Traditionally the biggest food services market in Europe, the combination of Brexit and Covid in quick time reduced its relative size as those events impacted the UK to a greater extent than elsewhere. Brexit, in particular, is likely to continue to drag on performance across the range of UK economic sectors, while the potential for a significant bounce-back from Covid, particularly across leisure and hospitality, including food service, has been largely mitigated by the inflationary and confidence concerns that have arisen since the Ukraine war.
The sector saw activity devastated in 2020 – 40% overall, with some companies seeing virtually all their turnover disappear – with a bounce-back in 2021 that saw many companies in Q1 2022 reporting activity returning to within a couple of points of 2019 levels. Government support was notable, quickly enacted, and seems to have been largely successful in supporting businesses across all sizes.
Further growth is still forecast in 2022, with the focus now being on the cost and availability of labour from the ongoing Brexit disruption and the pricing dilemma from inflation. With the latest forecast of UK Consumer Price Index (CPI) to hit 10% in Q4 2022, companies are having to squeeze costs where possible and test price points with consumers to ensure sales remain profitable.
Nonetheless, the food service market in the UK remains one of the most innovative and dynamic in the region, with a number of positive features:
- Natural innovation and early adoption of technologies, with the UK’s comfort with the online food delivery market the most visible.
- London and the other large UK cities provide a demanding, young and diverse audience where the innovators and disruptors in the sector are keen to stress-test their models – the result, the take-up of online food delivery has reached 300-400% of the levels elsewhere in Europe, similar to the profile of online shopping across the region.
- The initial disruptors of this market, Just Eat and Deliveroo, continue to grow but snapping on their heels are the fast delivery companies – Gorillas, Gitr, etc. It is predicted that this market will group to a 5% market share – albeit finding a proven profitability model is not yet clear.
- Both Gorillas and Gitr have recently announced job cuts due to inflationary pressures, however, so that growth may not come as quickly as first thought – consistent with the overall dampening of the 2022 bounce-back.
- The Government support of 2020/21 was significant, but it would not have been enough without the innovation of the sector – social media platforms were used in a professional manner by businesses often for the first time, and fundamental operating model decisions were taken by businesses within days that previously would have been discussed for months – moving established businesses from B2B to direct-to-consumer models for example.
- Summer 2022 should benefit from the continuation of the Staycation trend, while it is too early to predict the impact of any national rail strike presently mooted.
In summary, the sector continues to navigate a number of obstacles in 2022 – with price increases and labour shortages not least amongst them – but it remains a very large and innovative sector where the crises of the previous 2 years have, if anything, only sharpened that focus. Growth in 2022 is liable to be strong in historical terms if not to the levels predicted 6 months ago, with the sector more resilient than many others to any squeeze in discretionary spending.
Written by Laura Devoir, Senior Risk Underwriter - Credit
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