2.3%


estaurants and food-orientated pubs have done nicely from the recovery in British consumer confidence over the past 18 months. After a tough recession, business has been brisk at many eating and drinking spots as the stronger jobs and hous- ing markets have encouraged families and individuals to spend more on dining out. The nature of the recovery is also helping the restaurant/pubs sector. Total incomes are rising through growing employment – which creates more potential diners and drinkers – rather than rising wages, while inflation is being kept in check through an expanding workforce.


Overall employment is up 2.7% on the year while average earnings have risen by just 0.9%. According to the Summer Forecast from the EY ITEM Club – which uses the Treasury’s model of the economy – we cur- rently have the best of both worlds: con- sumption growth, which is financed by income rather than borrowing, accompanied by low inflation and interest rates.


Spending power Crucially for the restaurant/pubs sector, consumers are also expected to continue spending more. After a 2.5% rise this year, consumer spending is forecast to grow by 2.3% in 2015, by 2.2% in 2016 and 2.0% and 1.8% in the following two years.


A rise in interest rates will act as a brake on demand as higher mortgage payments, particularly for families, will impact on the budget available for treats like eating out. Assuming wage rises remain subdued, the EY ITEM Club Forecast expects interest rates to remain on hold at 0.5% with the first rise coming in the first quarter of 2015. There- after, it sees Bank Rate reaching 1.5% by the


Restaurant Insight Report | September 2014


the predicted rate of growth in consumer spending in 2015


£22b


outlook R


The economic


The UK restaurant and casual dining sector is starting to recover but how will the wider economic backdrop affect it in the coming months and years? Bill Fishlock reports


end of 2015 and 2.5% by the end of 2016. Yet, the impact of higher rates on the restaurant and pubs trade will not be uni- form. Elderly people – a key market for many venues, particularly at lunchtimes – will see an increase in income from their savings when interest rates start rising. Older con- sumers will also tend to be less indebted and many will be less exposed to rising mortgage rates. The government’s social trends sur- vey shows that 72% of 45-64 year-olds eat out in restaurants, the highest share of any age bracket. Moreover, even in an era of rising rates, the outlook for the economy remains good. The EY ITEM Club is forecasting UK GDP will grow by 3.1% this year and 2.5% in 2015 and at a similar rate for the next three years. The prospects for average earnings are


also positive for the dining out sector. The EY ITEM Club expects growth in average earn- ings to gather pace from 1.6% this year to 3.8% by 2018. As this is faster than the expected rate of inflation, it suggests real wages should con- tinue to grow, providing support for the dis- cretionary spending on which the restaurant trade depends. Record levels of employment and the continuing growth of the population should also help the sector.


The growth of branded dining Many smaller restaurants and food-led pubs faced leaner times during the recession but the overall market fared better than expected. Today, some 31% of UK consumers eat out at least once a week and comparisons with the US – where spending on eating out is higher per head – suggest there is room for further growth in the market.


Dining out has also become more fre- quent. According to Mintel’s latest UK Eating


8


dining market is expected to reach within five years


the value the branded


Byron


Out review, there has been a slight rise in the share of restaurant users who eat out once a week and a dip in the share only eating out every couple of months. Mintel estimates the UK eating out market will be worth £33.5b in 2014, up from £32.5b last year. Nam Quach, head of the leisure sector for


lead advisory at EY, said: “Restaurants on the whole have proven to be remarkably resilient in the downturn. Discounting has helped but the challenge now is for the sector to wean itself off this, which will drive up margins.” The market for dining in the larger branded chains like The Restaurant Group – owner of Garfunkel’s, Frankie & Benny’s and Chiquito – is thought to be expanding at around 10% a year as their popularity, par- ticularly among younger consumers, contin- ues to grow. The Restaurant Group is aiming to grow by around 40/50 new sites a year. JD Wetherspoon, Prezzo and Domino’s have also been expanding. The UK market for dining across branded chains is thought to be worth around £16.4b currently, but is expected to grow to £22b over the next five years. Indeed, recent trading updates from the larger quoted food and pub groups point to buoyant under-


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