27 March 2013
Do you remember when the on trade was just about pubs, blokes and beer? Those simpler times have been left far behind for most operators, as changing consumer needs have driven significant innovation resulting in a new, pub food market that would be virtually unrecognisable to the customer of 30 years ago.
The pub food market is constantly evolving. It is big and getting bigger all the time; so much so that food sales in pubs are now worth £7.5 billion a year and growing by over 4%. CGA’s latest research quantified for the first time that more money was spent last year on food in pubs, than on food in licensed restaurants. A significant landmark.
Consumers increasingly need a reason to enter the trade and the fact is that going out for food meets so many different needs…celebrations, date nights and family get togethers to mention a few. But in its rawest form, for most people it is viewed as a treat. Restaurants used to get a larger share of this discretionary spend, however the food offer within pubs now is so varied that it can easily meet the different needs of most consumers…be that cheap and simple or Michelin star foie gras.
The very best pub food retailers have done a fantastic job of leveraging their offer to tap into this treat spend mentality. I believe it is essential for all retailers to understand this mind set if they are to maximise spend per head and drive footfall in an engaging and relevant way. Does this mean that driving down the price to consumer is business critical? For some parts of the value-driven market, yes. For most others, absolutely not. Some would say that this does not make sense in such a tough economic climate. Surely price is king? To those holding that opinion, I would ask then why in the on trade, are all premium drink variants outperforming their mainstream counterparts…across every single drinks category? Treat spend mentality, leads to premiumisation.
We saw this first in the spirits category, specifically with vodka, then gin and now bourbon. Standard lagers have increasingly been rationalised over recent years to make way for a trade up options such as world beer, craft beers and micro-brewery beers. The fridge is seeing mainstream lagers and ciders lose facings to premium variants. Premium soft drinks are showing huge growth, particularly in food led outlets. Counter-intuitive as it may seem for many, these tough times have bred a mentality focused on going out less but trading up to enjoy more premium experiences and brands.
What other trends have we seen from the drinks sector that may be applicable to a modern, and increasingly sophisticated food proposition? We know that a lack of clarity around the offer (any offer) causes problems. Large parts of the market are premiumising to tap into treat spend. Another part of the market is driving value to maintain accessibility for cash strapped value-seekers. It is the businesses or brands sitting in the middle of this scale that are exposed. Not being able to offer a competitive value proposition or one of enough quality to represent a treat, is a recipe that rarely works in drinks and will be no different in food. Knowing your place in the local landscape and flexing accordingly is very important – local, not national, benchmarking being essential here.
CGA recently carried out research which found that 86% of drink consumers are ‘very receptive’ to bartender recommendations. Appropriate and well-timed advocacy is commonly found behind the bar, but it is not used enough in the dining area. Certainly, this is best practice in the very highest quality outlets but significant value could be unlocked if more mainstream pubs adopt this process. As an example, if the average food pub up-sold 1 in 10 rump steaks to sirloin, then it would result in increased sales of £93 per month or an extra £1,116 per outlet per year. Not to be sniffed at for asking a question.
Linked to this, drinks portfolio engineering to encourage trade up is a hot topic and we regularly consult for retailers about optimum pricing ladders. Similarly your food menu must allow easy trade up, with the price relationship between the standard offer and trade up being both appropriate and compelling. Consumers must be able to easily match their mission and the food offer. We have seen that wine menus are fraught with difficulty in this area, but once navigated offer remarkable returns. Excessive price gaps between the entry level offer and the next trade up simply result in the customer choosing the cheapest option. This clearly does not tap into the treat mentality and, for those consumers in this mission state, actually has the opposite emotional effect.
In order to design revenue maximising menus it is also important to understanding the value contribution by category, and be willing to cull appropriately. Over the last few years there has been a plethora of new drinks products in the on trade, particularly in the premium ranges or categories, and smart retailers have to understand these rapidly changing dynamics. What sold well last year, is taking up space and distracting from what is popular now.
Finally, brands work. Apart from a few categories, brand is king in creating consumer differentiation. Intuitively, this would not translate to food menu items but in our latest food research we actually found that branded pies (e.g. steak and ale with a branded ale) sell twice as much as their non-branded counterparts!
Clearly, small changes to your menu could deliver big gains in your till. Just further evidence that growing revenue is so often about a willingness to make multiple, seemingly minor, changes rather than a single big bang.