A new RaboResearch report has revealed that margins for the US foodservice industry remain under pressure despite higher sales.

As the world’s largest foodservice market, the US has enjoyed steady growth in volume and value for a number of years. This growth has enabled major commercial players to expand abroad, making North American brands prominent globally.

Although recent US trading conditions have been lackluster, the country will remain a major exporter of global foodservice brands.

Global US foodservice brands 

North American brands today are well-represented among leading foodservice names on all continents. While their non-US businesses are managed by local entrepreneurs, they continue to be influenced by developments at US headquarters.

North American local markets are contracting

The US foodservice industry has faced numerous challenges in recent years, including COVID-19 pandemic lockdowns, inflation and financial fallouts. 

More recently, it has encountered declining traffic and transactions, as indicated by bank card data and same-store sales figures from listed entities. Several of these listed entities are also global leaders and their strategic decisions to navigate the adverse trading environment could impact competitive dynamics beyond the US.

Protecting sales and margins

A variety of stock exchange-listed US foodservice corporates regularly disclose trading and financial information, providing insight into the industry’s key players. 

Despite disparities in recent performance, these groups have collectively outperformed the US market in revenue growth and have managed to protect their operating margins. However, their debt levels have recently increased.

Future growth potential remains solid

Some of the fastest-growing players attribute their success to higher same-store sales, demonstrating the effectiveness of their strategies. 

Their improved margins and current positions provide a solid foundation for future growth. Conversely, despite strong recent revenue growth, high debt or low operating cash flow may limit short-term expansion for others. 

Global players have reported modest revenue growth despite weak or negative same-store sales, but their strong margins and balance sheets allow them to invest in prices or acquisitions to address these challenges. 

US industry maintains its global reach

“Despite the current market slowdown, we believe the US will remain a major source of global-reaching brands and players,” says Maria Castroviejo, senior analyst of Consumer Foods for RaboResearch.

“Current international leaders have room for further expansion but must address weak same-store sales to remain attractive to international partners.” The US is also home to several local names with strong domestic bases and solid operating performance, which could become the next generation of global brands. 

Market outlook

In the US, consumers, particularly those in lower income brackets, are under significant financial pressure due to the cost-of-living crisis, which has eroded savings and led to record-high credit card debt. Foodservice demand has seen a significant decline, with transactions down 5.5% year-over-year in Q2 2024. Restaurant operators are increasing their promotional activity, hoping to drive a rebound in demand, even at the risk of undermining margins.

European and Chinese markets

Summer trade in Europe remained consistent with previous months’ turnover trends, Castraviejo reports. While affordability is gradually improving, consumers remain cautious, prioritizing holidays over other expenditures. The cost side shows improvement, with only staff costs likely to increase at a slower pace.

In China, consumer sentiment has been subdued, but per capita consumption began to stabilize in Q3 2024. “Major players are focusing on product innovation rather than promotions to attract customers. Western quick-service restaurant brands, with their value-for-money positioning, have remained resilient and have continued their planned network expansion,” Castroviejo explains. 

Further, casual dining brands face more pressure, with those offering better value propositions outperforming their competition but remaining cautious about scaling up. To overcome domestic growth constraints, many brands are seeking international expansion and considering a multi-brand approach.