KN55024

KEY NOTE Catering Market: December 2004

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This report covers: catering market, fast food, takeaways, public houses, hotels,food hygiene,

Companies covered include:Bourne Leisure, Center Parcs, Pontins, Gala Group, London LCubs International, Luminar, The Rank Group, Stanley Leisure, Urbium, Accor UK Economy Hotles, CHE Group, Corus Hotels, De Vere Group, Hilton Group, InterContinental Hotels Group, Jarvis Hotels, Le Meridien, Macdonald Hotels and Resorts, fMillennium & Copthorne Hotels, Queens Moat Houses, Thistle Hotels, Travelodge, Whitbread,Enterprise Inns, Greene King, Mitchells & Butlers, Punch Taverns, Spirit Group, The Wolverhampton & Dudley Breweries, Avebury Taverns, JD Wetherspoon, London & Edinburgh Inns, Wellington Pub Company, Compass Group, Sodhexo UK & Ireland, Aramark, Avenance, Initial Catering Services, Charlton House Catering Services, Lindley Catering, WSH Group, Burger Chains, BurgerKing, Wimpy Restaurants, Pizza chains, fPizza Hut, UK, Chicken Chains, Kentucky Fried Chicken, Greggs, Subway, Pret a Manger, EUrope, O'Briens Irish Sandwich Bars, Benj's Group Holdings, Ask Central, Giardino Group, Luminar, Mitchells & Butlers, Paramount, Tragus Holdings. Travelrest Services, restaurants,

EXECUTIVE SUMMARY

In 2003, the UK catering market, as defined by this Key Note Market Review, was worth £27.66bn at retail selling prices (rsp), a rise of 3.1% on 2002. However, in 2003, real growth in the catering market was lower as a result of increases in the catering retail price index (RPI). Over the past 5 years (1999 to 2003), household consumption expenditure on catering increased at a faster rate than expenditure on virtually all other goods and services.

The UK catering market, as defined by this report, comprises restaurants; fast food and takeaways; contract catering and foodservice management; public houses; hotels; and other catering markets, which cover licensed clubs, and holiday camps and villages, and caravan sites. Restaurants represent the largest market sector and comprise roadside restaurants, pub restaurants (which were the best-performing sector in 2003) and other restaurants, including mainly independent operations. In 2003, all catering markets experienced growth, but the strongest performing sectors were public houses, licensed clubs and restaurants.

In 2003, the fast-food and takeaway market recorded a rise of 3%, which is the lowest annual growth the sector has registered for many years. However, the pizza and chicken sectors maintained healthy growth, although even the strongest-performing sector in recent years — sandwiches — experienced a slower increase in 2003.

In the contract catering and foodservice management market, growth of just 2.3% in 2003 was the lowest recorded since 1999. Sales in the mature business and industry sector were static and market growth came from newer sectors, such as healthcare and catering for the public, and through multiservice contracts.

Although the number of public houses is in long-term decline, pub-food sales are increasing as the share of total pub sales taken by food continues to grow. After disappointing years in 2001 and 2002, the hotel market witnessed the start of a recovery in 2003, which boosted hotel catering sales. In the licensed clubs sector, catering sales increased at a higher rate than the catering market as a whole in 2003.

External factors that have a significant influence on the catering industry include socio-economic factors, concerns relating to healthy eating, tourism trends, changes in the weather and levels of disposable income.

Work pressures, shorter lunch breaks, longer commuting times and busier lifestyles in general have encouraged more eating out, as well as greater demand for more convenient and quick eating-out options. Snacking rather than full meal solutions has become more important, particularly during the working day. The growing number of working women, as well as more families with two partners who work full time, has led to a reduction in home cooking and more meals being eaten out of the home.

Concerns relating to obesity and other healthy-eating issues have an effect on sales of certain foods and encourage caterers to consider a wider choice of healthier eating options.

Tourist numbers also have a major impact on the majority of catering sectors, particularly hotels and restaurants. Inbound tourist numbers suffered in 2002 as a result of the events of 11th September 2001, but there was some recovery in 2003. In addition, an even stronger recovery is likely in 2004. The favourable UK weather in 2003 helped to boost short-break holidays and those based in the UK, although the poor weather of 2004 had the opposite effect.

Growth in personal disposable income has been high in recent years and consumer confidence remains relatively strong.

Opportunities for consumers to spend money in the catering industry are increasing. For example, in the eating-out market, greater use is being made of catering outlets in shopping centres, airports, motorway service areas (MSAs) and leisure centres. In addition, the hotel market is available to a wider number of adults through the spread of budget hotels.

In 2003 and 2004, consolidation has continued to be a feature of the catering market, with many of the larger players increasing market share through the purchases of smaller operators. This is particularly true in the public houses, hotels, restaurants, and contract catering and foodservice management sectors. Another emerging characteristic is the growing number of finance houses and investment companies entering the catering market through the purchase of companies and properties. However, despite this trend towards consolidation, most catering markets remain highly fragmented and many small players survive on low margins. The process of brand disposals and a focus on core brands that began in 2002 continued into 2003, particularly in the hotels and restaurants markets.

All catering sectors have had to deal with increased regulation and legislation, which drives costs up and requires more management time. Another issue facing the market is the skill shortage for key trained staff.

Higher volumes of incoming tourists to the UK, as well as more domestic trips by UK residents, are forecast for 2004 and 2005, which will have a knock-on effect on catering sales. In addition, stable economic conditions will contribute to market growth. Overall, Key Note forecasts that the UK catering market will show steady growth over the next 5 years to 2008. Eating out, in particular, is now an established part of the leisure activities of most adults and restaurants are expected to be one of the strongest growth markets over this period. In addition, there are many opportunities for further market penetration by contract caterers and foodservice management companies, and this sector is forecast to experience good growth to 2008. The gradual recovery in the hotels market will continue, provided that there are no more extraneous factors, such as further terrorist attacks, for the market. New legislation, such as the liberalisation of the licensing laws and less restrictive gaming laws, should also boost catering sales in pubs, restaurants and casinos.

TABLE OF CONTENTS

Text © 2004 Key Note

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