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Editor: Nick Bardsley
ISBN: 1-84168-131-8

This report covers: restaurants, cafés, takeaways, licensed clubs, pubs, hotels, motels, canteens, contract catering, holiday centres, villages,, camping, caravan sites, youth hostels, mountain refuges, state school meals, eating out occasions, railway stations, airports, motorway service stations, fish and chips, ethnic foods, sandwiches, pizzas, burgers, chicken, fast food, wine bars

Companies covered include: Allied Domecq, Bass, City Centre restaurants, Diageo, Granada Compass Group, Greene King, Hilton Group, McDonald's Restaurants, Nomura, The Unique Pub Company, PizzaExpress, Punch Taverns Group, Queens Moat Houses, The Rank Group, Scottish & Newcastle, Sodexho, Thistle Hotels, Tricon Global Restaurants, KFC, Kentucky Fried Chicken, JD Wetherspoon, Whitbread, City Centre restaurants, Angus Steak Houses, Ask Central, Belgo Group, Brannigans, Conran Restaurants, Groupe Chez Gerard, Nando's, Oriental Restaurant Group, Wimpy Restaurants Group, Pizza Hut, Perfect Pizza, Domino's Pizza, Southern Fried Chicken, Harry Ramsden's, Punch Taverns Group, Wolverhampton & Dudley Breweries, Enterprise Inns, Yates Brothers Wine Lodges, Thistle Hotels, Regal Hotel Group, Accor (UK), Savoy Hotel, Aramark, Initial Catering Services

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Executive Summary

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EXECUTIVE SUMMARY

INTRODUCTION

The UK catering market, as defined by this review, includes food and drink eaten outside the home at catering sites and establishments. Annual sales in 1999 for the catering sectors covered by this report came to £41.57bn, an increase of 3.9 percent on the 1998 total. This was the lowest annual increase for some years, although the catering market is still one of the most buoyant sectors of the service economy.

Most catering markets have benefited from increased spending generated by stronger consumer confidence and generally improved economic conditions. Increased branding, supported by more advertising support, and the launch of various new catering concepts have also generated interest in the market.

The number of businesses registered for VAT in the catering sector continues to grow and, of the 105,000 registered businesses in the year 2000, 43.6 percent were restaurants and cafes, and 39.9 percent were pubs and licensed clubs. In 1999, 1.3 million employees worked in catering sectors and 50 percent of these were part-time employees.

The largest sector of the market, measured by turnover, is public houses (33.1 percent value share), followed by hotels (18.4 percent), restaurants (17.4 percent), and fast food/takeaways (16.8 percent). Other market sectors are contract catering (7.2 percent), and catering at licensed clubs, holiday camps, holiday villages, caravan and camping sites (7 percent). The share taken by public houses has been falling in recent years, mainly due to declining pub numbers. The strongest growth areas have been restaurants and contract catering.

Mergers and acquisitions have been a feature of the industry during 1999/2000. Leading deals have been the merger of Granada Hospitality with Compass and the sale of Allied Domecq’s pub estate to Punch Taverns. Other deals have seen the demise of traditional catering brands such as Greenalls, Vaux and Swallow, while leading catering companies such as Scottish & Newcastle, Whitbread and Bass have reduced their activities in other areas to concentrate on catering. Major companies with interests in more than one UK catering sector are Whitbread, Scottish & Newcastle, Hilton, Granada Compass and Bass.

RESTAURANTS

In 1999, restaurant sales increased by 5.5 percent at current prices, to reach £7.25bn. This represented one of the lowest annual growth rates for a sector that has performed extremely well in recent years as consumers have spent more of their disposable incomes on eating out. Furthermore, price increases in the restaurant sector in 1999 produced real market growth of just 1.4 percent. The sector remains a relatively buoyant one with sales increasing by 37.1 percent between 1995 and 1999. The lower growth in 1999 has been mainly due to some weaker performances by selected branded chains, particularly in the pub restaurant sector, where brand differentiation is becoming difficult for consumers. With a number of pub restaurants changing hands in recent months, and leading brand owners looking to further segment the market into areas such as family dining pubs and adult dining pubs, it is likely that these brand differentiation problems will be addressed in the coming months.

Some of the leading segments are: pub restaurants, valued at £1.29bn in 1999, and increasing sales by 5.7 percent during the year; and roadside catering, valued at £570m in 1999 and increasing sales by 5.9 percent over the previous year. In both these sectors, branded outlets have become more important but many other segments of the market are still dominated by small, independent operators.

