Emerging trends in food supply in Israel
Apart from a brief recession during the global financial crisis of 2008-2009, the Israeli economy has seen consistent economic growth of around 5% per year since 2004. The country’s strong trade ties outside the Middle East region also allowed Israel to avoid much of the economic fallout from the Arab Spring of 2011. Economic prosperity has been largely driven by population growth, which rose from 7.6 million in 2010 to 8.5 million in 2016.
While employment and wages have increased, price levels in Israel are still among the highest in the OECD. The country’s high cost of living has previously sparked large-scale protests that have resulted in a more cost-conscious foodservice market.
Summary of the profit sector
In 2016, the Israeli foodservice profit sector was valued at approximately ILS 25.3 billion (USD 6.6 billion). Between 2014 and 2016, the profit sector grew in value at a CAGR of 1.1%. However, a large part of this growth was driven by retail (+3.5%), leisure (+2.6%) and accommodation (+2.9%). In contrast, a number of restaurant channels, including FSR and coffee and tea shops, registered declining value growth.
High operating costs, the small size of the market and an unstable political climate have previously deterred global chains from entering the Israeli market. However, major retailers such as Amazon, Alibaba and IKEA have all strengthened their positions in Israel in recent years, which bodes well for the future of international foodservice operators.
While employment and wages have increased, price levels in Israel are still among the highest in the OECD. The country’s high cost of living has previously sparked large-scale protests that have resulted in a more cost-conscious foodservice market.
Fast Food Restaurant Overview
With a value of approximately ILS 6.9 billion, the QSR market is by far the largest foodservice channel in Israel. Despite declining transaction and outlet growth, the channel experienced positive overall value growth of 0.3% between 2014 and 2016, outperforming the other two major restaurant channels (FSR, coffee and tea shops).
With 6,912 QSR stores in operation – one for every 1,235 residents – the fear for the future is that the market is at risk of oversaturation. With further store growth predicted over the next five years, low-margin independent stores are expected to be increasingly ‘crowded out’ in favour of chains, which carry less financial risk.
Historically, however, American chains have had mixed results in the market. While McDonald’s and Domino’s Pizza are among the top five brands in terms of revenue, other brands such as KFC, Dunkin’ Donuts, Subway and Burger King have entered and exited the market before them.
While price is the main concern for consumers, health and personalization trends are gaining popularity, which has contributed to the popularity of providers such as Burgerim.
The QSR market is expected to experience accelerated value growth over the next five years, with a positive CAGR of 0.7% expected between 2016 and 2021. The market will continue to benefit primarily from a more cost-conscious and time-poor population.
Full Service Restaurants Overview
The Israeli FSR market was valued at around ILS 3.3 billion in 2016 after a few rough years. Between 2014 and 2016, the market value decreased at a CAGR of -0.7%, while the broader foodservice profit sector grew at a CAGR of 1.1%. Israeli consumers made 62 million transactions in the channel in 2016, a sharp decline from 66 million in 2014.
This decline was caused by a number of issues, including ongoing concerns among local consumers about the rising cost of living in Israel. While FSR is widely recognized and accepted as a generally more expensive dining option, 42% of FSR consumers cite “price” as the “most important” factor when deciding where to eat out, the same percentage as QSR consumers. Additionally, the country’s tourism industry has been negatively impacted by increased tensions between Israel and Palestine in recent years.
Consumers are tightening their belts, which is also evident from the declining demand for alcohol in the coming years. The purchase value of alcoholic beverages by the operator is expected to decline by a compound annual growth rate (CAGR) of -0.2% in the period 2016-2021.
The FSR channel is characterized by high market volatility, with intense turnover of restaurants opening and closing. The Israeli Restaurant Association claims that 80% of restaurants that open in Israel close within five years of opening. This has largely discouraged new entrants to the market and will accelerate the growth of franchise/chain establishments in the coming years, which come with limited financial risks.
The FSR market is expected to continue to show positive growth in the coming years, with an expected CAGR of 0.4% between 2016 and 2021.
Summary of coffee and tea shops
Like FSR, the Israeli coffee and tea retail channel has seen a sharp decline in value in recent years, with a compound annual growth rate (CAGR) of -0.9% between 2014 and 2016. The market deterioration has been largely driven by disruptive, price-driven providers such as Cofix, which have experienced explosive growth.
Despite declining sales value in the channel, Israelis’ appetite for coffee out-of-home has never been greater. In 2016, Israelis consumed 8.95 million kg of coffee out-of-home, representing a 3.2% growth since 2014. Over the next five years, growth in on-trade coffee is expected to continue to outpace off-trade. Considering that only 26% of consumers surveyed visited a coffee or tea shop in the past week, the market still has plenty of room to grow, especially among younger consumers.
Compared to other foodservice channels, the coffee and tea store market is relatively consolidated, with the five leading operators accounting for approximately 52% market share. The channel’s recent shift toward price-driven coffee is likely to cause headaches for these operators, four of which are primarily quality-driven.
Cofix’s recent decision to increase the price of their products from ILS 5 to ILS 6 will benefit QSR operators who can afford to use coffee as a loss-making product. McCafé’s ILS 4.90 price point is now by far the most cost-effective coffee solution.
https://consumer.globaldata.com/Analysis/details/israel-foodservice-the-future-of-foodservice-in-israel-to-2021
“Israel – The Future of Foodservice to 2021” was originally created and published by Verdict Foodservicea brand of GlobalData.
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