Lessons learnt in a tough market

It should come as no surprise to anyone that in the two years since the EU referendum, the cream has come off the top of the eating-out sector. MCA’s editor, James Wallin, may have banned the use of the term ‘headwinds’ at the turn of the year, but there is no doubt that our industry has gone through a highly challenging period. Consumer confidence has been hit and there has been an undeniable impact on business growth.

Operators are not only facing severe cost pressures, but trying to deal with them at a time when economic downward pressure on consumers from rising inflation and slowing wage growth means that they have less disposable income and are less inclined to be frivolous with their money and lifestyle choices.

However, strip out the bad news stories, and there is an incredible base of fantastic operators meeting the needs of a more demanding consumer. These strong brands are still expanding, and MCA expects that there will still be net growth in the number of branded outlets in 2018. Consumers may be wary but eating out has become a habitual pastime in the UK and that demand seems here to stay.

So, the key question to answer, for any stakeholder within the industry, whether flying high, or trying to pick up the pieces, is: ‘What lessons can be learnt?’. Here are a few from my point of view:

1. Consumer confidence must be measured on an ongoing basis. The eating-out market moves when political and economic uncertainty pressures consumers both physically and emotionally; when times are in flux, consumers will tend to hunker down and reduce their exposure to risk, which might mean spending less, or reducing their occasions to spend.

2. Menu management and price architecture is a critical art. Where there are economic pressures, not only from input costs, operators need to focus more on tight menu engineering. This doesn’t mean simply managing portion sizes, but effective use of psychological pricing, regional variations, broad competitor analysis, promotional techniques and sales mix management. It is also important to monitor pricing from the broadest set of competitors, rather than just a narrow cuisine-specific set. Consumers don’t decide which pizza/pasta restaurant to go to. They decide that they want to go out and then choose from a repertoire, which could be pizza, Indian, Chinese, or the pub. So it is key to keep abreast of what everyone is doing.

3. You can’t kid consumers, they’re far more knowledgeable and demanding Consumers are only going to get more educated and expectant of better standards, whether this be from a value perspective or from an experiential one. Operators have got to continually contemporise and keep pace with changing trends, demands and expectations. Easy to say, and harder to do, especially with large estates, however, the most successful operators are, and have been, doing this. Monitoring, listening, talking to consumers is critical, and not just your own.

4. Great experience and great service will always produce great results Investments in these areas are incredibly valuable, even if they are hard to put tangible values on. The one factor in potentially the largest valuation of a UK foodservice company acquisition, the sale of Pret to JAB, is the culture created through Pret’s approach to people; fantastic service is the one truly differentiating factor of why Pret is so successful against a lot of competitors, delivering great moments of experience. But it isn’t just Pret that delivers on experience and service; if you consider well-performing companies, they often have a strong service and people culture at the heart of what they do (a great example is Chris Hill at New World Trading Company who will be talking about their people culture at our Pub Conference on Tuesday 3 July).

5. Stand still and you go backwards It’s an old adage, but one that plays so much within a challenging market. If operators don’t monitor trends and keep up with a changing world around them, they will be found wanting by consumers; Especially in situations where costs are rising, and there is a need to increase pricing, it is inadvisable to simply increase menu prices. MCA has described ‘premiumisation’ as a mega trend for the past seven years, but this doesn’t simply mean charging more for something mediocre – as Frankie & Benny’s found to its cost. All operators need to position themselves on the bell-curve of trends, and be clear as to whether they are a market leader, early adapter, or follower (fast or slow), and then adapt their offer to suit; but it is critical to monitor all food, cuisine, lifestyle, and demographic trends closely.

6. Successful brands have a culture and a story to tell The success of McDonald’s since 2008 can be put down to many things, but one critical winning point for them has been their approach to food provenance. It has allowed them to reassure consumers that their food is of the best quality, even if it is cheap and simple fast food. The culture of being open about where the food comes from and how it is produced gives their people something to be proud of, and that permeates to consumers. But that is only one example and there are many more; Leon has been an evolving star for 10 years, trying to find the right formula for success, but there has been one constant – the family pictures of John, Henry and Allegra from their holidays when growing up. Those little touches provide a subtle but real value for consumers, who believe that while it is fast food, it is more than that, and has soul. There is no one secret for success, but there are many lessons to be learnt from the winners all around us.