At the start of the year, RSM made some predictions about challenges and trends that the hospitality sector could expect to see in 2019. As the first six months of the year come to a close, partner Paul Newman reflect on those forecasts and looks at the latest trends and shifts in the market.
Public GDPR breaches on the horizon
As GDPR approaches its first birthday, the ICO has begun to show its teeth, with the first large fines being levied on businesses that have suffered data breaches. British Airways stole headlines earlier this month with a £183m fine for a breach of the EU’s data protection rules, and more recently Marriott face a £99m penalty for infringements dating back to 2014.
What’s striking is that both companies operate in the consumer space and both offer reward schemes and process credit card payments. It’s clear that companies looking to increase loyalty or speed up payments through websites and apps will need to ensure they remain compliant when handling and storing data or risk severe punishment.
CVAs coming under increased scrutiny
Against a backdrop of continued trading challenges across the High Street, CVAs have become an increasingly common way for struggling companies to reduce overheads. As predicted, landlords and creditors have begun to push back against such proposals, with Arcadia being the latest high-profile brand to make concessions to get their proposals across the line. CVAs have become an all too common tool to cut rents but a lack of demand from alternative operators for vacant space means many more landlords will continue to approve these arrangements through gritted teeth.
Blurring the lines between work and play
Much has been made in recent years of operators sweating their assets through breakfast to bed service. 2019 has seen an increasing number of restaurants opening their doors to entrepreneurs for use as flexible office space. In London, Sway, Coin Laundry and Mamounia Lounge now all allow the use of their venue as a ‘co-working’ space, and sites which enable customers to browse from a selection of locations and suppliers, such as Hubble HQ, have lowered the barrier to entry for single site operators. In an era of the rental economy, allowing businesses and entrepreneurs to access well-appointed and trendy locations to work is a lucrative way to improve the bottom line. Expect to see more businesses muscle in on this emerging market.
The fight for lunchtime spending
As predicted, the top three largest coffee chains have all overhauled key aspects of their food menus in 2019 with Costa relaunching their ‘coffee plus’ menu, Starbucks adding more plant-based food and drink options and Caffe Nero introducing a coffee cured bacon sandwich. With consolidation in the marketplace following Pret’s recent acquisition of EAT, the opportunity remains for coffee chains to take a further slice of the lucrative lunchtime market through continued evolution of their food offering and leveraging their loyal customer base. That said, new competition in the form of specialist office caterers such as Peel and office drop off services such as City Pantry and Potage threaten to bypass quick serve sites entirely and keep fickle office workers off the streets. The fight for valuable lunchtime spending looks set to become quite feisty.
London off the boil
At the start of the year we expected the London market to struggle compared to outside of the capital and for operators to seek out new markets for successful brands. The Alchemist has become the latest group to target international expansion, with their existing portfolio already weighted heavily outside of London, and Redcomb recently announced that it doesn’t see value in opening sites in London. In the UK it’s been a perfect storm for the mid-market casual dining sector. Margin pressures continue to mount at the same time as consumer confidence falls in the face of ongoing economic and political uncertainties. May’s Coffer Peach Business Tracker results show trading within London and the M25 performing behind the rest of the country with like-for-like sales down 0.6 per cent, while outside of London same-site sales were up a marginal 0.2 per cent. We expect this trend to continue throughout 2019.
Social conscience continued
As expected, the trend towards increased social and environmental responsibility in the sector continues to grow, driven by consumer demand for change. The success of Veganuary demonstrates the benefits of a plant-based diet to an increasing number of consumers, and brands such as Burger King and Taco Bell are adding more meat free options to their menus as a result. There has been a significant growth in the number of plant based alternatives being developed, as highlighted at this year’s YFood Tech Week, and in a recent survey, 54 per cent of customers said they aim to be more sustainable and reduce pollution. On the regulatory side, the UK government recently introduced new measures to control the use and sale of plastic straws, drinks stirrers and cotton buds by April 2020. As the government acknowledges consumer demand to eradicate single-use plastics, 2019 is certainly a tipping point for the war on waste. Regulatory changes should also serve as a reminder to operators of the influence that collective social conscience has on day-to-day business and politics.
Premium becomes standard
As revealed by our consumer survey earlier this year, consumers are increasingly favouring quality over quantity. Premium products have been performing well, with brands such as Fevertree recently introducing a premium range of pre-mixed G&Ts and craft beer remaining popular, as consumers increasingly focus on lower volume but higher value experiences. With generation Z consumers reaching adulthood and flexing their spending power, businesses are rushing to adapt to their health focused, social first lifestyles, including premium alcohol-free ‘spirits’ such as Seedlip and Three Spirit. We expect these trends to continue as cost conscious consumers look to make the most of their hard-earned discretionary spend.