the first half of the year, on a month-to-month comparison we are still in growth,” says Hart.

“What we hear from our members is that there is consistent growth, albeit it is different around the country.”

Hart agrees that there has been a reduction in the number of businesses and that consumers are spending less, but says the real issue is increased costs for restaurants.

“The real feature on the landscape is the significant increase in costs, which changes the way business operates so they don’t have the time on the floor really selling product and that does lead to a lower average spend,” says Hart.

Hart says collapses amongst high-end restaurants is a result of “significant growth” in wages which now make up 50% of turnover for many food service businesses. This affects high-end restaurants more significantly because of higher wage and fit out costs.

“That means they have a higher cost base and that is growing more rapidly because it is labour intensive. That is why they are going out of business. It is nothing to do with reduced spend at the top end because that is not happening,” says Hart.