This time last year, the food-to-go market was the envy of not only the food and beverage sector, but most of the retail and leisure market. What a difference a year makes. The sector's perceived success last year had been chalked up to quick service restaurants and cafes and coffee shops seemingly offering much-needed affordable treats amidst the rising cost of living. In reality, a deeper look into transactional data through CACI's Brand Dimensions market tracker showed there was one specific aspect of the cost-of-living crisis that drove this rise in sales: inflation. The consequences of this were a downturn in transactions from the end of the first quarter in 2023, combined with rising prices that masked this decline during the high inflation months. 

 

Between September 2022 and February 2023, life was good. Year-on-year (YOY) transactions were up between 5% and 9% for the combined 30 food-to-go brands that Brand Dimensions follows. Transactions then sharply dropped, but hovered around positive until September 2023 before falling into negative territory for seven of the nine months from October 2023 to June 2024, ending the second quarter at a low of minus 3.3%. Price rises can only disguise the falling footfall for so long, especially when inflation has stabilised. This has caused the entire sector to move into negative YOY sales territory in April (down 3.2%). While the sector scraped 2% YOY increase in May and June this year, this is in stark contrast to the heady days of the turn of 2022-23, when YOY sales of more than 15% were sustained. No wonder the headlines have started, and discounting is being used as a tactic to draw customers back into restaurants and cafes. 

 

At the front and centre of these headlines has been the market leader, McDonald's, experiencing a sales decline for the first time since the pandemic. However, Brand Dimensions shows that its YOY transactions have been in negative territory for every month since February 2023, apart from brief positive figures in June 2023 and February 2024. So, it moved into negative transaction territory eight months before the wider sector. On the surface, however, things seemed all right. Despite transactions being down in the second quarter last year, it still saw a 15%-16% rise in sales. These sales increase figures almost perfectly tracked its rise in average transaction value (ATV) at the time, however. This may look like a masterstroke in driving ATV, but the reality is that this reflected rising prices. 

 

The tightrope of price rises can only be walked on for so long, especially with customers feeling the squeeze and seeing that headline inflation figures are now at more normal levels. Eventually, customers question why they are spending more for the same thing. This caused McDonald's to report negative YOY sales in the second quarter of 2024 at a time when things converged. According to Brand Dimensions findings, transaction volumes were now down by between 3% and 6% YOY, and its YOY ATV dropped dramatically to much more “normal” levels of being up between 1% and 5%. The trouble is this ATV rise is no longer enough to offset the fall in transactions – hence the negative sales in the second quarter. Or, to put it another way, customers are still feeling the pinch of those rising costs and making spending decisions, despite a sharp reset in inflation. Another big name, Starbucks, has also had transactions decline by 4% YOY in the last quarter, despite a 5% ATV increase, a nod to the brand's propensity for lifting prices to offset fewer visits. 

 

Other established players in the sector are walking the same tightrope. KFC, for example, has been fighting to balance price and transactions over many months and has ultimately seen transactions decline, entering and remaining in the negative YOY in April 2023 apart from a brief period in summer 2023. Its sizeable ATV increase in April 2023 coincided with an equally sizeable fall in transactions, and interestingly, its headline sales figures recovered slightly in May and June when it managed to increase its ATV to well above inflation levels. As of this June, however, transaction volumes have been down 11% compared with last year, leading to YOY sales turning negative in two of the three months of the second quarter.

Brand Dimensions also shows the likes of Burger King, Subway and Domino's experiencing YOY sales declines in the second quarter, joined by more recent success stories like Leon, Wasabi, Ole & Steen and one of the big new entrants of recent years – Tim Hortons, whose rapid expansion has come off the rails, with sales down 17% in the second quarter. In such a market, it is unsustainable for brands to continuously drive up prices – hence the pressure to discount, or at least limit price rises to inflation levels. The trouble is this ATV level is not enough to offset the fall in transactions – hence the negative sales in the second quarter.  

