Maria: Well, there are two elements in the food industry.

One is what’s going on with the consumer, which is what I was referring to right now.

And the other, of course, is what is happening at corporate level and what is happening with the cost lines. So if we focus on the consumer and of course in Belgium, you are better off as far as you have a salary that is indexed, if you are not a freelancer or something like that. But in the rest of Europe, salaries are not per se indexed. And what we have seen is that the entry level salaries and the minimum wages have increased a lot, but the average wages are lagging behind inflation.

So in other words, in real terms the consumer is poorer than what it was back in 2019. And so they have to make choices.

Carl: Yes, that was what I was going to ask. So they need to make choices.

Maria: Absolutely.

Carl: Is it clear that they cut back on, let’s say, restaurant visits or things like that, like maybe luxury a little bit?

Maria: Well, the funny thing is that the consumer, I mean, when we started to see inflation kicking on, the first thing we did as analyst is just dig in our databases and dig in history and say, okay, what happened last time that the consumer was poorer? And the most obvious period is, let’s say 2009, 2014 roughly speaking, in Europe. So the financial crisis. The euro crisis.

Carl: Absolutely. Yes.

Maria: And at the time, the consumer did certain things. For example, they went out to the restaurant much less often and they traded down. So they went from going to a high price to a mid price or from a mid price to a low price restaurant. And in the retail they were going from buying branded products to buying private label and from buying more expensive options to buying cheaper options let’s say not steak, but let’s buy eggs.

So okay, that’s what we saw. And of course, they eliminated anything that was discretionary spending and superfluous. What we are seeing now is strangely different because what we are noticing is that, well, there is some of that trading down and some of going out less often to the restaurants, but it’s questionable how much is just because of the economy or how much is that we didn’t really get a full recovery of 2019 pace because some people have got new habits, but it is indeed a little bit happening.

Sales at supermarkets are remarkably hit compared to what we would expect when we look at restaurants in the sense that people are adjusting a lot what they buy and they are buying more private label, they are buying less expensive things, they are adjusting their shopping basket. And what they are not adjusting. But the opposite is their budgets for going out on holidays. If you follow the news, you will see that bookings are doing extremely well. Transportation is doing extremely well. So the consumer is making different choices.

Carl: So they cut back a little bit on, let’s say, basics and buy maybe more white label products, but they don’t cut back on pleasure and leisure.

Maria: They are more selective. And holidays is right now this year a priority in terms of leisure and pleasure, where they are ordering less meals through delivery because they’d rather go out. The restaurants with table service are recovering nicely, not all of them at the same pace, but for example, depending on the country, we observe that the consumers are spending less in bars, they are spending less in cafes. So if you think about what your intake on a day is often the restaurant is a meal, is the replacement of a meal at home, whereas bars, for example, are an additional expenditure. And that’s where we observe that they are also cutting down. Again, it is a country by country basis, but we notice that in general terms the more superfluous expenses are being taken care of or they will go to one bar but not two. So I can give you an interesting-

Carl: Yeah, go on.

Maria: No, no. And of course there is also a bit of trading down. So people are saying, okay, I go out for a dinner, but I will not go to this restaurant. I will switch to one that is a bit cheaper. So we observe also a bit of that going on.

Maria: No, there’s always a good time if it’s the right concept. And there are, I mean, there are also, of course, a lot of opportunities because what we are seeing is a rotation in the portfolios and we are noticing that, of course, again, it’s a country by country, market by market situation, but a lot of operators received a lot of support during COVID. It’s time to repay it. The support is over.

So quite a bit are just having a critical look at what they are doing and deciding it’s time to quit. Yes. So that opens white spaces for others to come and start a new business. So that is sometimes a voluntary choice, in others it is not so voluntary.

It’s just simply the financial model doesn’t work for them anymore. So we see still closures going down across the board, predominantly affecting independence, but not necessarily all of them.

We also see chains looking more critically at their portfolios and thinking, okay, that doesn’t make sense anymore with these new consumers.

So there is a lot of rotation going on in the market. So that means that there are also opportunities and there are opportunities, but you need to analyze your business model and say, okay, does it mean with today’s consumer attitude that I can succeed? Is it a good fit? Do I have access to the finance, to the funding necessary? And another very important thing nowadays in Europe is if I have those opening plans, will I have the personnel I need to open in good conditions?

Carl: Absolutely important indeed. If you look at opening up restaurants and one of the things we also discussed or you touched upon a bit earlier, is the, let’s say the delivery part. And, you know, it’s booming. It’s very popular. Everybody has ordered online. Deliveroo. Takeaway. All of those are very big.

But also there competition is massive. I mean, everybody is on these platforms today. So, I mean, there’s a thousand different pizzas to be ordered from a thousand different locations in each location in the world. But how do you look on that perspective? If you open a new business or if you are in the food service business, how much sense would it make to only open up a, let’s say, a virtual brand or a dark kitchen? Or how important is having a physical location with a restaurant front of house part where you serve people and where you can build your own brand? Or do you say, no, no. If you would go into the industry, maybe preferably as a virtual brand or really as a true brand.

Maria: There’s no good answer to that question. Right. But like everything we do as humans, we tend to exaggerate a lot. So there is a place for everything. But, you know, go backwards from time two years and it seemed that the whole world was going to be virtual and nobody was going to ever visit a restaurant and we were going to be doing all through delivery and you could have infinite brands that didn’t exist except for delivery everywhere. And obviously that has proven not to be the case. Delivery, as I already said, is coming off. So it will be much bigger than in 2019, but it’s not growing anymore.

A lot of these business models were set up assuming a growth for much longer and a scale that hasn’t been reached. So the assumptions were wrong is not that nobody wants the food delivery anymore, but it’s just that there’s no eternal growth in there. And with regards to what the consumer wants, it depends what the choice is, because if you are in a city where the choice is abundant it is different than if you are in a small place where your choice is very restricted. But what I noticed is that although only virtual brands make sense, in some cases, often brands that have started as delivery only and are successful actually choose to open also a bricks and mortar restaurant with seating places.

So there must be something that makes the the combined business more attractive. And of course, if you are a brand new brand not known anywhere and now there are competitors that are on the high street, maybe those have an, you know, an advantage because even if eventually the food is delivered from a central kitchen somewhere else, the consumer already has seen that and associated with a real restaurant. So there is and for what I observe that the industry is doing. There seems to be an advantage of having a mixed business. Doesn’t mean that virtual brands don’t have a future anywhere. Of course they have, but it’s much more selective than what it seemed to be. I don’t know, only one and a half years ago or two years ago. And so that is something. And then we mustn’t forget that the balance between on premises and delivery and takeaway is nowadays shifting a little bit back towards a bit more on premises on the street.