Serving Up Diversity: Major trends in the food-services sector

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1 January 1 Follow on head on Master page A July : Major trends in the food-services sector By Andy Brennan & Andrew Alvarez Changing consumer preferences, a higher demand for convenience and demographic shifts will continue to shape the industry. Ethnic cuisine is expected to play a larger role in the food-services sector over the next five years Switching out the American menu The food-services sector is constantly evolving, as restaurants cater to changing consumer preferences, new lifestyle choices and demographic shifts. The trend toward health consciousness, coupled with an increasing interest in gourmet and high-quality cuisine, is inducing foodservice operators to adopt value-added options, such as gluten-free foods, farm-to-table restaurant models and locally sourced produce. Additionally, as time-strapped consumers look to maximize their purchasing power without sacrificing food quality, they will continue to drive demand for niche food-service players like food trucks. Also, the ubiquitous use of smartphones has forced restaurants to cater to consumers that want timely service with minimum effort. Lastly, the changing demographic composition of the United States is giving rise to a wide variety of cuisine choices for US consumers. As a result, ethnic cuisine is expected to play a larger role in the food-services sector over the next five years, as industry players continue to alter their menus to accommodate ever-changing consumer preferences. Health-conscious consumers Exercising regularly and maintaining a well-balanced diet have become major priorities for Americans; as a result, consumers are increasingly adjusting their eating habits by emphasizing nutrition and substituting items high in fat, calories or sugar with healthier alternatives. For example, many Industry Growth % 22.5% 3.4% 2.3% 2.9% 4.4% 17.1% 2.9% 3.8% 3.2% $803.8 $1,813.7 $637.6 $2,150.7 $2, % 3.3% 3.3% 2.0% 2.2% Food Trucks Frozen Yogurt Stores Wine Bars Juice & Smoothie Bars Sushi Restaurants $985.3 $2,128.4 $749.1 $2,371.2 $2,330.0 SOURCE: info@ibisworld.com

2 July 2 consumers are opting for alternatives to cow s milk, such as soy and almond milk, which generally have fewer calories. Revenue earned by the Soy and Almond Milk Production industry (IBISWorld report OD4195) is expected to increase at an average annual rate of 7.7% over the five years to, indicating a large boost in demand for this industry s healthier products. Almond milk, which contains no saturated fat, has fewer calories than soy milk and is rich in vitamin E, has done particularly well over the past five years. Revenue earned by Blue Diamond Growers, a cooperative of 3,500 almond growers in California, highlights this trend, as the coop grew an annualized 71.1% over the five years to 2013 (latest available data). As a result of growing health consciousness among US consumers, many industries are developing healthier products to meet rising demand. There is no better example of this trend than the success of frozen yogurt stores over the past decade at the expense of ice cream stores. A growth comparison between the two industries reveals that revenue for the Frozen Yogurt Stores industry (IBISWorld report OD4323) is anticipated to grow an annualized 22.5% over the five years to, while revenue for the Ice Cream and Gelato Store Franchises industry (IBISWorld report OD5547) is expected to decrease at an average of 1.3% per year over the same period. Frozen yogurt differs from ice cream because it is made with milk instead of cream, and therefore boasts a lower fat content than ice cream. While the use of milk in frozen yogurt creates a more tart flavor, many frozen yogurt stores have altered the original recipe over the years to include flavors more akin to those of ice cream. Due to the variety of flavors, styles and healthy topping options offered at most frozen yogurt stores, consumers can indulge in this treat without adding on many extra calories. Raising the gourmet bar Consumers are increasingly participating in a growing food culture focused on high-quality gourmet experiences and unique dishes. This trend has been supported by a rise in per capita disposable income, which has increased at an average annual rate of 1.2% in the five years to. In part due to rising health awareness, foodservice establishments have increasingly incorporated healthy options, such as gluten-free versions of signature dishes, into their menus. In particular, the fastcasual dining segment (composed of a type of restaurant that does not offer full table service) has capitalized on this rising interest in high-quality food. For example, the Food Trucks industry (IBISWorld report OD4322) has experienced substantial growth during the past five years by rapidly responding to changing consumer preferences and by offering a diverse range of gourmet options at prices that enable consumers to maximize their spending power. The industry has not only survived the worst of the recession thanks to its business model, it is actually expected to continue growing at an annualized rate of 4.2% over the five years to 2019 as a result of strengthening demand for affordable, high-end gourmet options. Over the next five years, environmentally sustainable eating environments that serve farm-to-table and locally sourced dishes, will also become increasingly common. Furthermore, within the alcoholic drinks sector, artisan spirits and locally produced craft beer, wine and spirits will also experience an boost in demand. In, revenue for the Craft Beer Production industry (IBISWorld report OD4302) is expected to grow 12.6%, while the Wine Bars industry (IBISWorld report OD4314) is anticipated to receive

