Food cost, labor cost, increasing food retailer competition big concerns for foodservice operators: L.E.K. report

A 2017 executive insights report from L.E.K. Consulting’s U.S. foodservice practice provides guidance on how foodservice operators can maintain market share in response to food retailer competition, and it provides additional information on some of the biggest challenges facing restaurant operators over the next three years. The cost of food increasing is the top category of concern for foodservice operators, according to the 2017 L.E.K. Consulting U.S. Foodservice Operators Study. In fact, approximately forty percent of respondents are expecting wholesale food prices to increase two percent each year for the next three years.

Labor costs are also of import and worrisome to foodservice operators, according to the L.E.K. study. A good 38 percent of operators are concerned about labor cost increases, making it the next top-of-mind challenge. Over the next three years, 35 percent of operators are seeing increased competition from food retailers as a top concern. Emphasizing this sentiment, thirty three percent of operators indicate competition from retailers is a strong or moderate threat today, while 46 percent are concerned about the longer three-year impact.

With restaurant foot traffic now being reported down by several experts that track it, and food prices expected to rise, labor costs would only add to the economic pressures facing foodservice operators. As food retailing operations, including grocery stores, have been experiencing food deflation and passing that on to customers, restaurateurs have had to increase pricing to maintain margins. The study notes foodservice pricing had increased about 2.7% in 2016 and suggests food retailer pricing is slightly down in the same period.

Amplifying the challenge from food retailer competition is the convenience factor they offer and their ever-increasing variety and breadth of offerings, according to L.E.K. A full seventy percent of operators specifically believe that retailer prepared meals will become a bigger challenge over the next three years. The study also reports less spending by consumers and the cost of employee benefits, including healthcare, are the obstacles rounding out the top five (5)—21 percent of operators say those are the next top challenges.

The consultancy suggests foodservice operators, including restaurants, to continue to leverage their strengths in response to these concerns and to innovate. Restaurant operators can use menu innovation, sourcing innovation, meal customization, providing digital services, like online ordering and “fast delivery,” and adopt retail strategies to maintain market share.

The 2017 L.E.K. Consulting U.S. Foodservice Operators Study was conducted through an online survey of approximately 230 respondents nationally and its executive summary was published in May.

Photo credit: Fabrizio Maaoni

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