It’s hard to believe, but here we are in 2020. The hustle and bustle of the holiday season is behind us and the long, dark days of winter are beginning to show their mercilessness. As we as a country collectively hunker down for the rest of the winter season, it seems like the perfect time to consider what we can expect from the Canadian foodservice industry in the first quarter of the year.
Historically, the first quarter is softer than the last in traffic and consumer spend. However, it should be noted that within commercial foodservice, these two key components peak during the third quarter of the year (July – September) before declining. One can assume that this is because of the higher-than-normal consumer spend that occurs in other areas due to the holiday season.
The good news is that while traffic growth during Q1 has a historical tendency to slow, it also tends to regain upward momentum in Q2. Looking at consumer spend, it is likely that overall growth will continue to slow within all segments of commercial foodservice in 2020. That means we can expect a slowdown in the growth rate, but not an actual decline in spending.
Dealing and Discounting
Interestingly, dealing is at its highest during the January – March quarter, peaking in 2019 at 26.8% (up +3.3 pts. since 2014). Of the commercial foodservice segments, retail experiences the most dealing (29.3% in 2019), and the FSR segment follows closely behind (27.2% in 2019). The dealing within FSR could be attributed to discounting that FSR operators launch during this period (e.g., Valentine’s Day specials where two can dine for a set dollar amount), but another factor is the growing number of cities that take part in prix fixe menu events (e.g., the Winterlicious/Summerlicious events in Toronto). This is also the time of year consumers may watch their budgets as they pay off their holiday spending sprees, so providing a good deal may be a way to attract a spend-weary customer.
We can also expect to see an increase in delivery activity during this first quarter. Delivery remains the smallest access mode, but it is also the fastest growing, with double-digit growth on the year (+20% during YE March 2019). What makes delivery unique is how it has grown during the January – March quarter; this period experienced declines in traffic from 2016 to 2018, but gained very strong upward momentum in 2019, growing by +21M (+35% vs. Q1 in 2018).
Food and Beverage Categories
Looking to the food and beverage categories and what can be expected there, overall consumption declines as we move into the first quarter of the year (following the traffic and consumer spend trend), with categories like hot coffee, carbonated soft drinks, and breakfast sandwiches taking the biggest hit in servings loss (-58M, -30M, and -21M servings, respectively, moving from Q4 2018 to Q1 2019). Interestingly, these categories are among the top categories for overall volume growth in the January – March quarter, both on the year and since 2015.
It’s also worth noting that while the assumption may be that the healthier food categories would experience upward momentum during this period (New Year’s resolutions, “new year, new me”), they actually posted notable declines in servings volume. Side salads declined by -10M servings moving from Q4 2018 to Q1 2019 (-6M vs. same quarter in 2018), while non-fried vegetables declined by -14M (-6M vs. same quarter in 2018).
In sum, we’re smack dab in the middle of a pretty non-eventful time of year for the foodservice industry. Savvy operators should consider that understanding consumer behavior during these slower periods is absolutely crucial to a brand’s overall success. By acknowledging some of the consumer trends mentioned above, you can ensure that your brand is primed and ready to buck the trend and start the year off on the right foot.