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Culinary arts environment PESTEL report

on the restaurant industry in the UK
By Jonathon Warner November 2010
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Table of contents;

Title page 1

Table of contents 2

Introduction/methodology 3

Research findings 4

Pestel factors within the last 10 years 9

Current Pestel factors 10

Future Pestel Factors 11

Competitive advantage 12

Conclusion 13

Bibliography 14
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Introduction

The purpose of this report is to define the restaurant sector and explain how it fits within the

hospitality industry, in terms of its size and scope. It also aims to examine and evaluate

Macro environmental factors within the PESTEL framework that have influenced the

Evolution of restaurants in the past 10 years, in the present and also factors in the future

which may have the potential to change the shape of the restaurant industry. Using these

findings the report aims to make recommendations for the successful and continual growth.

Methodology

The research for this report has been carried out using textbooks and industry journals,

Websites and industry reports, I have also included knowledge acquired during my extensive

Experience working within the restaurant sector.

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Research findings

According to People 1st (2009) there are 14 industries within the hospitality sector.
The restaurant industry represents one of these and has grown steadily year on year
from 1997 –2007 People 1st (2009).
The eating out market is worth an estimated £25 billion In 2008 there was a 3 % drop
in the
restaurant market due to economic Stagnation and loss of Consumer confidence.
Analysts forecast a 1% growth within the industry for 2010. The eating out market in
the UK is worth an estimated £25 billion the UK restaurant market is valued at
around £5 bn at present.)
Premium vs. budget eating out –UK- November 2004 (Mintel)

'The UK’s restaurant industry is diverse. Restaurants range from top-end fine dining

establishments to quick service or ‘takeaway’ outlets. Restaurants can be classified

by type

 Chain or independent/franchise, - McDonalds, KFC

 Quick service - Sandwich, noodles, pizza

 Fast casual - Nandos, Gourmet burger

 Family – Giraffe, Rain forest cafe

 Casual – Hard rock, TGI Fridays

 Fine Dining – Le Gavroche, The Fat Duck

 Others – Seafood, Ethnic

(Walker R J 2008 ‘The Restaurant, from concept to operation’ fifth edition, John
Wiley

& sons, New Jersey)

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Restaurants are a part of something much bigger, the hospitality industry, to fully

understand what a restaurant is, it is important to define what hospitality means , ‘the

basic function of hospitality is to establish a relationship or to promote an already

established relationship’ (Lashley C, Morrison A, ‘In search of hospitality’

Butterworth-Heinemann, Oxford, p19) Hospitality is always about the guest and

Their experience. Restaurants are concerned with giving the customer an

experience that encompasses three main Aspects of hospitality. Most unbiased

restaurant guides such as the Michelin and the AA guide use these criteria to rate an

establishment;

Service

Food

Ambience

The birth of restaurants happened in Paris at the turn of the century, restaurants or

restoratives were originally restorative drinks or consommés (clear soup) sold to the

weak and the invalid. The first types of restaurants sold very few items not the huge

varied eateries available today, the Face of restaurants has changed dramatically

over the last 60 years, from post war Britain where short food supply and slow

industrial growth dominated the 50s, which meant that there was little demand for

restaurants to the emergence of Nouvelle cuisine in the and 70s the economic

boom Of the 80s saw the restaurant industry grow quickly as demand for eating out

and disposable income increased .

Over the next 20 years easier and cheaper Importation of foreign and out of season

ingredients influenced restaurants as did the influx of immigrants from all corners of

the globe, bringing with them exotic flavours and different dining cultures. The late
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80s and 90s saw the rise of the celebrity chef and so giving restaurants a new

attraction to the consumer.

Restaurants have morphed from 'the emergence of the restaurant (as we know it)

from a tiny cup of bouillon’ Spang RL (2001), to gastronomic Mecca's serving avant

garde cuisine such as elBulli.

