The restaurant industry across Europe is no longer restricted by any major governmental legislation and can operate again without limitations, masks, vaccination checks, or other pandemic-related precautions. So far, so good on that front; but the industry is now facing other problems. Even before the pandemic, there was a shortage of industry workers that led to some restaurants closing for one or two days a week or reducing opening hours. And workers have come to expect higher wages. Supply chains are disrupted, leading to short supply, the absence of some products, or a price explosion, and energy prices are increasing.

As of May 2022, Europe’s foodservice industry was still far away from its 2019 levels. During the last three months, there was no further recovery. Consumer spending remained at 7%-8% below pre-pandemic levels. Expectations for recovery were high, with the return to the workplace and a more mobile lifestyle but concerns about the economic situation and pricing have hampered that anticipated growth.

Trading Out or Trading Down

During the financial crisis in 2008 – 2009, we observed a set of specific situations in which consumers skipped the restaurant industry and instead prepared something by themselves. Consumers not only traded out of the industry, but they also traded down. People still visited the industry but adapted their visits to keep their expenses down. They used a series of techniques for that, including skipping add-ons, using price promotions, and switching to lower-priced channels.

In today’s environment, a trading-down effect is likely happening, but it is expected to occur somewhat differently than we saw in 2008 – 2009. Fast casual and delivery may not benefit as much from consumers trading down from casual dining places as they did in 2009. The potential saving in fast casual is small, and with their premium product ranges, quick service places have become a viable and much cheaper option. Delivery benefitted from the pandemic and is strongly focused on the dinner time for consumption at home. Starting to prepare dinners themselves, consumers are expected to trade out rather than down. Therefore, quick service might benefit from a potential trading-down effect from casual dining. But the segment may also lose on the lower end into retail. Workplace cafeterias are not expected to be a source of loss, given the work-from-home options many workers have gained though the pandemic.

According to NPD’s Foodservice Uncertainty Impact Survey in April/May 2022, almost eight out of 10 European consumers claimed they noticed price increases in restaurants, and five out of 10 said they prices had ‘increased too much for me,’ indicating price increases will impact their eating-out habits. A third of consumers declared their willingness for trading out, meaning they would use the industry less intensively and cook or prepare things themselves. But about every other shopper claimed to use trading-down techniques to manage their bill, fighting against tight budgets and price increases.

At the same time, concerns about safety related to COVID-19 still play a role in the minds of shoppers: Four out of 10 still consider restaurants risky places to be infected, 8 percentage points more than in the fall of 2021. A third said they will wait before visiting restaurants as they used to do in 2019. As a result, a fair portion leverages take-out or delivery options instead of eating on the premises. Therefore, the opinion of a significant amount of the population is that some restrictions should still be applied to eating-out establishments. The industry will want to keep all of this in mind as it continues to navigate through these uncertain times.