Despite short-term challenges, the positive underlying dynamics of the sector make hospitality attractive to investors, Graeme Smith, MD, Alix Partners, told delegates at MCA’s Restaurant Conference last week.
Following the pandemic, trading windows have broadened, property dynamics are in favour of the sector, and there has been a shift away from blanket discounting towards focus on value, Smith said.
In the post-Covid landscape, he further said that operators can continue to benefit from strong delivery sales compared to pre-Covid levels and the infrastructure to manage delivery as an incremental source of revenue.
“Post-pandemic, this is not an industry that has transferred online,” Smith said. “It’s still very much a physical industry…so that propensity to eat out hasn’t dimmed.
“Delivery has receded from its pandemic highs, but we have seen elevation and acceleration of the infrastructure around delivery so that this can now be a permanent and consistent presence across a much greater part of the country.”
He emphasised that operators can avail of a broader range of economically viable locations post-pandemic, giving them more options amid rollout plans.
“It’s still a competitive market, of course…but that broadening out gives a lot more optionality on expansion.”
Smith outlined the short-term concerns for operators but stressed the importance of the “longer-term positive picture” heading into the coming months.
“We can see significant falls in share price from the advent of the war in Ukraine,” he said. “QSR has been resilient from a share price perspective through the pandemic, but is suffering from concerns around increasing costs and consumer confidence.
He described the continuity in M&A activity and investor support despite the fall in shares, particularly in three sectors: growth leasehold M&A, including smaller high growth businesses; operational real estate; and strategic trade deals, pointing to the recent acquisitions of Chilango and Barburrito by Tortilla and The Restaurant Group, respectively.
Investors continue to back experiential concepts, and are also on the lookout for those focusing on franchising, tech investment, and resilient sales performance.
With operators looking to extend pandemic-era deals or refinance their businesses, Smith stressed the need to look towards new technologies to reward loyal customers and gather data; franchising to lower capital investment and therefore reduce the risk profile; a sales performance that holds up across different day parts, locations, and channels; and a strong pipeline spanning both physical sites and omnichannel.
Amid the current energy crisis, he also spoke on the need for a plan after the initial six-month support period provided by the government.
In the short term, the sector is likely to see a “laser focus on costs and energy efficiency measures,” as well as pauses in rollout plans and the use of pricing as a key level to offset inflationary measures.
Smith also said it is nevertheless important to communicate with investors and also invest in staff at the same time to “take advantage of recovery when it comes.”
In the long term, the shifts between sales across channels, the introduction of new technologies, and points of differentiation will all play a key role in recovery, according to Smith.
