Fledgling foodservice operators apply the brakes

Restaurants on high street

A decline in the number of new eating out brands qualifying for the latest Ones To Watch research along with a slower rate of expansion for more established ones points to a slowdown in entrepreneurial activity in the foodservice sector over the past six months, analyst firm Horizons has said.

Horizons’ biannual Ones To Watch research tracks the emergence and growth of new eating out brands once they reach five units through their period of critical growth to 25 outlets. Brands qualify for inclusion if they’ve shown growth of at least 20% over the previous three years combined.

“Foodservice is traditionally a sector that attracts a great deal of entrepreneurial activity. Some of these concepts will inevitably fail in the longer term, but others go on to become the next big high street brands such as Bill’s, Byron, Jamie’s, Tossed and Leon,” commented Horizons’ analyst Nicola Knight.

“Overall there is still growth in the number of new concepts included in Ones To Watch but at just seven new brands, a total of 190, this is fewer than we have seen in its five-year history. In April 2016 the research revealed 12 new concepts, a total of 183, while this time last year 30 additional brands met the criteria.”

Ones To Watch also tracks when the fledgling brands reach a critical mass of over 25 outlets, after which they are no longer included in the survey. In the most recent research [October 2016] just one brand had grown too large to be included, compared with eight brands that grew too large in April’s survey, and four in November 2015.

“This slowing of entrepreneurial activity may be the beginning of a more general slowdown in the foodservice sector, even a short recession across the economy with Brexit being the key reason behind the uncertainty,” said Knight. “It shows that fledgling operators are currently being more cautious in their expansion plans.”

Dessert café Kaspa’s emerged as one of the fastest growing brands in Ones To Watch. The franchise concept, specialising in ice creams, gelatos, waffles, crêpes, milkshakes, smoothies and sundaes, grew from just two sites in 2013 to 25 in 2016.

Another dessert café, Treatz Dessert Parlour, made the list of fastest growing Ones To Watch brands, expanding from one outlet in 2013 to seven in 2016.

“Dessert cafés are a relatively new addition to our high streets but have expanded rapidly through franchising. The US-style concept looks set to grow in the UK, attracting millennials as an alternative to coffee bars as places to meet and hang out with friends. One of last year’s top performer was Creams, another dessert café, which now has 39 outlets,” said Knight.

For the third consecutive report coffee shop operators dominate the table of expanding small brands with Bobs and Berts, Grind and Co, and Red Kiosk showing the fastest growth. However, while the coffee sector remains dynamic, the proportion of new coffee concepts in the Ones To Watch research has slipped from around 11% last year to 9.8%, which could mean the market is reaching its peak.

A straw poll of entrepreneurs responding to the survey [total 28] found that while optimism for future growth remained high, their perceived challenges had changed since the last Ones To Watch survey [April 2016] to revolve around staffing and property costs as well as future food costs.

In a previous straw poll property availability was mentioned by 68% as the biggest challenge, but this dropped to 19% in October 2016. Instead staffing concerns, named by just 12% as a major concern in October 2015, were mentioned by 35% of respondents, and property costs were mentioned by 23%, up from 16%. For the first time food costs were also named as a key business challenge for the future.

Fastest growing Ones to Watch brands by new site openings

1. Kaspa’s (from 2 to 25 outlets*)
2. Red Kiosk Company (0 to 20)
3. Burger Shack (0 to 18)
4. Cau (3 to 20)
5. T2 (0 to 15)
6. = The Stable (4 to 17)
= Chatime (0 to 13)
8. = Wahaca (11 to 23)= Coast To Coast (9 to 21)= Joe and the Juice (5 to 17)= Chozen Noodle (4 to 16)

* Number of outlets in 2013 compared with Oct 2016

Fastest growing Ones to Watch brands by percentage growth

1. Kaspa’s (from 2 to 25 outlets*)
2. Chicken Shop (1 to 10)
3. Bobs and Berts (1 to 9)
4. = Dunkin’ Donuts (1 to 8)= Toro’s Steakhouse (1 to 8)= Red’s True Barbeque (1 to 8)= Churchill’s Fish & Chips (1 to 8)
7. = Treatz Dessert Parlour (1 to 7)= Palm Sugar (1 to 7)= Grind & Co (1 to 7)

* Number of outlets in 2013 compared with Oct 2016

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