 

The sector has seen a flurry of new openings in recent years that have given customers more choice in their local markets. This comes from rapidly growing recent arrivals like Popeyes, Wingstop, Black Sheep, Joe & The Juice and Gail's, all bringing something new and exciting to the market. At a local level, it also comes from established player, Greggs, opening substantial numbers of new outlets in convenient locations that are providing local customers with low price refreshments. All of these have seen sizeable increases in sales, a swathe of which will have been stolen from established players that hard-pressed customers are seeing as no longer offering value for money. 

 

Customers have absorbed the price rises for too long, and now see that the offer may not be as affordable a treat as it once was. They have the choice of paying a little more for something they perceive to be a bit more exciting or better value, or they trade down. Many people are clearly trading out of the market, as both spend and transactions across the overall market shrunk by 3% in the last quarter. Whether this is buying food to go at a grocer or making their own, it is a concerning trend for the sector, which must find a way to bring back those lost customers. 

 

Promotions and offers may offer a short-term solution, but they come with a health warning. Remember the days when it felt like nobody ate in a casual dining restaurant without a discount coupon? As many casual dining brands learned the hard way, discounting is a difficult habit to kick. As we are already seeing, customers set their own benchmarks of what is an acceptable price and value for money, and they rapidly start to factor in expected discounts.  

Wandering around the reopened Waitrose store in Finchley, north London, on the preview night, it was clear that the food-to-go element had been turbo-charged and the plan is to feed some of the new innovations in this store into the rest of the retailer’s estate.

 

Waitrose joins a growing band of retailers looking to grab a greater share of this growing part of the food market. It’s not really surprising when you consider that food-to-go has been on a multi-year growth spurt – enjoying an increase of a hefty 17.5% between 2019 and 2024, with 3.5% forecasted for this year, according to Lumina Intelligence. This outstrips anything that has been seen in the comparatively sluggish supermarket sector.

 

Taking a tour around the new store with Tina Mitchell, retail director at Waitrose, she told me: “The food-to-go offer had been jumbled around the store, but we’ve now split it out [and placed it together]. It was not that big [for Waitrose] but it’s now fundamental. Combined with the meal deal launched a year ago, food-to-go is an increasing part of the offer, and it will be super important as we open more convenience stores.”

 

Waitrose last week announced it is planning to open 100 more convenience stores over the next five years as part of a £1bn-plus investment in new outlets and shop refurbishments. They will feature elements now being showcased at the Finchley store. These include a Hot Wok ready-to-eat meals counter, two Crosstown doughnuts counters that offer exclusive lines, a new-look Nero coffee station, and an entirely chilled department for beers, wine and Champagne that makes the whole selection ready for on-the-go consumption.

Customers no longer have to wait at home while their tipple chills. There is also a new hot chicken counter, along with a made-on-the-premises baguettes and salads section, which is a first for Waitrose, and it is already being lined up for a roll-out across its portfolio in a move that puts the likes of Pret A Manger in its sights.

 

It has also become the first UK supermarket to have a dedicated hatch which allows collections of online orders from the likes of Deliveroo and Uber Eats outside the store’s regular opening hours as it is manned 24 hours a day. Grocery delivery through the third-party delivery guys is already an important part of the Waitrose business, and Mitchell can see these orders being supplemented with more food-to-go items as well as pure food-to-go deliveries – especially when there is the opportunity to add alcohol into the mix.

 

The Waitrose re-opening coincided with WHSmith launching its first own-brand café as it also pushes further into the food-to-go market. The not-particularly-imaginatively-named Smith’s Kitchen opened in Princess Anne Hospital in Southampton and offers a choice of dine-in (there are 26 seats) and take-away options, including the recently launched food-to-go range under the Smith’s Family Kitchen banner, alongside hot and cold drinks.

This new range comprises 30 products including sandwiches, salads, baguettes and wraps. The plan is to roll this offer out across more travel locations in the UK, which represents the engine of the WHSmith business and encompasses more than 590 stores across airports, hospitals, railway stations and other travel hubs.