The buoyancy of the market in recent years has attracted new entrants and encouraged some of the leading branded chains to expand. The result has been a gradual increase in the number of restaurants trading each year. The market is becoming increasingly segmented with key sectors being themed restaurants, pub restaurants, casual/informal dining, roadside catering, and premium outlets. The latter sector has been a strong growth area with many premium chains, that were originally launched in London, moving into other major cities.

FAST FOOD/TAKEAWAYS

Sales in the fast food/takeaway market increased by 6.1 percent in 1999 and the market was worth £6.98bn. Store expansion by the leading brands has continued to be the key market driver although many of the new outlets are smaller outlets on non-traditional sites where average sales per store are lower than many traditional outlets. There is still some price discounting on basic lines from the leading burger and pizza chains, and this has weakened sales growth. The role of takeaways in today’s increasingly convenience-led lifestyles is reflected in the fact that 74.2 percent of adults visited a takeaway in 2000 although only 46.4 percent visited a fast food restaurant to eat in.

The largest share of the fast food/takeaway market is taken by sandwiches (35.1 percent of all value sales), and its market share has been increasing in the last few years. Demands for lighter lunches, and more snacking and grazing coupled with the development of a wider choice of sandwich fillings and different types of bread have all boosted sales. In 1999, sales of sandwiches increased by 10 percent. The second largest sector is burgers (23.3 percent). Burger sales increased by 5 percent in 1999. The other core sectors are fish and chips (12.1 percent), pizzas (10.3 percent) and chicken (5.9 percent). The remainder of the market comprises various ethnic food outlets together with other outlets and takeaways (13.2 percent). In the pizza market, the takeaway and home delivery sector has been a strong performer, helped by refurbishment and rebranding of outlets. Mention should also be made of the buoyant coffee shop and gourmet soup outlets in the other fast food sector, which have witnessed strong growth in the last 12 months.

Small operators dominate in terms of numbers but the fast food sector, more than any other catering sector, has a number of companies, which dominate sales in their market. Five leading fast food brands — McDonald’s, Burger King, KFC, Pizza Hut and Wimpy — dominate sales. These five also dominate main media advertising expenditure in the sector.

PUBLIC HOUSES

Public houses are the largest catering market with total sales valued at £13.75bn in 1999. However, sales were virtually static in 1999, increasing by just 0.7 percent, and this was mainly due to a decrease in pub numbers and low price inflation. The distinction between pubs and other drinking establishments such as café bars and wine bars is becoming blurred and some consumers, particularly women and a younger clientele, are switching to these latter, more informal outlets. In a market that is growing only marginally, the larger branded pubs are taking market share from the smaller, unbranded outlets.

Drinks continue to take the largest share of pub sales but sales of alcoholic drinks are in decline. Many pubs have turned to food to offset the decline in drinks sales. In 1999, public house catering (including bar foods/snacks and pub restaurants) sales were £2.23bn, an increase of 3.7 percent on the previous year. If pub restaurants are excluded (as they have been included in the Restaurants section), pub food sales were £940m in 1999, an increase of 1.2 percent on 1998. Total food sales in pubs accounted for an estimated 16.2 percent of all pub revenues in 1999, compared with just 12.6 percent in 1995. This share is an average figure and in some larger pubs, where food is particularly important, food sales can account for as much as 40 percent of all sales.

Mergers and acquisitions have been regular occurrences in the pub sector in the last few years, as the larger pub owners have sold off packages of unwanted pubs while newer pub companies have expanded their portfolios. In 1999, for example, over 6,000 pubs changed hands. There has also been a decline in the number of pubs over the last decade. In 1990, there were an estimated 54,000 pubs but, by 1999, this number had fallen to 50,500. The ownership of these pubs is also changing regularly but, at the beginning of 2000, 33.7 percent were owned by brewers, 36.6 percent were owned by pub companies, and the remaining 29.7 percent were free houses.

HOTELS

In 1999, turnover in the UK hotel market increased by just 2.4 percent, producing a market valued at £7.66bn. Between 1995 and 1999, the UK hotel market increased in value by 23.6 percent but most of this growth came in the earlier part of the 5-year period. Sales growth in recent years has been limited by lower room occupancy rates and price discounting. There are signs in the first half of 2000 that room rates are rising again and occupancy rates, particularly in London, are beginning to improve.

Around 64 percent of hotel users are corporate clients and the remaining 36 percent are leisure visitors. The corporate market is dominated by business travellers and these visitors accounted for 43.5 percent of all sales in the hotel market in 1999. The corporate market has recovered strongly in recent years but the leisure market is still subject to variables such as the weather, personal incomes and the number of overseas visitors to the UK. The short-break holiday market is one of the most dynamic sectors of the hotel trade, and increased advertising and promotional support is helping to develop this market. Many UK adults and families now take short break holidays in addition to their main holidays. The budget hotel market continues to be the fastest growing market segment with many of these chains moving into city centres from their traditional out-of-town bases, and adding more facilities to the basic concept of one-room, one price.

