Generating more than $700 billion annually, the U.S. foodservice industry is wildly diverse and in the process of rapid transformation. With more than 1.1 million points of service in restaurants and other venues, foodservice accounts for 47 cents out of every food dollar and employs one-tenth of the workforce. Fast-changing consumer needs coupled with increased competition mean that all segments must continually adapt to stay relevant.
Changing of the LSR Guard
Limited-service restaurants (LSRs) are dominated by chains, and the chain sector is dominated by a few huge players. McDonald’s $35.4 billion U.S. take in 2014 represented 15% of all LSR sales for the year. But the chain is now struggling, with domestic sales down more than 1%. Its rivals Burger King and Wendy’s are in the same boat: All have lost focus amid menu extensions such as chicken and coffee.
Closely tied to fast food’s challenges is the rise of fast casual. While LSRs among Technomic’s Top 500 Chain Restaurants collectively grew sales 4% in 2014, sales for fast casuals were up 13%. And among these chains, “build your own” concepts with visible custom food preparation outperformed the rest, with 23% growth.
Full Service Fights Fast Casual
Thanks in part to growing competition from fast casuals, full-service restaurants (FSRs) are generally struggling to maintain market share, though they’re doing better post-recession. Large chains don’t dominate here; the 249 LSR chains within the Top 500 accounted for only one-third of the segment’s sales last year. Higher-end concepts—fine-dining restaurants and “polished casual” brands such as The Cheesecake Factory—are generally doing better than traditional casual-dining restaurants such as Applebee’s. However, high-energy, entertainment-focused concepts such as Buffalo Wild Wings are doing well.
At the same time, midscale or family-style concepts such as IHOP or Denny’s are now rebounding a bit from years of poor growth; a healthy subset of this group consists of breakfast-and-lunch-only concepts such as First Watch.
Nontraditional Outlets Outpace Restaurants
Foodservice sectors beyond restaurants accounted for about $224 million in sales in 2014, almost a third of all foodservice sales, and these sectors grew sales faster than the industry average.
Improvements in quality, variety and sophistication have made foodservice a major profit center for supermarkets. Other types of retailers, from convenience stores to drug stores, are also stepping up the quantity and quality of their fresh-food offerings.
On the non-commercial side, colleges and universities grew foodservice sales an above-average
4% in 2014. As college food improves in quality and originality, foodservice departments are developing more customizable service formats and responding to demand for on-campus food trucks and c-stores with grab-and-go offerings.
Healthcare segments, including hospitals and long-term-care and senior-living facilities, are all seeing healthy growth with the aging of baby boomers. (Sales equivalents were up 3% last year.) In senior living, foodservice has become a major selling point.
Technomic expects U.S. foodservice sales in 2015 to rise 3.9% nominally, or 1.5% in constant dollars, building on a 3.1% increase (just 0.7% real-dollar growth) in 2014. Industry growth and the improving economy may come as a relief, but foodservice professionals shouldn’t slow their efforts. There is plenty of opportunity to accelerate growth in 2015, but the best chances will come to those who work for them.
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