 

Retailers’ ongoing moves into the food-to-go arena are undoubtedly being led by the bakery category, and it is this that is powering the overall growth of supermarket Lidl, which has been the fastest growing grocery business over the past 12 months. It felt sufficiently confident about this increasingly important part of its business that it fired a salvo at market-leading food-to-go player Greggs. It ran a print advertising campaign comparing its 39p jam-filled doughnuts with the 95p version at Greggs, in a move aimed at tempting customers away from bakery sector’s 800-pound gorilla.

 

As retailers increasingly look for areas of revenue beyond their core operations, then food-to-go represents an obvious area that, for now, is offering them outsized growth opportunities compared with traditional retail. Hospitality companies clearly have to consider the threat of ongoing incursions by these retailers, because the size of the overall food-to-go pie is surely finite.

A few rather dangerous things seem to be coming together at the moment. Not long ago, I wrote about the challenges faced by the younger generation. As a result of covid, educational attainment has fallen behind across the world and social skills have also taken a hit. Prolonged isolation and disruption of normal routines have left many struggling to catch up, both academically and socially. These setbacks are becoming a serious issue for the future of this generation and their employment prospects. 

Actually, England has held its ground and is even moving up in global rankings, though this is largely because it hasn’t worsened. The Scottish, on the other hand, because of “progressive” child-centric policies, have sadly fallen down the world rankings. As a result, the generation that went through school during the pandemic (perhaps there will be a name for them, but for now, I will call them the covid generation) faces disadvantages in the workplace in terms of both social skills and educational attainment.

 

The new Labour government is planning to make significant changes to wage and employment policies. They intend to remove the lower levels of the minimum wage, which would bring younger people up to the same rate as those in higher age brackets. Young workers could earn the same as their older counterparts, regardless of age. They also aim to improve immediate employment rights by giving new workers the same protections and entitlements as those who have been employed for longer and have already proven their worth in the job.

 

Both activities clearly have a significant cost on our industry. Another increase in the minimum wage will inevitably add a substantial financial burden. This will undoubtedly affect our bottom line. Additionally, the plan to bring forward employment rights will make it increasingly difficult to manage underperforming employees. It will not only make it harder to let go of those who are not meeting expectations, but will also drive up our HR costs.

 

However, I am not sure that any financial argument will have much of an impact on a government that is so firmly focused on its mission. Perhaps, then, our worries and arguments will end up seeming parochial and irrelevant in the grander scheme of things. The government’s determination to push through its agenda may well overshadow any industry-specific concerns, no matter how valid or pressing they may seem to us.

What I do think will matter, though, is youth unemployment. We are currently at a time when youth unemployment has been rising again. Over the last 12 months, it has increased from 11.4% to 13.9%, according to the Office of National Statistics. Additionally, the economic inactivity rate for young people has also been climbing, going from 38.8% to 41%. These statistics are the most concerning for our country, as it seems to me that the greatest risk to society is when young people fail to develop a work ethic in this crucial phase of life, whether after school or university. This, in my view, is the real measure of a government’s success, not just whether people are paid enough when they work or how many rights they have.

As an industry, we should be campaigning hard for young people, because we are one of the key recruiters and one of the main developers of skills for 16 to 24-year-olds. As I sit here on a beach holiday, surrounded by Irish staff, I am reminded that the option for European summer employment has also largely disappeared. We need to make a strong case for our industry’s role in helping the covid generation become an asset to the country. But we also need individual incentives. Without them, employing young people will become a last resort rather than a priority.

 

Funnily enough, one of our customers, a highly successful businessman, recently suggested that his 16-year-old daughter should get some work experience at one of our pubs this summer. He clearly understands the importance of her gaining real-world experience to help her grow and develop essential skills.

Of course, we will ensure that everything is done within the bounds of legislation, but we will make it work. It is a perfect example of how important it is for young people to engage in the workforce early on. But our real objective, as a country and an industry, should not be to fail the covid generation a second time be not letting them work. Food for thought.