The Australia economy continued to expand at a moderate pace. On one hand, key commodity prices continued to be lower than a year ago, leading to a fall in Australia’s terms of trade. The softening economic conditions in the US and Asia also impacted on the national economy as mining exports continued to decline.
On the other hand, consumer sentiment rose this quarter driven by recent political events. November consumer confidence figures reported a near two year high boosted by the leadership and ministerial changes that took place in mid-September. This continued in December with more optimists than pessimists in the market expecting improvements in the economy over the next year. In addition to this, businesses also reported a much better picture with surveys suggesting a gradual improvement in conditions over the course of the year. This was reflected in easing unemployment to the levels seen in mid-2014 driven by a record high in full time employment. This was positive news for the retail industry, and by default the restaurant industry, as analysts predicted a Christmas spending outlook at a seven year high.
According to CREST, the consumer spend in the foodservice industry grew by +4 percent this quarter, a significant increase compared to the previous three quarters where spend had been growing at +2 percent. Unlike the previous quarters, growth in spend this quarter sourced to both more visits (+2 percent) and a higher average eater cheque (+1 percent). However, while it appears that consumers were more relaxed when eating out, they still showed conservative behaviour when visiting the industry. The cheaper QSR (+3 percent) and retail (+4 percent) channels continued to drive the growth in visits, while FSR (-1 percent) posted declines in visits for the fifth quarter. This indicates that while consumers feel more optimistic, the underlying weak economic outlook persists in their minds.
Adult only parties came back this quarter after a brief retreat last quarter, particularly the older age groups (35 plus). More parents decided to visit the industry without their children, particularly at lunch. As a result, families posted declines in visits, particularly at QSR and retail, after two quarters of growth. However, there were some bright spots as families continued to eat out in FSR at weekday dinner and weekend lunch during the Christmas holidays.
Overall, more consumers opted to eat out at lunch both on weekdays and weekends, while dinner also saw more visits particularly on weekdays. Consumers were more diverse in their visits at lunch with QSR fish and chips, sandwich/salad/juice, supermarkets and cafes posting the largest gains in visits, as the burger category led the gains dinner. The café and coffee categories drove the overall gains in visits to the industry as more consumers opted for these categories at lunch but also for their morning coffee during a time when morning meal declined for the industry. In addition, consumers continued to purchase more a la carte (for the fourth quarter) and to use less deals (for the fifth quarter) in their visits to the foodservice industry. This shows that consumers have become less price led than in the past, albeit they continue to be budget conscious by opting for a la carte which typically means purchasing less items and therefore paying a lower cheque.
As a result, French fries, burgers and sandwiches saw the largest growth in servings this quarter as consumers continued to opt out of sides such as desserts and beverages. Coffee was the exception posting the largest gains in servings across all foods and beverages. Australian consumers continued to show their love for coffee at morning meal but they also consumed more coffee at lunch, which raises the question of whether operators should consider extending their coffee offering to all dayparts.