One of the most recognised types of establishment are chain restaurants these can

be giant corporations like;

McDonald’s Restaurants Ltd

UK turnover to 31 December 2004: £1.6b (2003: £1.09b)

Number of UK restaurants: more than 1,250

Number of UK in-store restaurants: 519
(http://www.caterersearch.com/Companies/33902/mcdonalds-restaurants-ltd.html)
To smaller chains such as
Carluccios Plc
Turnover: £36.8m (2004:  £24.8m) 
Full year end: September 2005
In-café shops account for 22% of turnover
Total number of outlets: 24

(http://www.caterersearch.com/Companies/33896/carluccios-plc.html)

Both chains offer a very different experience but understand the importance of brand

concept,

Identifying symbols which make them more visible physiologically. Walker R J (2008)

According to people first (2009) the restaurant industry has grown year on year with

approximately 70,200 enterprises as of 2007, 567,600 people work in the restaurant

industry in the UK.

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• 53 percent of the restaurant workforce are employed on a full-time basis

47 percent work part-time.

• The workforce is very young, almost a quarter working in the industry are aged
between 16 and

19 a further 32 percent are under 30, 10 percent over the 50.

• Nearly half working in the restaurant industry work in elementary

occupations. Over a fifth are managers and 17 percent work in skilled trades (the
majority of

which are chefs).

(State of the nation industry report, people first 2009)

Each type of restaurant offers a different experience depending on a number of

factors these
Include
 Cost

 Time

 Expectations

 occasion
According to Mintel (2004) the budget/mid market-premium segmentation stands at;

Type of Market value % budget/mid % eating out Average

establishment £m market eating market annual eating
out sector out
expenditure (£)

Budget/fast 7,024 32 28 364.12

food

Mid/premium 13,104 59.7 52.2 820.29

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Other * 1,812 8.3 7.2 74.24

TOTAL 21,940 100 87.4 1258.65

*Excludes cafes, coffee shops and other outlets found in store

Mintel (2004)

The restaurant industries scope is varied and it seems that the demand for them is

only going to increase as of 2004 the ratio of eating out/home in the UK was 30:70,

the UK is following the trend of the US where by 2000 the ratio was 41:59, Kant and

Graubard (2001)
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PAST PESTEL FACTORS

political Customers more likely to eat out

Smoking ban 2007 Walton (2007)
Economic Recession of the 00s High unemployment and decreased disposable income
has a negative effect on the restaurant industry
Labour market trends (2006)
social Influx of European skilled foreign workers helps keep the restaurant
migrants industry labour shortage lower
Thomas (2007)
technological Development of IT Easier accounting, booking systems, HR management
systems for restaurants Catersearch (2006)
environmenta Carbon foot print Consumers become aware of the consequences of the
l carbon footprint of products and expect restaurants to
operate in more eco friendly ways
legislation The Working Time Puts pressure on employers to ensure employees are not working too
many hours
Regulations (1998 HSE
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CURRENT PESTEL FACTORS

Political Cuts to training and FE vocational colleges’ puts strain on the
Cuts in training providers to keep producing industry ready employees.
education Toynbee (2010)
and training
funding
Economical Weakness Weak exchange rates bad for UK imports, good for UK tourism
of the euro industry which helps restaurant business in tourist hot spots
Social Aging work An aging restaurant work force means less room for younger more
force motivated employees
People 1st (2008
Increasing Modern kitchen technology diminishes the amount of manual labour
use of needed in restaurant kitchens
Technological kitchen
technology
Environmenta provenance Consumers want to know where their food is coming from
l Moverly (2010)
Legislation Equality act Gives employees protection in the restaurant industry
2010 Government Equalities office
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FUTURE PESTEL FACTORS

political Impact of The cuts and VAT increase will decrease consumers
government disposable income
cuts

Economical Increased Unemployment is forecast to increase which could

unemployment affect footfall to restaurants
office for national statistics (2010)
social Tightening of The decrease of cheap and easy to find labour could
immigration become a problem for restaurants who historically
laws rely on immigrant workers
technological Improved Less disposable income and improved supermarket
home dining cuisine could lower foot fall to restaurants
products
environmental Diminishing 80% of fish stocks are fully or over exploited
fish stocks Restaurants may be forced to not use or charge very
high prices for fish
MSC (2009)
legislation New Increase the size and quality of the industry through
legislation to training and incentives for the work force
support and BHA (2010)
develop the
hospitality
industry
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Competitive advantage

The restaurant industry’s scope is huge and depending on the type of restaurant

Competitive advantage will vary, looking at the industry holistically, there are certain

factors that all restaurants should concentrate on;

 continual staff development

 value for money

 excellent customer care

 consistency- whether chains or individual

 strong concept/brand identity

Porter (1985) says that;

"Competitive advantage grows fundamentally from the value a firm is able to

create ... Value is what buyers are willing to pay, and superior value stems from

offering lower prices than competitors for equivalent benefits or providing unique

benefits that more than offset higher prices."

