This article was originally published in the Winter 2024 issue of Hospitality Ireland magazine, in December of 2024.
Bord Bia warns that growing costs present major challenges to Ireland’s foodservice sector. Consumers remain willing to spend money on occasions that are unique and different, but operators must continue to focus on cost reductions. Here we have exclusive commentary from Maureen Gahan, foodservice specialist, Bord Bia.
Findings from Bord Bia’s annual Foodservice Market Insights report – released recently – show that the Irish out-of-home sector increased by 5.2% in value, and overall industry turnover surpassed €9.8 billion across both the Republic of Ireland and Northern Ireland. While this is the highest level seen within the industry over the past ten years, much of this increase has come about due to inflation and higher menu prices, driven by significant cost pressures in the sector.
Providing context for the figures, Maureen Gahan, foodservice specialist, Bord Bia, said, “Looking back over the past four years, it is clear that the foodservice industry across Ireland has seen a great deal of disruption and recovery. Since 2021, the industry has risen in value every year, based on a combination of greater footfall and annual increases in menu prices to the consumer. There remains steady consumer demand for dining out of home, however, higher menu prices have started to deter some people from eating out. In addition, the operating environment is increasingly daunting for many restaurants and foodservice operators.
“The industry remains challenged, from an operating cost and margin perspective – and this is the concern voiced by many. It is clear that suppliers, distributors and operators need to have a more targeted business strategy when looking ahead to the next 12 to 18 months. An ongoing focus on cost reduction will be critical.”
Foodservice Challenges
The most pressing challenges outlined in the report are as follows:
• Cost structure
– While they have learned to deal with higher food costs, other costs have risen significantly, leading to increased financial strain, especially for small, independent operators, who are more vulnerable to closure. Larger operators, including restaurant chains, are financially better positioned to operate in today’s cost environment. Sustainability initiatives are still important – particularly for contract caterers operating in workplace restaurants – but they are often taking a back seat to cost-cutting measures.
• Labour costs impacting profitability
– Although the availability of workers has improved, finding qualified candidates for skilled positions remains difficult. Rising minimum wages have increased labour costs significantly, impacting operators’ profitability. This, combined with higher rents and pension costs, has meant that many operators are struggling to maintain profitability.
• Impact of slower inbound travel and tourism
– The Irish foodservice industry is heavily dependent on travel and tourism, and 2024 has been a ‘disappointing’ year for overseas visitors to Ireland. This has had a knock-on impact on many businesses – from hotels and restaurants to pubs – that are highly dependent on foreign tourists.
Foodservice Opportunities
Despite these challenges, the report also highlights a number of opportunities.
These include:
• Consumer experiences, innovation, and building customer loyalty
– While overall spending has slowed, consumers are still willing to invest in ‘experiences’ that are unique or different. Operators are responding by focusing on innovative service models, unique menus, and immersive environments. Building customer loyalty remains crucial. By providing value and demonstrating care, operators can retain and attract new customers.
• Look to technology for solutions, but do not replace human interaction
– Front-of-house technologies, like ordering kiosks and mobile apps, can enhance the customer experience and streamline operations. Back-of-house innovations, such as AI-powered inventory management and video training, can optimise labour utilisation and reduce waste. However, the focus must remain on using technology to enhance staff capabilities and deliver exceptional hospitality experiences – not to replace them.
• Menu engineering
– Given the food and labour cost situation, many operators continue to engineer their menus for the best impact on profit. This has involved taking higher-cost items off the menu and shrinking menus, to focus on core items that can drive profitability.
• Taking advantage of new routines
– The shift towards hybrid working has significantly impacted the foodservice industry. Some businesses are using food as an incentive to lure employees back to the office, investing in higher-quality offerings. However, maintaining affordable prices for captive audiences remains a challenge. The shift has also led to increased business on Mondays and Fridays in suburban areas.
Maureen, in the light of this report, are you optimistic or not about the Irish foodservice sector?
Despite many of the doom-and-gloom headlines relating to the sector in recent months, I, personally, remain optimistic for the future.
The foodservice sector has already proven itself to be hugely resilient. It survived Covid-19 stay-at-home mandates throughout 2020 and 2021, when almost 50% of the value was wiped – and yet, at the end of 2024, the market value is now 14% higher than it was pre-pandemic.
Consumers still really value everything that eating out of home has to offer – socialising, fun, the ability to catch up with friends and family – and they want to support the industry, but they just can’t do it as frequently as before, in the face of rising menu prices.
Our increasingly busy lifestyles and a growing need for convenience all point to an increase in out-of-home spending.
Eating out of home has transitioned from what used to be a seldom ‘treat’ for older generations, to part and parcel of the lifestyle of younger generations, whether that’s picking up a coffee on the way to school or university, or eating out with their families and friends at the weekend.
The overall population of Ireland is growing, with an increase of 20% forecast by 2040, while, at the same time, unemployment is at a record low, so I still see future strong demand for eating out of home.
There are various challenges. What do you see as the main ones?
The single-biggest challenge facing the industry is the strain on profitability for foodservice operators, due to a rising cost base. Although menu prices have increased, to reflect some of the increased costs, some of the costs have also been absorbed by the operators, and this is leading to situations where they are simply not making money.
