Gazing into the crystal ball

We at M&C Report have been doing our best to read the tealeaves, so if it’s not too much of an indulgence, here are some of what we believe are the key themes and issues for the UK eating-out and drinking-out markets this year. Health lunatics: the no-fun police has been one of the constant themes in recent times and they are here to stay. It is one of the big ongoing issues for anyone who sells food or drink for a living. For a start, the health fraternity want consumers to know exactly how many calories they’re consuming at all times. So look out for the forthcoming “voluntary” schemes (co-ordinated by the FSA) asking restaurant chains to disclose all sorts against each menu item. And if not enough companies oblige, legislation could follow. As depressing as it sounds for food operators, spare a thought for the booze brigade, who have it even worse. Several reports in the first quarter of this year will throw the spotlight back on alcohol, starting later this week – when MPs on a health select committee are expected to use their report to call for minimum pricing, a clampdown on alcohol advertising and, most ominous for the sector, a review of the 2003 Licensing Act. Consumer crunch: the credit has been crunched and it feels like 2010 could be the year when consumers (the majority – who are still in work and currently enjoying lower mortgage costs) really feel the pinch. Whoever wins the next general election, which must happen this side of June, is going to have to get real about raising taxes. Although VAT has returned to 17.5%, there is a very real possibility of a further increase to 20% before the year is out, for a start. It means that large swathes of the population could have diminished discretionary spending power. That bloated feeling: a bit like everyone’s waistline after the excess of Christmas and New Year, the sector’s debt position remains bloated. The banks will continue to swap debt for equity as part of the restructuring process that vast swathes of the industry must undertake. Just as a reminder, those that have so far seen action at the front-line of debt restructuring and lived to tell the tale include Barracuda, Novus Leisure, Orchid Group, Paramount and Regent Inns (now Intertain). Those operators that can don the doctor’s gown and get businesses back on their feet quickly, will continue to be in much demand. Unfortunately not everyone is going to make it. Some companies are not big enough, or do not have a sufficiently strong business beneath the wall of debt, to be afforded by their banks the luxury of a restructuring. It will be a case of watching and waiting to see who unfortunately succumbs to the administrator, especially when those quarterly VAT and rent bills fall due. Perhaps it was ever thus – the strong will get stronger, and the weak, weaker – but 2010 may bring a further acceleration of the process. Supermarket sweep: Britain’s grocers – among the best retailers in the world – will continue to bite at eating-out’s heels, doing their level best to take market share on the refuelling and informal occasions upon which many mainstream restaurants rely on. If people do have a bit less money in their pockets, the supermarkets will look to take advantage. And some, like M&S and Waitrose, plan to go full tilt into eating-out. The Americans are coming: There are a few 500lb gorillas coming over from the USA. Chipotle, the 900-strong US burrito giant has already named its first UK store (Charing Cross Road, London), while Ruby Tuesday is to open in Bristol, in partnership with a franchisee. Applebees is also said to have designs on the UK and is rumoured to be looking at the old Planet Hollywood site just off London’s Leicester Square. Local, authentic, real: Perhaps more of a middle-class phenomenon (but they have a lot of discretionary spending power), the desire for local and authentic will not dissipate. It is part of a complex mindset that is partly perhaps a legacy of the downturn. If you’re called Chef & Brewer, the food had better be good, well-sourced fare, and the beer, interesting and authentic. Similarly Ultimate Burger had better deliver…yep, the ultimate burger. Road to recovery: Those tasked with gaining an acute understanding of the complexities of economics suggest we as an economy are very close to returning to growth. There is clearly a lag between economic growth and a consumer recession – and as discussed above, higher taxes will not help – but perhaps the welcome news that the economy is growing again will do something to underpin confidence. A Happy Christmas and New Year?: let us not forget the very human need to come together, to celebrate, and to try new things, to let off steam. If 2010 proves not to be amazingly better than 2009, then the role of the restaurant and the bar in society – those havens of conviviality – is going to be more important than ever. In the coming weeks we will start to get a sense of how the all-important festive trading period panned out for the sector, and to what extent consumers emerged from their bunkers. Of course there are many more issues that will remain pertinent in 2010, such as the ongoing plight of the community pub, the mooted return of public listings, the availability of debt finance and such. Here’s the real rocket science – it’s not going to be much easier. We should start to see some light at the end of the tunnel. But as Ted Kennedy said in this column last year, companies need to be better or cheaper – preferably both.