Analysis of restaurant market in Latvia
We worked with restaurants on a daily basis for last 2 years. This helped us to collect a lot of market data and valuable stats. This information will be useful for everyone, who participates in the market, plans to open his own restaurant chain or a burger place, as well as stats will help to evaluate other markets of CEE region.
So the first question is “How many alive companies there are in the market?”. We calculated that somehow alive stores should generate at least 50 000 EUR per year in turnover (that is 4150 EUR monthly). This will allow them to cover core costs and employ 1 person. Usually these are small coffee shops or tea houses. Food cost in turnover is usually ~30%, other 70% goes to other costs and profit. Everything that is below this turnover will struggle to cover core costs such as rent, electricity, accounting, labor, some marketing etc. In 2016 in Latvia there were 650 companies with at least 50 000 in yearly turnover and 20–25% of them are registered in our platform. These number s very close for Lithuanian and Estonian markets. Actually there are not much difference in turnovers per company between countries we analysed (Latvia, Lithuania, Estonia, Russia, Poland). We may assume that further stats will be relevant for majority of CEE countries.
In terms of total turnover these companies together generate 370 000 000 EUR each year with less than 1% growth rate year over year (that means — no market growth). That is almost 31M EUR in turnover each month or 47 500 EUR in average per company per month. Sounds good, right? :) But before planning to open your own pizza place, let’s get a bit deeper into who exactly earns what:
Here also Pareto principle worked perfectly, 20% of companies generate 78% of total market revenues. In our case the situation is even more interesting, TOP 10 brands (like Lido, Hesburger, Čili Pica) generate 40% of the market and TOP 20 generate 50% of the market.
What is common between these companies? First of all, all of them are working in low-price segment. Hi-end restaurants require other skills and marketing and usually have 1 location, this is why they are not in the top of this list.
Secondly, they operate multiple locations and invest in brand recognition. It is not a surprise, but more a reminder that you need to optimize processes to generate revenues (faster client flow, standards for each location, one brand).
What a newbie can expect entering Latvian market? In case we are not talking about franchise brands with expertise in brand building and process optimization(like Taco bell, Burger King, Chipotle, etc.), smaller players with no brand can expect big struggle to attract customers. Just FYI:
In average one non-chain, non-franchise location in casual dining/fast food segment generated from 7 000 to 15 000 EUR in monthly turnover.
In opposite, one chain or franchise location in casual dining/fast food segment generated from 35 000 to 70 000 EUR in monthly turnover.
So now you know what to expect from your new restaurant and what turnover you should reach. Talking about marketing activities, usually restaurants spent from 2% to 5% from turnover to cover marketing costs. Franchises spent more, from 5 to 7%. If assume that in average each player spent 3,5% from turnover to cover marketing costs, we get a 13M EUR big restaurant marketing market with about 40% of that is spent on digital channels. That means that each month restaurants spent 500 000 EUR into digital marketing activities. You may ask how effectively this budget is spent? I would love to share this with you next time :)