The recession reduced the number of hotels in the UK and further consolidation in the industry in 1999/2000 has reduced the number of hotel businesses even further. Branding of hotel chains is becoming increasingly important, with many of the leading hotel companies expanding global, rather than just national, brands. Examples are Holiday Inn and InterContinental from Bass, Hilton, Accor and Marriott developed by Whitbread in the UK.

CONTRACT CATERING

In 1999, the UK contract catering market was valued at £3.01bn, and annual market growth was 13.5 percent, continuing the strong annual increases of recent years. This increase should be treated with some caution for, although the industry is doing well, a proportion of the 1999 increase in value sales comes from non-food contracts. As organizations continue to outsource a growing number of non-core activities, food contractors have developed expertise and services in these other contract areas. So, the leading contract caterers now also offer other services in areas such as waste disposal, cleaning, security, and maintenance. Key Note estimates that between 40 percent and 50 percent of the growth of the market in 1999 can be attributed to these non-food activities. Growth has also come from the increased penetration of certain sectors by contract caterers, more branded outlets, and a reduction in catering subsidies.

The largest contract catering market is business and industry, accounting for 49 percent of all sales in 1999. Penetration of this sector by contract caterers is also very high, at almost 90 percent of all catering sites. However, growth in this sector has been lower than growth in other sectors and its share of the market has been declining in recent years. Other core sectors are: education (20 percent of sales); healthcare (11 percent); catering for the public (10.7 percent); and other sectors (9.3 percent). The fastest growing sector in 1999 was healthcare, with sales growth of 24.4 percent. More hospitals have outsourced their catering activities and larger hospitals have established food malls and retail malls, often incorporating branded outlets. Catering for the public also performed well increasing its sales by 21.1 percent during 1999, with more branded outlets developed as concessions in transport terminals, shopping malls, motorway service areas and stores. Growth in the education sector was hampered by weak sales in the state education sector. Penetration by contract caterers of the education and healthcare sectors is still low and there are opportunities for further growth.

An increase in the number of businesses and the number of contract catering outlets are other signs of strong growth in this sector in recent years. New entrants have been attracted by the low entry costs, low market penetration and the potential opportunities. Despite these new businesses at the lower end of the market, the industry is dominated by four or five major players and industry concentration increased significantly in July 2000 with the merger of Granada’s hospitality businesses and Compass.

OTHER CATERING MARKETS

The other major catering markets covered by this report are licensed clubs and holiday camps, villages, and sites. Catering sales at licensed clubs increased by 5 percent in 1999 to reach £1.47bn, following a similar increase in 1998. The catering market at holiday camps, villages and caravan sites increased by 5.8 percent in 1999 to produce a market valued at £1,46bn.

Both sectors have increased their catering sales by improving their menus, investing in catering facilities and sites, and introducing more branded outlets from the High Street. In the licensed clubs market, for example, a leading operator, Rank, has invested in catering facilities at chains such as Mecca bingo and Grosvenor casinos. Holiday camps have been rebranded as family entertainment centres and an integral part of this rebranding has been the introduction of new catering concepts.

CONSUMER RESEARCH

In September 2000, Key Note commissioned original research to consider occasions and times when consumers eat out. Special occasions, such as birthdays, and holidays were the most popular times for eating out, both mentioned by 87 percent of adults. Other important eating out occasions were ‘get-togethers’ involving families or friends, and day trips. Also mentioned by a majority of respondents was eating out during a shopping trip.

FORECASTS

Key Note forecasts modest growth of 3.3 percent in the UK catering market in 2000, producing a market valued at £42.93bn. Market growth in 2001 and 2002 is also forecast to be just over 3 percent per annum and growth in the 5-year forecast period is likely be at a rate substantially lower than the previous 5 years. Key Note is forecasting a market value of £48.1bn in 2004, an increase of 12 percent on the 2000 value at current prices.

Socio-economic trends are mostly encouraging with increases in disposable income, more working women, and increases in tourism all positive signs for the catering market. There are also catering sectors, such as restaurants and takeaway food, which are now a part of the regular eating habits of a majority of adults. The problem for the catering sector is that there are too many brands and many of these are underperforming brands. It is likely that various restaurant brands will be re-evaluated, while a number of pub chains and brands will be the subject of strategic reviews from new owners.

Sectors likely to show above average growth will be contract catering and restaurants, but the weakest sector is forecast to be public houses.

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Last updated by Jacob van Eldik 22th December 2000