When MCA revealed last week that Strada had closed up to a third of its estate, one follow-up comment on Twitter aptly summed up the prevailing mood of the sector going into the next 12-18 months – “here it comes”. Quite. The expectation is that more of the same will follow as the wave of rising costs, increased legislation, economic uncertainty and self-imposed obstacles (eg: over expansion) finally breaks. With the next quarterly rent call at the end of March looming, the sector is set to enter a crucial period, one that could lead to it fundamentally changing, with businesses questioning their position in it, their own values and value.
How much forward planning have you been able to do over the last 18 months? Have you been living on a quarter-to-quarter existence, perhaps month to month or more worryingly week to week? Has there been many “if we can just get through to…” or “just lose that/those sites” and “things will work out” conversations? Hopefully many tough decisions were taken early and you are now in a better place to ride out the wave, but I bet further ones are due. The process of separating the wheat from the chaff has been slowly building momentum but the real harvest is here now. Talk of the amount of openings, is now replaced by the number of closures – strange how many places are being “refurbished” at present; how M&A advisory teams are being replaced by or switching to restructuring units.
And is going to get worse before it gets better – especially in the mid-market casual dining sector. The latest figures show that managed pub and bar companies are now opening new sites at a faster rate than casual dining groups, and although the latest Coffer Peach Business Tracker showed restaurant groups returning to like-for-like sales growth in November – up 1.2% they were again outperformed by pub and bar groups, which grew collective like-for-like sales by 2.8%. The next rent call for the sector at the end of March, hangs over the UK’s restaurant sector. Byron has already started a Company Voluntary Arrangement (CVA) process, Jamie’s Italian is tipped to follow, whilst the end of March could be the tipping point for more to follow. The debt, which in many cases was used to part fund acquisitions across the sector, will as ever become more difficult to service in a trading downturn.
As the mid-market brands get squeezed, impacted by years of complacency, over expansion and a lack of investment in innovation and people, the gap between them and the sector’s established powerhouses – Pret, Nando’s, Wagamama and McDonald’s - will widen. These brands aren’t just surviving they are looking at the market in terms of their position in two, three and four years time. It will also allow for those nimbler, up and coming operators to take advantage, allowing them to cement their own positions in the marketplace by picking off a higher-quality of site, which is expected to increasingly come to market from the middle of the year onwards.
The first half of the year, some would argue the next 12 months, will be crucial for shoring up existing operations and putting the focus on recruitment and staff retention. This rings true whether you are a mid-market restaurant operator, a food to go business or a pub and bar group. And the questions remain, not just for operators, but for landlords, councils and the Gorvernment, where you can add value and what value do you place on your role in the sector?
The value of people
At last year’s CGA Peach 2020 event, Leon co-founder and chief executive John Vincent emphasised stressed the need to empower and reward team members—and general managers in particular. “We pour a lot of effort into the wellbeing of our general managers,” he said. “It’s a false comfort that head office can drive sales… trust and delegation is important.” The battle for good staff – be it general managers, front of house or back of house has never been so acute, especially in the capital. The basic pillar of investing time and money in staff welfare and training, needs to built upon further, especially as Brexit will throw up significant challenges for the sector, most notably around recruitment and the potential for a skills shortage. A report by KPMG last March laid bare the potential impact on the hospitality sector of a post-Brexit skills shortage – which it said could lead to a shortfall of one million workers.
While the general rhetoric has softened since, Britain is certainly now seen as a less attractive place to work for those beyond our shores. The challenge, as it has ever been, is to finally crack the nut that is employing UK staff that see the hospitality sector as a long-term career choice – initiatives such as chef academies and The Alchemist’s employee engagement scheme, the charity-focussed initiative called ‘Currency of Kindness”, are all key steps in that right direction. Are you an employer of choice? Are you creating career ladders, training programs and education opportunities? If it’s a no, you don’t value your people, the industry or your role in it. Which leads us on nicely to…
The value of the industry
Last month, Simon Emeny, the chief executive of Fuller’s and new chairman of the British Beer & Pub Association, said: “The next two years are clearly going to be dominated by Brexit and all the questions that throws up, not least the potential for a skills shortage. We have a lot of work to do to set our view clearly to the Government over the huge challenges this creates for a sector that is a major employer.
“We also have a responsibility to promote the sector as not just a viable but an attractive long-term career prospect for young people. That is about communicating the changes the sector has undergone in recent years and how incredibly professional it is now. This is an industry where there is huge potential for career development and we probably don’t make enough of that. There is also lots of work we can do around apprenticeships and showing prospective employees from a young age how diverse and exciting this business is.
“In terms of messages to Government, the key one is that the business rates system is not fit for purpose and needs root and branch reform not another sticking plaster. The current rules were designed before the internet and simply do not reflect the way people live and businesses work in 2017. Our over-arching message is that this sector has been subject to ever-increasing stealth taxes for many years now and it needs to stop. The Government should be supporting an industry that is driving growth and creating jobs. One way it can do that is through cuts to beer duty.”
I would certainly echo all of this, but most of all the penultimate line. The Government should be supporting an industry “that is driving growth and creating jobs”, not continually placing further obstacles in its ways. Does it value the UK’s hospitality industry or not? Thankfully, through the hard work of the BPPA and Kate Nicholls at the ALMR, there has over the last 12 months been signs that the Government is beginning to turn it ear to not just the sector’s concerns but the part in can play in driving economic growth – to be that good news story politicians crave. The latest Budget didn’t delivered everything that the sector had hoped for, but it didn’t bring any nasty surprises either. As Nicholls, who has done more than most in the lobbying stakes said at the CGA Peach event “nothing much has been better, but nothing’s been made worse either—and that’s a huge step forward”.
Our sector is blessed with some of the most tireless and intelligent lobbyists/advocates that are to be found currently conversing with politicians on a daily basis on a multitude of issues, some of which are ongoing, some here today and then gone tomorrow. There are still too many different conversations on different issues going on all at the same time, but perhaps this is the year when the majority come together to speak with one voice. Watch this space.
They will do so encouraged by the recent Cabinet reshuffle, which saw former pubs minister Brandon Lewis become Tory party chairman, and Andrew Griffiths, the former chairman of the All-Party Parliamentary Beer Group, become Parliamentary Under Secretary of State at Department for Business, Energy and Industrial Strategy. Let’s hope they still have a sympathetic ear or two for the sector.
In tomorrow’s inside track part 2, the focus will be on the value of delivery, technology, experience, insight and protecting your reputation.