The low end of the market should concentrate on cost leadership because their

products are similar, it is important to ensure the product is consistent in price and

quality.

Mid to high end restaurants should focus on differentiation as the higher running

costs and higher cost to the customer, must reflect an experience that stands out

from others.
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Conclusion

The restaurant industry is thriving and projections predict that this will continue

despite the economic downturn, there are factors that have, are and will shape the

future of the industry. The restaurant workforce needs to be alert and proactive to

these changes. The current and predicted growth of the skills shortage must be

addressed.

Consumer demand for ethically sourced ingredients, good value and service will only

increase these demands must be met by the industry. The government and industry

entrepreneurs must recognise this and and invest in its workforce to continue and

increase the contribution the industry gives to the UK economy.

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Bibliography

Internet sources

Restaurant industry will return to growth in 2010 (2009) Available at:

http://www.eatoutmagazine.co.uk/online_article/Restaurant-industry-will-return-to-

growth-in-2010/6241 (accessed: 10th October 2010)

McDonalds restaurants Ltd (2006) Available at:

http://www.caterersearch.com/Companies/33902/mcdonalds-restaurants-ltd.html

(accessed: 02 November 2010)

Carluccios PLC (2006) Available at:

http://www.caterersearch.com/Companies/33896/carluccios-plc.html

Walton, C. (2007) Restaurants confident smoking ban will boost business. Available at:

http://www.caterersearch.com/Articles/2007/06/26/314548/restaurants-confident-

smoking-ban-will-boost-business.htm

Thomas, D. (2007) Migrant workers are more reliable and better skilled, says research.

Available at:

http://www.caterersearch.com/Articles/2007/02/01/311330/Migrant-workers-are-

more-reliable-and-better-skilled-says.htm

The Working Time Regulations (HSE, no date) Available at:

http://www.hse.gov.uk/contact/faqs/workingtimedirective.htm

Technology: Accountancy systems for hotels and restaurants (2006) Available at:

http://www.caterersearch.com/Articles/2007/01/24/305663/Technology-Accountancy-

systems-for-hotels-and-restaurants.htm

Toynbee, P. (2010) Sorry, students, but you're low in the pain pecking order. Available at:
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http://www.guardian.co.uk/commentisfree/2010/nov/05/students-low-pain-pecking-

order

Moverly, J. (2010) Local quality that fits the bill. Available at:

http://www.caterersearch.com/Articles/2010/03/04/332460/Local-quality-that-fits-the-

bill.htm

Equality Act 2010 (Government Equalities office, no date) Available at:

http://www.equalities.gov.uk/equality_act_2010.aspx

UK hospitality can create a further 236,000 jobs by 2015 (British Hospitality association)

Available at:

http://www.bha.org.uk/2010/10/12/uk-hospitality-can-create-a-further-236000-jobs-

by-2015/

Books

Spang, R L. (2010) The invention of the restaurant. 3rd edn. Cambridge Massachusetts:

Harvard University press

Lashley, C. and Morrison, A, (2002) In search of hospitality. Butterworth-Heinemann:

Oxford,

Walker, R J (2008) The Restaurant, from concept to operation fifth edn. John Wiley & sons:

New Jersey

Journals

Labour market trends 2006 (National statistics), 114 (12), p17.

Economic and labour market review (2010) Office for national statistics, 8 (8), p31
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Reports

Mintel (2004) Premium vs. budget eating out, UK

Kant, A K and Graubard, B I. Eating out in America, 1987-2000: trends and nutritional
correlates. US
People 1ST (2008) state of the nation report. UK