Puredairy Trade


Take me out tonight? Will Foodservice spending continue?


| 23 May 2023

Australians continue to spend more on foodservice, despite the deterioration of household economics. Date night, a pub meal with friends or an evening at home with takeout in front of Netflix all appear to be alive and well! A huge question for everyone involved in the foodservice industry is, will consumers continue to prioritise these pleasures even as things get tougher? Or are we about to see a belt-tightening hit the sector, as the lagged impacts of inflation and deteriorating sentiment flow through?

It is certainly getting harder to balance household budgets in this country. Income is not the problem. Average wages rose 3.3% on prior year levels in the closing quarter of 2022 – the fastest growth in a decade. But that does not get you very far when inflation is rising at above 7%, as it has been for the last 6 months.

Household spending has so far held up: with Australians spending 12% more in early 2023 than they did 12 months prior. Moreover, priority is being given to meals prepared out of home, with a whopping 17% growth in spending on restaurants and takeout in the same period. This outstrips the increased cost of doing so, suggesting that people are eating out or taking away more often, despite deteriorating financial conditions.

As we noted earlier this year, Australians are now spending a higher share of their food wallet on eating out and takeaway than ever before – though it has never been more expensive to do so.

But can this last?

The “Yes” case relies on the combined hopes that inflation will soon wane, consumers have committed to eat out more after the horrors of lockdown, and that improvements in access to food prepared away from home (better online booking, improved food delivery services) have changed habits forever. A surge in migration is also a significant boost to the sector, with the Government expecting a net increase of 400,000 people from overseas this year – led by returning students and tourists. This is a meaningful increase in the total pool of potential customers.

The “No” case points to the likelihood of further interest rate rises and the consumer pain as fixed mortgages are soon reset at higher floating rates. Also, buoyant household spending in 2023 has been funded by household savings accumulated during the pandemic – which is not sustainable for long.

We are starting to see more evidence of consumers looking to save money on food. In their April 28th earnings statement, Coles noted that sales of private label are now growing at twice the rate of branded food sales, and that consumers were trading down to cheaper protein sources, including red meat to white.

Data just released by Open Table also suggest that, after a strong start to the year, the number of people dining at Australian restaurants fell in April. A blip? Trading down away from more formal dining? Or the start of a more-broad sector slowdown?

One way or another, for us within the foodservice industry, we are about to find out…

Written By

Craig Sleep