Do you remember what is was like to go to a restaurant and order a plate of spaghetti?

I miss it hugely, and I’m just a hungry customer. So how does Azzurri CEO Steve Holmes, who runs 295 Italian restaurants, feel about seeing his entire estate shut down?

“It’s desperately sad, because we’ve made really strong progress over the last four years,” he says.

“Zizzi’s NPS score moved up to number six, the highest ever. Ask was also racing up. We opened an Ask in Westfield just before everything closed and it was trading incredibly well.” 

Steve Holmes, CEO Azzurri Group

As for the London-based Coco di Mama brand, which accelerated when Azzurri bought Pod in June 2019, the subsequent conversions were “performing really well, the most recent ones in Holborn and Kingsway were doing double the revenue compared to when they were Pods.”

So Azzurri had “real momentum heading into the summer, we were ready to launch our new menu at the end of March and feeling quite good. When you’ve got the wind in your sails and trading well it’s hugely upsetting to see the business closed.” 

That doesn’t make the debate over reopening any easier though. “It’s so polarised, there aren’t any middle of the road views. There are some people that completely disregard the situation and say we should all return to normal, then you’ve got others who think this is a major national disaster and we need to stay locked up for months.”

Facts
The reality is we will “never know, because if the statistics don’t end up being too bad it’s because of the actions that were taken. And the question that will never be answered is what would have happened if we hadn’t? Did we overreact or not? Did it make a big difference? Did it save hundreds of thousands of lives? It’s one of those debates that’s going to rumble on for years.”

In the shorter term, the big problem for operators is the “absence of facts. This is a relatively new virus, nobody really knows much about it. We’re learning in real time. Nobody asked for this pandemic but it’s hit us, and you have to accept it because it is what it is, and you have to look at ways to get out the other side.” 

The Azzurri CEO is an “optimistic person by nature, and I think you’ve got to use these opportunities to look at some positive change. What this pandemic is doing is accelerating some of the changes that were already happening, like moving to cashless payments. I think that’s probably a good thing.

“You’ve got waiters and waitresses holding coins and notes. Already that feels quite dated but that’s how we used to operate just nine weeks ago. So I think there’s a very high possibility we will open restaurants again without taking cash, and that has quite a significant impact on operations. The cashing up process, security for our staff, fraud, we have break-ins. Not holding cash will reduce all of that. So, I think there’s a huge positive impact by not taking cash.”

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There is also the longstanding debate over tips. The tronc/JRS issue aside, Holmes says tips have been a “bone of contention for this whole sector for many years. Everybody has a slightly different way of doing it and maybe this will bring everybody together. Maybe there will be a more standardised version of tronc where it’s more evenly distributed amongst the team and administered in a more transparent way that will work better for everybody.”

And there are other opportunities, like delivery, which was “not a significant part of our business pre-coronavirus, but it will be an important part going forward. We didn’t have any virtual brands before and we aren’t trialling any yet, but it’s certainly something we might think about. I think it’s still likely to be incremental to our offer though, what we do is run restaurants and provide a dining experience, and that will remain the core of our business.”

Questions
To that core business then, and the 4th of July has been established as a date for reopening. Azzurri, with 162 Zizzi restaurants, 111 Ask restaurants and 22 Coco di Mamas, is up there with the biggest casual dining estates in the game. So is the 4th of July looking likely for a date to reopen its restaurants?

“I struggle to see how it’s commercially viable to open a restaurant on the 4th of July with heavy social distancing restrictions. And they’re talking about using outside space, we have some outside spaces but they’re not huge spaces. So heavy social distance restrictions are going to make it very commercially challenging.”

So, while at the moment, Holmes “of course” wants to open his restaurants as soon as possible there are still “genuine questions” that need to be answered.

“We need to understand more about what support the government can provide to enable it to be commercially viable for people, and we need to develop some social distancing guidelines that aren’t too restrictive for operators. Clearly we need to keep our teams and customers safe, nothing trumps that, but it can’t be too restrictive operationally, and I think the biggest issue is the two metre restriction.”

Two versus One
Whether you refer to it as social distancing, physical distancing or customer spacing, it’s a crucial issue for operators, because despite all the other significant challenges facing the industry, the question of exactly how much distancing is required could literally be the difference between reopening or not.

“It’s very difficult and a problem, because there’s no medical evidence. I think it’s based on something from 1968. Two metres is hugely restrictive for relatively small restaurants because of the impact on covers. It’s going to make it incredibly difficult to be successful.”

So if it had to, what kind of reduction in covers could Azzurri restaurants handle and remain viable?

“Well, that’s tricky. Across all restaurants, margins are very low. So operating with revenue down by 50% is just not going to be viable unless there’s some sort of extended government support, things like a VAT reduction would go a long way to help businesses.”

So say those guidelines are in place, together with an acceptable level of financial support, how long does he think it will be before the Azzurri estate is operating at full capacity, even hypothetically?