Labour costs, in particular, are causing issues, as operators struggle to deal with a minimum wage rate that is increasing, year on year. Coupled with other associated labour costs, this is resulting in a situation where labour, as a percentage of overall costs, is eating into profit margins.
Menu price inflation – although starting to slow down, cumulative menu prices have increased by 24%, relative to where they were in January 2020. To put that in perspective, the historic average from 2010 to 2022 was just 2.7%.
Businesses are still grappling with elevated food cost prices and the ability – or not – to pass these on to the end customer.
The pressure on available hotel accommodation – particularly along the western seaboard – has led to a mismatched supply-versus-demand situation and a corresponding increase in hotel room prices. Whereas, in the short term, this may appear as good news for the hotel sector, there are concerns that Ireland may outprice itself – relative to other European destinations – which, in
turn, raises concerns for the longer-term sustainability of our overseas and domestic tourist numbers.
How can businesses best manage these challenges?
Given that the number-one challenge is rising costs, there’s a need from the industry for ongoing scrutiny and a focus across the entire cost base.
As a starting point, foodservice businesses should understand what dishes are delivering better margins and consider re-engineering menus accordingly, or develop new dishes that can deliver better margins.
Where relevant, it is also important to look at the efficiencies that technology can bring. This could be everything from back of house – think food waste reduction initiatives, sourcing, and stock management tools – to using technology that can drive customer loyalty via apps and digital ordering. Knowing more about their customer base will allow operators to reward loyal customers while, at the same time, reaching out to lapsed customers. Building customer loyalty programmes is a way to deliver a far more targeted approach to engaging and rewarding customers. There is an opportunity to learn from what food – and non-food – retailers are effective in this space.
Given that labour costs are creating so much pressure, businesses should identify potential channels to drive sales while minimising staff input. Covid-19 forced many businesses to drive off-premise sales – take away,
click and collect, home delivery – and there is still the potential to maintain and/or grow these channels.
Operators should also identify if there are any opportunities to drive economies of scale. Groups, by their nature, will be better positioned for this, but even independents have the ability to re-look at their existing contracts – for food, utilities, rent and rates – and see if there are options for cost reductions.
In order to weather the storm, operators – and suppliers – must know what their business stands for – value and purpose – and remember not to lose sight of this in the face of pressure.
What are the external events putting pressure on our industry?
There are a number of external factors that continue to put pressure on the industry. Although tourist numbers were up during the key summer months of 2024, the average stay per visitor – and corresponding spend – was down, and while the passenger cap at Dublin Airport has been paused for summer 2025, a longer-term solution has yet to be found, so this is one to watch.
The sector has also been impacted by return-to-work/hybrid working patterns, regulations in relation to minimum wage and social contributions, Covid-19 tax warehousing, and the VAT rate. In addition, general economic performance – in terms of GDP growth – unemployment levels and interest rates all have a knock-on effect on general consumer sentiment and disposable income.
What are the significant opportunities now?
My main advice for foodservice operators right now is to consider the avenues available to build customer loyalty. There is also an opportunity to engage by providing experiences that consumers can share, both off- and online, such as competitive socialising – think everything from pub quizzes to darts to bingo. It is important to recognise that standing still is not an option, so businesses should look to others that are winning and learn from them, or look at those that are struggling and ask why.
Ultimately, consumer behaviour drives the industry. Understanding who their customer is, how they are behaving, and whether or not an existing offering is going to meet their expectations, is key.
We know that consumers value events and experiences, so businesses should look at the pipeline of future events for 2025 and consider if there is an opportunity for their business to capitalise on any of these.
The word value is so important, and it can mean a variety of things. What do you see as adding value that isn’t, for example, the obvious one of portion size?
Think about other factors that are important to the consumer when eating out. Following on is an extract from the 2019 Bord Bia/Technomic report [2019 Foodservice Insight Report], and it still holds true today, five years on.
The Winning Foodservice Formula
• As the industry looks to maintain relevance, focus on meeting consumer need states, and continue to grow, it will be important to keep the ‘Winning Restaurant Formula’ in mind.
• Through its global work, Technomic has identified 10 factors that – when excelled at – create a resonating and lasting point of difference that drives growth.
• All members of the value chain should understand how they can help create lasting value for consumers by focusing on the 10 areas that lead to success.
Ten Factors That Define The Winning Restaurant
1. Local focus, with emphasis on provenance and providing food with a story.
2. Commitment to culture, making the concept a preferred place to work for employees.
3. Tech enabled, using technology to enhance the guest experience.
4. Community support, working to integrate and be part of the community in which it operates.
5. Craft, focused on menu items that are perceived to have more care in their production.
6. Transparent, with strong messages around ingredients, values and sustainability.
7. Simple, with a focus on what creates differentiation.
8. Better/healthy fit, with an offer of items that offer consumers a perception of wellness.
9. Broader beverage focus, providing unique and craveable alcohol and/or non-alcohol drinks that are carefully crafted and curated.
10. Clean food, with limited additives and ingredients that consumers perceive as ‘bad’.
