Norway - The Future of Foodservice to 2021

24/08/2017 - 13:44

Macroeconomic summary

Norway is one of the world’s most affluent countries, with a high average income. The high cost of living and tax rates are, however, eroding some consumer purchasing power. The Norwegian economy is also more exposed to global oil prices than those of its Scandinavian neighbors.

While income discrepancies exist, extreme poverty and wealth are not common in the country, with most low-income consumers able to afford semi-regular visits to foodservice outlets. 60% of consumers report belonging to a mid-level income household.

The population is growing at a steady rate but is, on average, aging rapidly. These aging consumers present opportunities for operators that can appeal to a more mature audience.

Profit sector summary

Overall profit sector revenue rose at a CAGR of 3.0% between 2014 and 2016. This growth is forecast to accelerate slightly to 2021, at a CAGR of 3.3%. Increasing transaction numbers, rather than rising transaction values, are driving growth in most foodservice channels. Outlet growth between 2014 and 2016 was near to non-existent in a number of channels, including pubs, clubs and bars and coffee and tea shops. Liter buying volumes also contracted across profit sector channels from 2014-2016.

Multiple channels are set to see increased demand for convenience to 2021, this includes a greater provision of takeaway and delivery across the sector. Channel boundaries are also becoming increasingly blurred, as operators from different channels compete for the same or similar visit occasions. A key trend that has emerged from this convergence is the growing popularity of casual dining in FSR.

Quick service restaurants summary

The QSR channel was Norway’s fourth largest foodservice profit sector channel by revenue in 2016, accounting for 7.2% of overall sector revenue. Overall channel revenue rose at a CAGR of 3.1% between 2014 and 2016, and this growth is forecast to accelerate to 2021, at a CAGR of 3.4%. The channel has, by far, the greatest penetration of chained operators, with branded players generating almost 80% of channel revenue in 2016. Key QSR chains in Norway include Norgesgruppen, Pizzabakeren, Burger King and McDonald’s.

Fast food options dominate in the channel, with a high proportion of consumers purchasing burgers, carbonates and pizza. Convenience and value motivations are currently the most common drivers of QSR visits, with few consumers citing food quality as a motivation for visiting the channel

Families are the most frequent visitors to the QSR channel, and appealing to children is therefore a key driver of growth. Consumer groups that are often associated with convenience seeking behavior currently under-trade in the channel, as they are won over by better quality options elsewhere. Operators can increase visits by families by offering higher quality children's meal options.

The channel risks losing more discerning consumers to casual dining FSR operators. Offering a greater level of convenience, through branch placement and delivery provision, are suggested methods to mitigate this trend.

Full service restaurants summary

The FSR channel is, by far, the largest profit sector channel in terms of overall sales value, accounting for a third of sector revenue in 2016. Channel revenue grew at a CAGR of 3.4% between 2014 and 2016 and is expected to continue rising at a sector- leading CAGR of 3.7% until 2021. Growth in the channel was driven by increases in overall transactions between 2014 and 2016, although a slight increase in average transaction value was also observed. The channel is highly fragmented, with no single operator controlling more than 2.0% of overall channel revenue. The majority of consumers prefer independent operators, and also value local outlets.

Main meals and traditional dishes are popular, but a wide range of cuisine types is available in urban areas, and demand for light meals at unconventional times is growing. The channel is popular for social occasions, most notably dates with a partner and visits with family or groups of friends. Although FSR meal occasions are varied, visits to the channel are not as frequent as in the competing QSR or coffee and tea shop channels, thus resulting in lower levels of price sensitivity and a greater focus on quality. Low price sensitivity has enabled operators to upsell items, including more expensive, premium alcoholic drinks.

Casual dining is set to drive growth in the channel to 2021, as less value-focused consumers trade up from the QSR channel to casual FSR. Delivery and takeaway provision is also forecast to grow ahead of the wider channel, in step with this trend. By partnering with delivery operators, such as Foodora, casual dining operators can offer delivery services to convenience seeking consumers with minimal initial capital outlay. Fine dining is also set to see growth, as new Nordic cooking methods receive increased international recognition. Driven by this trend, the channel will benefit from increased food-based tourism to Norway.

Coffee and tea shops summary

The coffee and tea shop channel is the ninth largest channel by revenue in the Norwegian foodservice profit sector, accounting for only 1.2% of overall sector sales value in 2016. Revenue in the channel increased at a 3.2% CAGR from 2014-2016, driven almost entirely by growth in transaction numbers. Value growth is forecast to expand marginally to 2021, at a CAGR of 3.4%.

The channel is relatively consolidated, with chained operators generating a combined 30.0% of total sales value in 2016. Although a number of loyalty schemes are available, branding was only reported as a significant driver of outlet choice by a small share of surveyed consumers.

Coffee consumption is an integral part of Norwegian food culture, and coffee beverages were purchased by almost every surveyed visitor to the channel. Although baked goods and other light food options are offered by the majority of operators, consumers do not typically visit the channel for ‘appealing food’, instead citing factors such as ‘atmosphere’ and ‘good facilities’ as key drivers of outlet choice.

Consumers currently rely on the channel as a ‘third space’, distinct from both their work and home space. Most visitors dine-in and value a quiet atmosphere and comfortable furnishings. To 2021, operators will increasingly focus on convenience to cater to time-poor consumers, as purely drink-based occasions become more common and takeaway transactions continue growing ahead of the wider channel. Operators that can offer a quality product, that can be conveniently consumed on-the-go, stand to benefit from this trend by raising takeaway transaction values.

Pubs, clubs and bars summary

Pubs, clubs and bars are Norway’s second largest profit sector channel in terms of revenue, representing 15.0% of total sector sales value in 2016. Revenue in the channel rose at a 1.6% CAGR from 2014-2016, a rate markedly lower than in the FSR and QSR channels. Value growth to 2021 is forecast to keep trailing the rest of the sector, at a CAGR of 1.7%. Outlet growth is especially weak in the channel, with a CAGR of only 0.1% forecast to 2021. The channel is dominated by independents and, in 2016, no single chained operator controlled more than 1.0% of channel revenue.

Due to strict licencing laws and the Vinnmonopolet system of alcohol retailing, the channel is not exposed to off trade sales to the same extent as in comparable markets, such as Germany and the UK.

Alcoholic drinks sales represent the majority of both channel OBP value and consumer spending in the channel. Almost all surveyed consumers who visited the channel consumed an alcoholic drink, and beer was the most popular choice. Although food is typically available, current offerings are not appealing to consumers enough to raise transaction values. Operators can provide a more comprehensive food offering to target a wider range of visit occasions, and compete more effectively across channel boundaries.

The channel is the default choice for routine socializing, with most visits planned well in advance. Operators can target these pre-planned social visits with a calendar of regular events, which can include music acts and sports nights. As value concerns are not prevalent in the channel, operators can also raise transaction values by offering premium beverages, such as craft beers and spirits.

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