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Morning Briefing for pub, restaurant and food wervice operators

Mon 11th May 2020 - Opinion Special: NPD Group – deals, delivery and technology to be the ‘new normal’

Expect to see deals, delivery and technology as part of the ‘new normal’ by Dominic Allport

During February 2020 the British restaurant industry, along with the wider economy, was showing tentative signs of growth. It seems like a lifetime ago now, but British foodservice visits in January and February 2020 increased by 0.4% year-on-year according to NPD’s CREST panel, a slight improvement on the 0.3% year-on-year growth seen a year earlier.

But during February, as the world watched the crisis unfold in China and elsewhere, the first confirmed cases of covid-19 were appearing in the UK, and we were heading towards the restrictions that have overwhelmed so much of British foodservice. With everyone’s thoughts focused on the restart and the recovery it makes sense to try to understand how this might be achieved.

NPD’s CREST data for March highlights the early impact of the current lock-down on the restaurant industry. Visits to out-of-home outlets declined 29% year-on-year, with all market sectors negatively impacted. NPD’s SnapMyEats longitudinal panel shows how this was mostly caused by a 21% decline in trip frequency. Two-thirds of buyers made fewer trips than the previous month, with levels dropping off suddenly as the government guidance came in, soon followed by the lock-down at the back-end of the month. 

Had the British lock-down started earlier, these figures would be far worse. For example, in Italy, CREST data for March shows visits declining by more than two-thirds year-on-year. 

In Britain, delivery and pre-ordering via apps were the only growth areas in March, indicating how off-premise visits were less severely impacted. Independents that stayed open, as chain restaurants took the decision to close entirely, will have benefited from any remaining consumer demand. From the end of March onwards the eating-out market reached a new baseline level of trade that represents only a small percentage of its normal size. 

Anybody in British foodservice must accept the “old normal” will not be with us for some time, if again. The results of NPD’s recent covid-19 sentiment study indicates UK consumers will continue to see restaurants as risky places for infection, and social distancing measures should be kept in place. But accepting the “new normal” when the lock-down begins to ease can bring some measure of success. We believe the “new normal” will involve three key components – deals, delivery and the increased use of technology.

Deals to drive footfall 
As British consumers begin to assess the impact of covid-19 on their own personal finances, they will look for ways to cut back on discretionary spending. As a result, deals and promotions will be extremely important for the industry. Savvy operators will need to find a way to come up with deals that give the consumer good value while avoiding the pitfalls of deep, ongoing discounting. This builds on a trend we have already seen in Britain over the past five years, where visits on-deal have risen more than three times faster than overall growth in visits, and now account for 30% of all visits. 

Operators should be encouraged by the fact the average transaction value of visits on-deal has grown almost 5% in the year to March – more than twice as fast as overall average transaction value. In some market sectors – such as within pubs, quick service restaurants or travel and leisure – the average transaction value of on-deal visits is actually higher than on non-deal visits. In other words, a deal does not necessarily mean a low price, but good value. 

The role of delivery will change and grow
Delivery is hardly “new”, but this channel may acquire new characteristics as and when Britain’s lock-down eases. The mandated closure of on-premise dining has led to increased importance of all forms of off-premise dining, including carry-out, drive-thru and delivery. Combined, these off-premise occasions represented close to 63% of total visits annually prior to the covid-19 crisis. Clearly delivery is becoming a significant part of off-premise, accounting for approximately 18% of all off-premise spend in January 2020. 

During the current crisis, it has become a safe haven for consumers who are looking to avoid leaving their homes. Our NPD colleagues in China have data that shows us delivery visits were up 10% in February during the height of that country’s isolation efforts. Delivery has been a key feature of lock-down Britain – both in terms of grocery and foodservice – and delivery foodservice visits were up 5% in the month of March, while the rest of the market was suffering double-digit declines. 

The question on everybody’s mind is how much of this behaviour will carry over through the recovery? Will delivery platforms and offers mutate and transform themselves so we arrive eventually at “new delivery”? With thousands of restaurants having joined companies such as Just Eat and Deliveroo during the lock-down, and ever greater crossover between grocery and foodservice delivery, will foodservice operators that are new to delivery realise its value and continue to support it? Will consumers who are new to delivery continue to order in this way, and will their frequency of use increase? It’s likely the covid-19 crisis and the lock-down British foodservice has suffered will amplify the rapid ascent of the delivery channel, and its central role in every operator’s strategy. 

Technology to support social distancing
The growth of delivery is being driven in large part by technology. Whether it’s third-party delivery services or independently-operated online/app-based platforms, technology offers a way for operators to quickly and easily connect with their consumers. Technology is also driving some key trends that have become increasingly important to consumers during the covid-19 pandemic, including:

Contactless payment
With the recent increase in the contactless card transaction limit to £45, as well as the proliferation of payment apps, contactless payments could quickly grow as consumers continue to exercise caution around touching surfaces in public places and handling money. 

Digital orders – made online or via an app – now account for more than 7% of British foodservice spend. During 2019 such orders grew 16%, a pace of growth many times faster than the rest of the market. 

Loyalty programmes continue to gain popularity, especially since many operators continue to develop and migrate loyalty programmes on to mobile apps, where they can be integrated with personalised deals and order-ahead capabilities. The data behind such apps can be used to better target specific customers with highly-customised marketing as restaurants open for business once more.

Social media
Never before has it been so important for operators and brands to connect with their consumers. Whether it’s updating them on new hours or showcasing innovative delivery options, social media provides a critical link to consumers at a time when staying connected has become highly challenging.

According to figures compiled by UKHospitality – that includes NPD data – the UK hospitality industry was worth about £134bn in 2019. The restaurant industry represents about 43% of this total and has been one of the hardest hit sectors during the unprecedented challenges of the covid-19 crisis. The impacts will be deep and long lasting. But the fact a small majority of UK consumers tell us eating out is high on their to-do list following the lifting of restrictions does give some room for optimism, provided operators and suppliers prepare carefully and adjust positively to the “new normal” way of trading as and when the lock-down begins to lift.
Dominic Allport is insight director foodservice UK at NPD Group
NPD Group is a Propel BeatTheVirus campaign member

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