Room to growRoom to grow

Fern Glazer

As the U.S. economy moves slowly toward recovery, American consumers are feeling a bit more optimistic and are starting to open their wallets again at restaurants. But across the pond, consumers in many countries are still grappling with the impact of the economic crisis, and it’s having a dramatic effect on the restaurant industry, say officials at global market research firm The NPD Group.


The major European markets did show some early signs of improvement this year, buoying optimism about the potential for U.S. brands abroad, but for the restaurants already doing business there, 2010 was an unquestionably difficult year.


“When tough times started [in Europe] at the end of 2008, it hit the market relatively hard,” said Jochen Pinsker, senior vice president of foodservice Europe for NPD. “We really see a direct impact of that on the restaurant industry. 2010 was not a recovery year at all for Europe. Finally, in 2011 the industry is starting to grow.”


According to the Port Washington, N.Y.-based firm’s examination of the “Big 5” European markets — Germany, Great Britain, France, Italy and Spain — in 2010 restaurant industry traffic was down 1.5 percent on top of a 2-percent decline the prior year, and overall consumer spending was down a half percent on top of a 2.5-percent drop the year before.


For 2010, spending declined or remained stable in all of the Big 5 countries, with the exception of Great Britain, which saw a nearly 1 percent increase. Spending was flat in Germany, dipped less than half a percent in France, and declined 1 percent in Italy and more than 2 percent in Spain. 



Conservative spending


Traffic has declined only slightly more than spending, indicating that consumers are still making restaurant visits, but are finding ways to spend less, NPD said.


Even as things improved, European consumers held on to the penny-pinching habits they built the last few years, Pinsker said.


“People are still [exhibiting] crisis behavior,” he said.


When NPD asked consumers in 2010 to identify their core reasons for choosing a given restaurant, the majority cited “good price” — the same answer that was given several years ago at the outset of the economic crisis.


One way European consumers have been cutting back is by eliminating snack visits. In the year ended December 2010, consumers made 10.4 billion visits to restaurants at the morning or afternoon snack periods, down from 11.3 billion in the year ended March 2008. Similarly, consumers steadily reduced their use of restaurants for take-home meals. In the year ended December 2010, consumers used restaurants for approximately 2.7 million take-out dinners, down from 2.8 million in the year ended March 2008. 


Other industries have been stealing share of wallet from restaurants, he said. For example, he says many consumers held off on technology purchases in 2009 and then made up for it by making purchases in 2010.


“[In 2010, consumers made] big purchases, so there was less money for restaurants,” said Pinsker. “[Making up for lost spending] is not possible in foodservice. You can’t make up for dinner you didn’t eat.”


Signs of improvement


For some countries, however, a brighter future may be coming into view. The economy is making small improvements in four out of the five countries, NPD found. Germany is performing best, with gross domestic product up nearly 4 percent and the unemployment rate at 6.9 percent for the first quarter of 2011, down about a half a percent from the prior year. GDP is up more than 1 percent each in Great Britain, France and Italy. However, unemployment is still high, at almost 10 percent in France, 8.4 percent in Italy and nearly 8 percent in Great Britain. All three unemployment rates are up just slightly from the prior year. Spain is the most troublesome country, with GDP down slightly and unemployment at 20 percent and rising. 


In addition, in the first quarter of 2011, consumer spending at restaurants turned positive in four out of the five countries. Spending increased 3.5 percent in Germany, 2.6 percent in France and nearly 1 percent each in Italy and Great Britain. Meanwhile, spending in economically challenged Spain was still down 8.2 percent. During this period consumers also made a few more visits to restaurants. Traffic was up nearly 2 percent in France and less than 1 percent each in Great Britain, Germany and Italy. Things have not improved in Spain, however, where traffic declined 9 percent.


Opportunity abroad


Scott Lehr, vice president of international development for the International Franchise Association, says places such as Brazil, China, India and Russia are stealing some of Europe’s thunder when it comes to global expansion, but the U.K., France and Germany are still at the top of the list for IFA members.


“There’s a lot of interest in American brands around the world,” said Lehr. “Europeans, despite what they might say, like to shop at American fast-food [restaurants].”


Orlando, Fla.-based global restaurant consultant Aaron Allen agrees, and also notes that the current economic situation has an upside for growing brands. 


“If you’ve got the capital, the best time to expand in the restaurant industry is the tail end of a recession,” said Allen.


In addition to its similarity to the U.S. market, Western Europe is appealing in these tough times because there is access to quality employees due to high unemployment rates and increased availability in top real estate for restaurants locations.


However, for Allen, the best segment to expand into Western Europe with these days isn’t fast food, but fast casual.


“Fast-casual labor costs are low,” he said. “That’s very applicable to the European markets.”


For Dennis Lombardi, a consultant with Columbus, Ohio-based WD Partners, it’s not about what country is hot, but rather which country is a good fit for a brand.


“You have to be very different ... and offer something unique,” he said. “If you’re trying to go there as a me-too brand without a clear, strong differentiation that Europeans can understand and recognize, it’s going to be a tough go.”


Lombardi cites several unique concepts that have made it in Western Europe, including Nando’s, a Portuguese-style chicken chain out of South Africa; Wagamama, a British-based pan-Asian eatery; and Vapiano, a fast-casual Italian joint out of Germany.