In December 2019, how many of us would have bet that foodservice sales in Australia and the US would outperform those in China over the next 3 years? Yet that is exactly what happened.
The Australian and US food service sectors regained pre COVID spend levels about 13 months after the onset on the pandemic in their markets. And after two years of subsequent strong growth, by December 2022 sales sat 30% or so above pre COVID levels. Granted the spend has been pushed up by a fair whack of inflation over the period, as the higher costs of labour, ingredients, energy and capital have been passed on in large measure to consumers. But there is still a lot of genuine sales growth in these numbers.
In Australia, consumers have never spent more of their food dollars on food service than they do today – with ABS data showing more than a 27% share of the food wallet spend on restaurants and takeaway in the closing months of last year.
China’s position could hardly be more different. The sector was buffered in the second half of last year by strict lockdowns and then a wave of infections as the government abruptly abandoned its zero-COVID policy – keeping customers at home in December and forcing restaurants to operate at reduced rates due to shortages of staff and drivers. As a result, Chinese food service sales remained more than 10% below pre COVID levels in December of last year.
As we push deep into the first quarter of the new year we now wait to see how two divergent trends play out:
- How will food service sales in US and Australia hold up as cost of living pressures rise and their economies slow?
- And how fast will Chinese food service demand recover as zero COVID policies disappear in the rear-view mirror?
The early evidence suggests that a slowdown in Australia and the US is already underway. In Australia, after a 10 month run of solid growth, sales stabilised in the foodservice sector in December. And almost exactly the same story was evident in the US market.
At the value end of the market, the fast food giants are saying their sales are holding up for now. In late January McDonalds told investors that, while they expect a mild to moderate recession in the US, and are passing on higher costs, consumers have generally proved resilient. Some lower income customers are ordering fewer items per visit or opting for cheaper options, but they said this was only at the margins. Days later Starbucks reported customer traffic and ticket sizes holding up well in the last month in the US. As Yum brands highlighted in early February, there are also benefits from the current economic environment. High income customers are visiting their stores more often as they look for cheaper options, yet they see no sign of losing lower income customers (as they have the value offerings for them too).