3 July 3 a revenue boost of 2.9% the same year. The trend of locally sourcing produce and other ingredients used in restaurants will spill over into the beverages sector. Many operators within the food-services sector, particularly within both the fast-casual and full-service dining segments, are increasingly seeking out locally produced craft beers, wines and spirits to pair with their dishes. These emerging trends are expected to strengthen over the next five years, offering operators within these sectors opportunities to develop new products and bolster profit margins. Ethnic trends Another trend sweeping the food-services sector is the rising popularity of ethnic cuisine, driven by the growing number of immigrants entering the United States and a generally more adventurous American palate. The immigrant population (defined as those with no US citizenship at birth) as a percentage of the total US population has risen from less than 5.0% in the 1970s to about 13.0% today, according to the Migration Policy Institute. One industry benefiting from these trends is the Sushi Restaurants industry (IBISWorld report OD4308). The novelty of sushi restaurants has helped drive industry growth, as has the intimacy and transparency of chefs preparing meals in front of the customer, a feature that most sushi restaurants offer. Sushi restaurants are particularly popular in urban areas such as New York, Los Angeles, Chicago and San Francisco, where per capita disposable incomes are higher than the national average and cosmopolitan dining has long been established. Sushi restaurants are expected to bring in $2.1 billion in, representing annualized growth of 3.2% over the five years to. Revenue for the Hot Sauce industry (IBISWorld report OD4627), which has been substantially aided by cultural and immigration trends, has risen an annualized 3.6% over the past five years. The growing popularity of spicy foods in the United States is largely attributable to the surge in immigrants of Hispanic or Latino origin, which account for about half of all US immigrants. This growing demographic has introduced a vast assortment of spicy cuisines to American palates, and the market s response has been overwhelmingly positive. Restaurants have adapted to their customers changing tastes by offering fiery dishes, many of which rely on hot sauce for their distinctive flavors. Also, many mainstream grocery stores have added or expanded their international aisles over the past five years, giving more shelf space to ethnic products such as hot sauce. These additions have provided significant growth opportunities for companies such as Bruce Foods Corp. and Huy Fong Foods, which produce Cajun-flavored and Asian-style hot sauces, respectively. Importers of spicy foods, such as Jose Cuervo with its Mexican-produced Cholula brand hot sauce, have also benefited from this trend. Convenience Convenience has become an increasingly important factor for consumers making Industry Growth % -0.7% 5.6% 3.5% 13.0% $198,865.6 $3,145.8 $1,051.5 $1,069.4 $4, % -0.3% 5.9% 4.7% 5.5% Fast Food Restaurants Ice Cream & Gelato Store Franchises Soy & Almond Milk Production Hot Sauce Production Craft Beer Production 1.4% -1.3% 7.7% 3.6% 12.6% $219,341.0 $3,100.0 $1,402.7 $1,343.6 $5,823.1 SOURCE:

4 July 4 About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit or call Contact: Media Relations media@ibisworld.com IBISWorld Sales & Subscriptions Phone: dining decisions. Busier lifestyles, longer working hours and more people living alone have helped boost demand for food-service establishments that can provide quick and efficient service to customers. This trend has been one of the major reasons behind the rise of the fastcasual dining segment, a subsector within the Fast Food Restaurants industry (IBISWorld report 72221a). While fastfood giants such as McDonald s and Burger King have exhibited flat growth over the past five years, sales at fastcasual brands that offer customizable, gourmet meals in a quick and convenient manner, such as Chipotle, Panera Bread, Panda Express and Five Guys, have grown rapidly. The popularity of these chains has enticed established but slow-growing full-service restaurants to the industry. For example, Applebee s rolled out its Express Lunch concept at over 20 restaurants, allowing customers to order and pay at the counter. Meanwhile, established fast-food restaurants, such as Taco Bell and KFC, are testing fast-casual concepts that offer customers high-quality, customizable meals with quick turnaround times. Lastly, the Pizza Restaurants industry (IBISWorld report OD4320) has undergone significant changes over the past five years, as operators have jostled to cater to consumer preferences for fast and simple delivery. Large pizza chains have invested in sophisticated, webbased ordering systems that enable customers to quickly order and pay for deliveries via their PCs, tablets or smartphones. The ubiquitous adoption of the internet has driven this trend as young consumers in particular have an affinity for using online-ordering platforms. Customers can create their own online accounts, saving personal preferences for toppings and delivery instructions. Large pizza chains, such as Domino s, Papa John s and Pizza Hut, have reported that 40.0% of their sales are now derived from orders made over the internet. Traditionally, Pizza Hut built its reputation as a brand known for its casual dine-in pizza restaurants. However, the chain now focuses on smaller restaurants specializing in delivery and carryout, having built over 600 delivery and carryout stores since Conclusion Demand for authentic ethnic food is expected to remain strong over the next five years as the millennial generation and growing immigrant population drive demand. Restaurants will continue to chase the strong purchasing power of millennials with culturally diverse appetites. Ethnic cuisines, including Caribbean, Ethiopian and Halal, will travel beyond their urban origins and begin to infiltrate suburban markets. Furthermore, convenience will continue to play an influential role in the food-services sector over the next five years. Technology will continue to improve and become a competitive weapon for restaurants trying to provide busy customers with efficient service. Because of its characteristically low profit margins, high turnover is crucial for food-service establishments.

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