German Foodservice: Plenty Room to Move

Picture courtesy of Vossko

Fewer visitors, higher expenditures – this trend has been characterizing the German “eating out of home“ market for quite a few years, including 2015. However, the market volume is rising – for many reasons.

By Dieter Mailander, mailander marketing

2015 was a respectable year for the German economy. According to the official statistics, the gross domestic product climbed, adjusted for price, by 1.7%. The unemployment rate is at an acceptable level of 6.2%. Due to an oversupply of energy and fuels worldwide the index of retail prices climbed moderately by 0.3% (those for food by just under 1%). With the minimum wage of EUR 8,50/hour, which was newly introduced on 1 January 2015, Germany has a position in the upper third of the European Community: beginning 2016, between EUR 1.24 (Bulgaria) and EUR 11.12 (Luxembourg) per hour was paid.

The introduction went quite smoothly in foodservice too. But representatives of the industrial sector sharply criticized the high administrative costs, especially with regard to the documentation of working hours. Smaller companies, in particular, often don’t have any systems in order to record first and foremost their overtime in an easy manner. But there were also complaints about the costs for the declaration of allergens and additives, even though it is insignificant whether they are consumed on the spot or “to go”. In spite of these restrictions, the multi-unit foodservice industry was able to move in a positive direction in 2015, not least because of the warm-hot summer, which motivated many people to increasingly visit gastronomical businesses.

The Multi-Unit Foodservice Industry: Strong Momentum

The top 100 companies of the largest gastronomical companies, from which around a quarter are foreign-owned, had a turnover of just under EUR13bn in 2015 with somewhat over 18,000 operations, therefore on an average of just under EUR700,000 per operation (Dehoga Bundesverband. Systemgastronomie in Deutschland 2015, 15.2016).

An additional 60 companies are “waiting to go” i.e. specialists assess their performance as so promising that they believe that the one or the other of them will be capable of making the jump into the group of the top 100 in the foreseeable future. The top 10 of this quality assessment stands for 54% of the turnover and 38% of all of the operations. The graphic “Sales Development 2015” shows that in spite of the strong concentration of the turnover at the top ten, the smaller companies together have grown stronger between 2010 and 2015 than the ten largest with one exception (2011). Therefore a very strong momentum is embedded in the market.

Success Factor: “Fast Service”

As the graphic “Volume and Distribution 2015” shows, the segments quick service (55%) and travel (24%) have the largest share of sales by far. In the first segment, the providers of classical fast food are represented in the same way as those from fast casual dining. The last ones do many similar things as their fast food colleagues, but use other ingredients, offer a wider range of products, and a more appealing atmosphere.

Also, companies in the travel segment keep the waiting times for guests as short as possible and dispense with waiters and waitresses as well. It is remarkable that none of the large chains were able to increase their same store sales – the only exception being Subway. Therefore growth occurs almost exclusively as a result of additional operations and that’s why new sites are fought over fiercely.

A Push Due to Higher Expenditures

The number of visits in the restaurant industry has declined since 2012. However, the guests spend more money during their visits year in and year out, which is why the market is growing. From the vantage point of the present, this trend will continue, at least with regard to the growth of the turnovers – experts think that just above 3% for the current year is realistic. According to their assessment, the main growth drivers will be take-away, home delivery, party service, snacks from bakers, butchers, and hot food counters of food retailers as well as coffee bars and shops.

Remarkable Market Events

There were some interesting events in 2015. The insurance group Allianz SE, for instance, bought the provider on German highways “Tank & Rast” together with a private equity investment company. The reason why this purchase was so remarkable is because until now, insurance groups rarely invested in companies in the out of home market. Industry talks also included the US American Domino’s Pizza Inc., global market leader for pizzas. A consortium of British-Australian franchisees purchased the largest German pizza delivery service Joey’s Pizza, whose brand will be replaced gradually by Domino’s over the course of the year.

McDonald’s also attracted attention: in the first part of the ongoing decade, the number of visits has declined by double-digit figures (according to Food service forum, Mar-10 2016, presentation Gretel Weiß) – the system had lost its attraction. Start-ups like the premium burger chain Hans im Glück (founded in 2010) were closer to the “pace of the guests” with their range of products, atmosphere, and service. When one compares the turnovers of both companies per restaurant, they are almost identical. But one has to take into consideration that just under 60% of the approximately 1,500 of McDonald’s outlets have McCafés. Even if one is only able to assess their share of sales roughly, it can be speculated that the turnover per store of the global market leader, with its spicy range of products, is lower than the one of Hans im Glück. Therefore, a course correction was unavoidable and was initiated. One streamlined the business in Europe from four down to three divisions, replaced managers and the communications agency, developed a premium range of products, tested bio-burgers, paid more attention to digitalization, experimented with home delivery (McHome), and let the newly-named manager of the parent group open up a “flagship restaurant “ in the airport at Frankfurt am Main. The global figures of the first quarter in 2016 lead us to assume that the turnaround is effective (according to foodservice 5/16)

The Market Remains Exciting

Therefore, the dynamic trend in the German eating out of home market remains unchanged and in the future will also be an exciting playground for companies from all over the world – for established businesses as well as for start-ups, who will also be in a position to put pressure on the big players rather quickly from now on.