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The food service industry is sensitive to the outsourcing of catering services by governments and businesses, increased construction of stadiums and sport attendance, and domestic and international airline travel patterns.

IBISWorld estimates industry revenue will increase at an average annualised real rate of 2% over the five years to 2009-10. Subdued economic and employment growth has adversely affected industry demand. Significant rationalisation in employment across the manufacturing and banking and finance sectors has resulted in weak demand for catering services.

Before the global financial crisis hit, robust economic and employment growth led to healthy industry revenue. Increased demand came from defence force catering and the expansion of mining projects. Profit margins have generally remained tight over the past five years due to high levels of industry competition and slow demand. Obtaining long-term and viable contracts has been a main focus for industry players.

Increasingly, a number of large tenders are calling for catering services to be combined with cleaning, security, maintenance and other services in the one contract. Links with other business services companies is becoming more and more important.

IBISWorld expects real industry revenue will increase at an average annualised rate of 3.8% over the five years to 2014-15. Revenue growth is expected to result from increases in tourism and leisure time, frequent occurrence of special and on-going major events, and more outsourcing of catering services by both the private and public sector.

Particular areas of growth include health, education and defence sectors. From 2010-11, industry revenue is forecast to show strong growth. Improving employment growth will stimulate personal expenditure on all catering and food services.

There will be some marginal improvement in industry profitability from 2011, as industry consolidation continues. However, relatively low profit margins will remain due to on-going high levels of competition. Industry employment will continue to grow strongly, but will mainly be on a casual and part-time basis.

Some caterers have already started to expand their food court brands into restaurant concepts, and there is potential for this to continue in the near future. Furthermore, there may be opportunities for major caterers to expand into the Asia-Pacific region over the next five years.

Key success factors for operators in the industry:

• Ability to quickly adopt new technology. Adopting new technology and systems in foodservice is important for effective delivery of food to the required standards and for staff productivity.
• Ability to manage external (outsourcing) contracts. Always maintaining the contract standards at the costs, prices and profit margin and service levels negotiated with the client.
• Ability to compete on tender. Being able to compete for outsourced contracts and tenders by clients, and provide professional costings/quotes that provide adequate profit margins.
• Effective quality control. Deliver quality and varied foods within the contract price.
• Access to multi-skilled and flexible workforce. Having access to a large pool of casual staff is important to ensure catering contract conditions can be met, even if clients change catering numbers at short notice.
• Ability to control stock on hand. Stock control and wastage minimisation is critical, since purchases is the major cost for operators.
• Business expertise of operators. The ability to effectively cost and price contracts and tenders and operate these efficiently will assist profitability.

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Robert Bryant is the general manager of business information firm IBISWorld.