“Those kind of questions are just impossible to answer right now. I think we will all be opening at a similar rate and momentum will be created. The situation is evolving very fast and we’re learning more each week. This is an environment where you have to be very nimble, think on your feet and react so we can open as quickly as we can in a commercially viable way, and when it’s safe for our customers and teams. It’s almost day by day, seeing how it unfolds.”

So how nimble is Azzurri?

“With clarity on guidelines, to get our teams ready, to get the restaurants ready with maintenance checks and things like that, to ensure our business is covid-secure, I think it will probably take two to three weeks. So I’m working on clarity as we approach the 4th of July, and we should be ready, but I wouldn’t be surprised if the date slips back. And there are still conditions attached to that remaining the date.”

Perspex
One of those big conditions will revolve around the safety of staff and customers, but there  is also the question of how those safety measures will impact on the experience and atmosphere any restaurant used to have. Ask recently turned its kids pizzas into smiley faces with some nifty use of peppers and pepperoni, it also has a varied adult menu for a UK Italian chain restaurant. It’s a safe bet for a family outing. So how is Azzurri planning to handle the inevitable juxtaposition between introducing alien elements like PPE while still delivering a family friendly proposition? 

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“Exactly, that’s the challenge. Clearly we’ve got to keep our customers safe. And we want to keep teams safe, we need to do everything we can to do that. We’re going to be providing sanitising stations, upgrading hygiene and cleaning, but I think we’ve got to be a little bit careful to make sure we put things in place that are actually going to work, not just all competing to do more than is perhaps necessary.”

The fact is that “as soon as we have face masks and full visors it starts to compromise the social experiences we’re all trying to provide. So I think we need to see how that unfolds, and make sure we’ve got proper medical advice that disrupts service as little as possible but keeps it as safe as we possibly can for teams and customers.”

Perspex screens are a contentious issue, the idea of dividing up tables to protect diners from death introduces a sinister element to hospitality. It’s why Holmes would rather not have them, because the “whole point of the restaurant experience is to provide a social experience to connect with our family and friends, enjoy great food and enjoy the buzz of a restaurant environment.

“I think it would be wise not to try to over-spec what we require. We need clear medical advice so we don’t put in equipment that doesn’t make a difference but massively compromises the social experience.”

Has he considered temperature checks for customers on arrival?

“We’ve thought about it, all of those kind of things. And in many ways they’re easier to implement, they’re not quite so invasive.

“For me, a temperature check when customers come in, or certification to show they don’t have the coronavirus, is a preferable solution to having Perspex screens up and keeping customers two metres apart. Preventative procedures, rather than big physical barriers, is a preferable route to go down, I think.”

There are other measures being considered, like making bookings mandatory or introducing deposits to secure tables.

“Bookings are a sensible thing. It means we’re able to manage our table plans, make sure we keep distances, manage capacity and keep customers and staff safe, and plan the staffing and other things far more optimally.”

Coco di Mama
Compared to Ask or Zizzi, the exclusively London-based Coco di Mama presents different challenges.

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It may be less complex to reopen a QSR operation than a sit-down one, but any QSR is dependent on footfall, which has slumped like a drunk as office workers remain at home.

“We’re obviously concerned by an increasing number of people working from home, so we’re likely to see less footfall in the city. But Coco is a proposition that spans all three day parts with a strong breakfast, lunch and evening trade, and many of our sites have up to 40 or 50 seats.”

Holmes thinks there will be a “change of behaviour in the city, where people stagger the times they come in. Rather than having big peaks at breakfast and lunch, we might see a more even trade throughout the day. And I think the Coco offer is really well placed to capitalise on that sort of changing dynamic.”

The other thing Coco has is a “very strong office delivery business, we have two bespoke delivery hubs that produce food for corporate catering. I suspect there might be offices more inclined to purchase food on behalf of their employees, rather than have them going to the shops, so the delivery business will grow. We are finding intuitive or ingenious ways to take food to the customers to avoid them having to queue up, and I think there are opportunities. But there is no doubt that it will be a very different market when we reopen.”

Everyone knows Coco had been trading above expectations, but when it reopens, what sort of revenue drop could it take and still remain in business?

“Nobody likes a revenue drop, but I think it’s a robust business. And it’s been growing strongly over the last few years. Rather than focus on a revenue drop, we are focused on looking at new channels and revenue opportunities to underpin growth, questioning how the business is going to evolve and what innovation we need to bring to the proposition to fulfil the demands of a new customer.”

KPMG
Like many operators during the coronavirus crisis, Azzurri has turned to advisors to help steer them through it. How’s it working out with KPMG?

“There’s not tonnes to say, we have hibernated the businesses successfully, and like everybody else we’re trying to work out what the world looks like on the other side.

“At the moment there are still many unanswered questions, we just need to make sure we’re exploring everything that’s available so when we do reopen we’re in the best possible shape, and to set the business up for long term success. And clearly in that scenario you want to work with advisors to make sure you’re exploring everything that’s available, and the process is still ongoing.”

