Impact of the June 2010 budget on the UK foodservice sector
Horizons had already factored most of the measures announced by the Government in this week’s budget into our previous forecasts for the next two years, but overall we are now slightly more bearish about prospects for the foodservice sector than we were before.
As a result of the budget, consumers are likely to have less money in their pockets to spend on eating out and are going to be more cautious about how they spend money they have got. The VAT rise, fall in transfer payments such as housing benefit and child allowances and continued uncertainty in the jobs market all mean that spending will be on hold for longer, so while we may have expected the market to improve towards the latter end of this year, it is unlikely to do so for a further 12-18 months.
For operators, margins will continue to be squeezed as inflation falls and, if they don’t pass on the VAT rise in full, their profits will suffer. The reduction in capital allowances will also have a negative impact on profitability.
The steep reduction in public spending, down by 25% up to 2015, will mean that there could be more contracts up for grabs in the contract catering sector, although margins will remain extremely tight. However, less investment in schools, hospitals and government facilities mean fewer opportunities for contractors and could mean existing contracts come up for renegotiation more quickly.
More detailed analysis of the announcements and their impact on the foodservice sector.
If you would like to discuss anything in this summary, please contact Peter Backman, Horizons' Managing Director on +44 (0)20 8349 0162 or peter.backman@hrzns.com