Following a tumultuous 2016, 2017 has followed a similar script, with few signs of meaningful growth acceleration in any key market. China remains an economy in transition, with the searing growth rates of the previous decade giving way to high-single-digit annual value expansion over the next five years. Meanwhile, major economies such as Brazil, the U.S., and Western Europe face both great uncertainty and relatively flat overall traffic growth. In every market, the pace of innovation is quicker than it has been in decades, forcing every operator to adapt to a world in which technology continually promises to reinvent the restaurant experience.
— Michael Schaefer, global lead, food and beverage, Euromonitor International
The retail-foodservice nexus
Retailers have always played an integral role in the International Top 25. The three largest foodservice players outside of the U.S. and Canada are all convenience-store chains, led by 7-Eleven, with its more than 60,000 global outlets, while home decor giant IKEA booked an estimated $1.5 billion in foodservice sales last year, from fewer than 400 global stores. More broadly, modern retail and foodservice have long gone hand in hand, with dining a core part of the offer at the very earliest department stores and shopping arcades. Yet retailers’ interest in restaurants and foodservice in general continues to grow, as relentless pressure from online commerce forces a rethink of the entire in-store experience, with dining playing an important role in the ongoing “reinvention of retail.”
It should therefore come as no surprise that many of the most fascinating innovations in the International Top 25 have come from retailers. While Swedish meatballs remain fundamental, IKEA has continued to experiment with its foodservice offerings. Last year the chain launched its “Dining Club” pop-up store in London, offering customers the chance to host their own dinner parties, assisted by professional chefs in a kitchen fully stocked with IKEA furniture and equipment. While the temporary store was more marketing exercise than long-term statement of intent, it demonstrates the Swedish retailer’s determination to use foodservice and its associated experiences to drive deeper, long-term engagement with its customers.
Similarly, while Japan’s largest convenience-store chains have long offered a wide array of fresh, ready-to-eat meals and snacks, the range of foodservice concepts and approaches on offer has continued to expand. In an aging market where top-line sales growth can be difficult to achieve, more chains are focusing on growing their share of total away-from-home dining occasions. While eat-in areas have long been available in many Japanese convenience stores, the experience has been upgraded. Since 2014, Ministop has steadily expanded its “Cisca” concept, which combines a well-appointed dining area with a large, premium alcohol selection and high-quality deli area to better attract local office workers who might otherwise eat elsewhere. At the same time, chains such as 7-Eleven have steadily expanded their delivery capabilities, leveraging their vast existing outlet footprints to quickly serve consumers even in smaller towns and localities.
Related: The International Top 25 data table
For retailers of all types, foodservice offers potential revenue and traffic streams while also reinforcing the consumer connection. Hosting a successful dinner party in a 100-percent IKEA-sourced space can serve as a far more memorable experience than even the best 30-second commercial, for instance. This is also true of packaged food and drink manufacturers, with brands such as Nescafé and Magnum ice cream leveraging pop-up spaces to drive marketing and promotion.
For foodservice chains, this adds up to more competition than ever before, while pointing to a future where brick-and-mortar retail and foodservice are increasingly two sides of the same coin. As more daily retail and eating occasions are served online, what will remain in the physical world are the most memorable, most engaging experiences. Competing in this space will require significant investment and continuous innovation. As consumer attention grows more fragmented, the continuous engagement seen in a good restaurant will become more valuable than ever.
China: Digital-driven demand for delivery
Delivery and digital are booming in the U.K., Japan and China, key markets for much of the International Top 25. China in particular is experiencing a delivery revolution, where heavy digital penetration means delivery is becoming faster and more important than any other market.
Delivery is a growing opportunity in North America as well. Full-service restaurants are looking to delivery to offset sluggish dine-in traffic, while even quick-service chains are experimenting in the space. Convenient dining occasions are growing, but expectations toward the experience are changing in reaction to more advanced digital technologies. North America-based operators should look to China as a model market for effective, digital-oriented delivery and for best practices in using the tools available to maximize the potential for growth.
Not long ago, the only players offering food delivery in China were McDonald’s, KFC and Pizza Hut. These chains dominated the delivery market with a network of telephone operators and in-house delivery personnel on motor bikes. This worked well because the process was low-tech, and it offered an initial but growing pool of consumers a more modern, convenient foodservice option.
Internet access and smartphone ownership have increased drastically, however, and domestic e-commerce companies like Alibaba Group Holding and Tencent Holdings have made moves to invest in and consolidate the market for digital-oriented services. Food delivery as a limited, low-tech service was a natural target for investment, and money has since been pouring in to build out a new digital-oriented food-delivery landscape that is controlled in large part by these two companies.
Alibaba controls a majority share of the market with the first- and third-largest players, Ele.me and recently acquired Baidu Waimai, while Tencent backs Meituan-Dianping, a food delivery platform seamlessly integrated with its own WeChat and QQ services, which are highly popular social media, messaging and mobile payment platforms. Unlike restaurant delivery services or third-party aggregators in the U.S. and elsewhere, delivery in China is controlled by e-commerce giants that have a hand in everything from Internet search engines and social media to telecommunications and payments, controlling the digital universe in which food delivery is just one part.
Food delivery quickly became integrated with the digital services Chinese consumers use every day, and third-party coverage has given consumers nearly limitless choices, squeezing international quick-service chains that have been slow to adapt, given how entrenched they are in more traditional models. In a short time, the delivery landscape changed dramatically in China and international quick-service chains lost their market advantage as digital-oriented delivery developed around them.