While the headwinds facing operators in 2017 are well-known, there remain ‘pockets of potential’ open to agile operators. Steve Cordiner, Investment Director at mid-market private equity firm, Livingbridge, identifies five areas where operators can seek to beat the ‘growth killers’.
For the UK hospitality sector, the first half of 2017 has brought with it a wave of uncertainty. Food inflation rose to 1.5% in April - the biggest annual rise in three years - and increases in business rates and rents are eating away at operators’ bottom lines.
Looking ahead over the coming months and years the snap general election on 8 June will set the tone for Brexit negotiations and the sector is bracing itself for any potential impacts on the availability of labour.
However, it isn’t all doom and gloom, and we have seen how innovative operators are using pockets of potential to beat the growth killers and keep the momentum up. Here are five top tips for hospitality operators looking to turn operational burdens into growth opportunities:
1. Beat the rent and rates. Think different and think digital
Rises in rent and rates are making traditional restaurant and bar set-ups much more expensive, meaning that now more than ever, operators should explore different formats. Recent research has found that food to-go and express sites are the formats most likely to thrive this year. Versatility is being shown by some of the UK’s most loved chefs, including Angela Hartnett, MBE, who is taking her restaurant, Café Murano, to Wilderness Festival’s Feast Menu this summer.
However, anecdotally the tide may be turning on rising rent. Acquisition managers are beginning to see a shift from the slow conversion and redevelopment of sites over the last decade as more A3 sites are now coming to the market. Some operators are also releasing underperforming venues and larger operators are slowing roll out due to current economic uncertainty and pressures. This may be a good opportunity for well-funded operators to find good sites without paying such high lease premiums.
Furthermore, operators need to think wisely about how digital can change the way they go out to market, with the likes of Deliveroo, Just Eat and UberEATS providing alternative routes for restaurants. Jamie’s Italian is a good example of innovative thinking in the sector and in April it launched a range of exclusive pizzas through Deliveroo. This is helping operators to reduce overheads, continue delivering what customers want and build a platform for sustainable growth.
2. Future-proof customer relationships. Connect in new ways
Building a strong data and digital strategy should be a real area of focus for operators to start future proofing growth. By capturing more customer data, it is possible to drive greater loyalty by strengthening the relationship with existing customers through a more targeted and personalised marketing strategy. Yet currently most operators are at best only managing to capture an email address.
Companies such as Wireless Social are making this much easier, by enabling customers to log onto an operator’s Wi-Fi using their Facebook profile. This means that not only can operators obtain a direct email contact, they can also acquire valuable information about that customer – be it their preferred device, interests or hobbies. If this is then connected with purchasing behaviour from the EPOS, operators will be able to take the creation of personal and relevant communications to a whole new level.
3. Focus on your employee experience
The new Living Wage of £7.50 came into force on the 6th April 2016 and there are political murmurings to increase this to £9 by 2020. With the additional uncertainty about the impact of Brexit on the labour market, operators could find staffing increasingly difficult to manage.
Companies like Pret a Manger and TGI Fridays put an immense amount of effort into creating brilliant employee experiences and retaining talent. For example, half of all Pret a Manger’s staff achieve a promotion during their time with the company and 80% of its managers joined as a team member. Over the coming months, in addition to marketing to customers and getting their experience right, now is the time for operators to start really looking at how they can create a colleague experience that ensures employees want to work for them. Employee benefit programmes, such as Perkbox, enable businesses to reward their employees as well as track their engagement, in order to gauge the success of different incentives.
4. Optimise your menu to combat food price rises
In the CGA Business Leaders’ Survey, three in five operators admitted the increased cost of ingredients had already affected their business. The volatility of food prices and consumer spending could throw a few curve balls into the sector over the coming years. Taking a more scientific approach to menu development and management to maximise profit is a must to mitigate food cost increases.
Companies like Revenue Management Solutions are doing some really interesting things in this space, using customer analytics to create optimised menu management strategies. By taking into account location characteristics, trade area demographics, local competition and overall market economics, profit can be optimised at an item level without eroding traffic or consumer value perception.
5. Make the most of sterling opportunities
Confirmation that the UK had voted to leave the EU sent sterling spiralling down to its lowest level since 1985, meaning that more Brits than ever before could be visiting Brighton rather than Bermuda in the coming years. In addition, VisitBritain estimates a 4% increase in inbound tourism to the UK this year due to the weakened pound.
Getting ready for the rise in visits to the UK and staycations, means that operators, especially those in tourist hotspots, need to get planning to ensure they position themselves correctly for the holiday mind-set, through marketing and promotional offers. They also need to ensure that staff and stock levels are in good shape, as the nation prepares for a holiday at home.