Hazy sunshine with cloudy spells is forecast for UK eating-out market

08-Jan-2014 - Last updated on 09-Jan-2014 at 09:43 GMT

Rising consumer confidence will be countered by tight margins in 2014

Increasing consumer confidence will drive growth in the UK restaurant sector through 2014, according to industry experts, but will be tempered by the continued squeeze on operators’ profit margins.

The macro-economic outlook for the UK economy has seen a well-publicised shift into sunnier territory, with brighter prospects emerging from the prolonged gloom of recent years. The International Monetary Fund now forecasts GDP growth in the UK of 1.9 per cent for 2014, on the back of a strong second half of 2013 – representing a considerable turnaround in predicted fortunes.

Within that broader economic trend, the restaurant and food-led pub sectors have been ahead of the curve in terms of recovery, the eating-out sector having proved remarkably resilient in recent years, even as consumers have reined in discretionary spending elsewhere.

These factors point to a steady acceleration in growth in the hospitality industry in the next 12 months. David Campbell, head of restaurants and bars at business consultancy BDO, says: “Consumer confidence is at its strongest since November 2007. Quite simply, the economy has got its spark back.” He adds that across the eating-out arena both “average spend per head and restaurant patronage are up."

The restaurant services sector should also help to boost demand at the higher end of the restaurant market, with business lunches and client entertainment retaining their popularity, particularly in London. .

However, Campbell emphasises that this confidence may be fragile: consumers do not actually have more disposable income to spend, and there are further potential pressures that could dent their propensity to part with what they do have. With wage inflation failing to keep pace with cost inflation, spending power is effectively being reduced, regardless of people’s current confidence in the future.

From the operators’ perspective, food costs, wage costs, utilities and rent all appear set to continue rising. At the same time, while customers are habitually dining out, the economic downturn has made them more conscious of the value equation than previously. In turn, that means restaurants can ill afford to risk raising menu prices, even if their costs are increasing.

Operators are, therefore, likely to seek growth through further scale and volume as their profit margins are squeezed. On that front, leading sector analyst Douglas Jack of Numis recently stated that the climate was right for significant estate growth among more successful restaurant and pub groups in 2014.

“Capital is flowing and consumer demand is growing, providing a favourable backdrop for expansion,” he said.

This article first appeared in the January 2014 edition of Restaurant magazine. To subscribe click here. To read the digital edition click here.