Restaurant, catering sales indicate slower household consumption

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Constrained purchasing power

The release of March restaurant and catering stats points to ongoing growth weakness, a situation that has prevailed since mid-2013. This is further reflection of the combination of a weak economic growth rate and rising consumer price inflation, which in turn has led to slow household, disposable income growth.

For the month of March, the total value of Food and Beverages sales by restaurants and coffee shops, fast food and take-away outlets and by caterers was estimated to have grown by 2% year-on-year, down from the previous month's 6.5%. However, monthly data can be volatile and the report prefers to smooth it with a three-month moving average. Using this average, the year-on-year increase for the three months up until March was a little more respectable at 4.6%.

However, it would appear that what growth in sales there is, is more due to price inflation than to any real growth. The Consumer Price Index (CPI) year-on-year inflation rate for Hotels and Restaurants has been gradually ticking higher, from a low of 5.8% as at May 2013 to 7.3% as at March. Using this CPI index to deflate food and beverage sales to real terms, the real rate of change in food and beverage sales was strongly negative at -4.9% year-on-year, and -2.1% using a three-month moving average.

Luxury areas under pressure

Breaking the income streams from this sector up into its components, it remains the more 'luxurious' food and beverage areas that have seen the greater pressure.

Examining the three-month moving averages for the three sub-sectors, 'Restaurants and Coffee Shops', 'Fast Food and Take-Away Outlets' and 'Caterers'; the least affordable category, namely Caterers, is where the weakness remains most pronounced, although this category has returned to a slight positive nominal growth rate in the first three months of the year. For the three months to March, Catering income grew very slightly, to the tune of 0.7%, although this remains negative in real terms.

By comparison, the more affordable Take Away and Fast Food sector income continued to grow the fastest at 8.3%, while Restaurant and Coffee Shop income was a slower 3.3%. All three sub-sectors, however, have shown broadly slowing revenue growth rates since around early to mid-2013.

Bar bills plummet

The report further compares the two main categories of sales within the three sub-sectors and the more cyclical 'bar bill' continues to experience greater pressure in this financially constrained period. For the three months to March 2014, income from bar sales in the food and catering sector experienced a -3.4% year-on-year decline in value, sharply lower than the +16.8% growth for the three months to March a year ago. By comparison, Restaurant Sales (Food) were growing positively by 5.7% year-on-year for the three months to March.

It would appear that bar income has a tendency to be far more cyclical than food sales and the recent economic weakness has once again been reflected in this sales category's numbers. The last time there was a noticeable decline in the value of bar sales was in and around the 2008/9 recession. Despite the CPI rates for the different categories of beverages, the nominal decline is not showing inflation that is out of line with broader economy-wide inflation. This could thus be taken as a reflection of economic pressures as opposed to any extreme product inflationary pressures.

Conclusion

The Food and Beverage sales figures for the Restaurant and Catering Sector continued to paint a very weak picture in March, following on weak sales figures for March for the Mainstream and Motor Vehicle Sector retailers too.

The numbers continued to point to more downward pressure in less affordable/more 'luxurious' purchases within the Food and Beverage sector, with caterers' income growth still the weakest, and by type of product, the total bar revenue being affected most.

The March Food and Beverage numbers provide still further support to the bank's view that overall Household Consumption Expenditure growth will dip to below 2% (its forecast being 1.9% for the year) for 2014, down from a 2.6% rate for 2013.