Earlier this week Casual Dining Group, which is similar to Azzurri in terms of the size of its estate, employees and brands, embarked on a comparable process with Alix Partners to explore options that reportedly include CVAs, site closures, and administration. Is Azzurri considering options like these?

“Well, I don’t know what CDG are doing,” says Holmes. “I read it in the press the same as you. I’ve got no idea, it’s too early for us to say. We’re six weeks away from possibly being able to reopen, it could be later than that, and we’re working alongside KPMG to consider everything available to us to make sure that we can open in the best possible shape and we will see how that evolves.”

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Given the overall calamitous situation, which is by no means exclusive to Azzurri, the spectre of administration hovers. Is it unlikely?

“It’s the same answer as the previous one. I think we’re just working with them and we will see how it unfolds over the next few weeks.”

Is a few weeks how long you expect the process to take?

“We don’t know, things are changing all the time. We are just trying to get the best advice, and they are sitting alongside us as we navigate this period of hibernation. And as we get closer to reopening then I’m sure there’ll be more clarity, and then the aim is to make sure that we’re set up for long term success. And it’s too early to say what that looks like or when that might be.”

Support
The government will largely dictate that timescale, by providing detail and, hopefully, a level of fiscal support to help operators reopen effectively. Is Azzurri eligible for existing government grants?

“We are looking at it, but our understanding is that it’s quite a challenging process. And we’re not sure whether we’re eligible or not, we’re not sure of the process really. There’s a lot of positive noise about it, but I think it’s quite a difficult mechanic.

“I think the government has been trying their best and it’s a difficult scenario for them to come up with solutions, they’re trying to do it in real time.”

Having said that, he thinks the government ”need to do more to support the industry when we reopen, like a VAT decrease, or other ways to try to encourage people back. In Austria the government is giving out vouchers for people to spend on hospitality. I think that would be an excellent idea. On the whole I think they’ve done a pretty reasonable job.”

Like most he thinks the JRS has been a ”huge lifesaver, thousands more jobs would have would have gone by now. I think that’s been an excellent scheme and how it’s been administrated has worked really well.”

With the government expected to ask employers to contribute to the JRS from August, how much of a contribution could Azzurri make before it becomes problematic?

“I’d like to see the detail, it depends what they mean by contribution. If we are trading, and we have people who are allowed to work part time, and the government is topping up the hours that they’re not working, that would effectively represent a part time flexible furlough which I think would be a good outcome.

“It would give us the ability to release our teams back to work slowly, but with their wages topped up by the government for the hours that we can’t provide. If it’s along those lines I think that would be very welcome.”

However, if businesses “aren’t trading so your revenue is still zero, and they drop the scheme down to 60% and ask employers to top it up to 80%, that’s a different challenge. So I think at the moment I’ll reserve judgement until I’ve seen what the announcement is at the end of May.”

So what happens if the GRS isn’t renewed beyond October, and Azzurri still has employees who are furloughed, what’s the plan then?

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“It’s a long way away, but hopefully by October we are trading well again so if the furlough scheme falls away then fine, because we are up and running. What we don’t want to do is fall in the middle, which is where revenue is not recovered, and the government’s support falls away, because I think that will be very challenging to the sector. It could result in quite significant damage.”

As for the increasingly pressing issue of rent, Azzurri hasn’t closed any branches permanently as a result of coronavirus, it’s “hibernated everything”. And it’s negotiated a relatively harmonious arrangement with its numerous landlords since the lockdown struck.

“We’re in a strange situation. We haven’t paid our rent for March, obviously we’ve got no revenue, and most of the landlords have been understanding. I’m not sure any of them have raced forward to offer a deal, but many of them have not been too aggressive either. But we need to break the deadlock.”

So while Holmes thinks it’s not fair for tenants to shoulder all of the rent cost, it’s also not fair that landlords shoulder all of the pain either. He thinks the industry as a whole needs to find some compromise whereby the cost of the rent is “paid by tenants, landlords and probably the government as well, to help support everybody to come out the other side.

“We have lots of landlords, some have been more aggressive, others have been very quiet. But we are in a stalemate really. They aren’t offering anything and we haven’t paid. Of course there is a moratorium around debt recovery, so it’s all on hold and it needs to be resolved before we reopen, otherwise it’s all going to come to a head.”

Confidence
Another element to any successful recovery is the mindset of the consumer. What does Holmes think will happen when it comes to nervous customers returning to hospitality venues?

“It’s difficult to say. There are certain sections of the community that are desperate to get out and some are more confident than others. I suspect younger people, who are apparently less susceptible to this virus, are more confident to go out while those that are more susceptible are less confident.

“I think there is a level of anxiety, and we need to reassure the public. We need to do what we can to implement covid-secure guidelines to reassure them, and hope they gain confidence so they come back to enjoy restaurants again. Reassuring the public is a key point, so is more government support.

”So I’m keen to continue the noise and generate more momentum for the sector, so it can thrive on the other side.”