Inside Track by Mark Stretton
January is the time for predictions. So before it passes us by completely – and if you’ll excuse the indulgence – here is our by-no-means definitive take on the current themes at work in the sector. Intelligence Out of necessity, companies are getting smarter. It has been a growing theme for a number of years now, whether its understanding customers better or investing in bits of kit that help operators track and manage their businesses with greater precision. Customer intelligence in particular is a big theme for 2011 as competitors seeks loyalty and those all-important net promoter scores. Thanks to the likes of Empathica and ORC, customer feedback is informing business decisions like never before. The leading companies are getting better at receiving and interpreting this information, and M&B, for one, has spotted the clear (and in hindsight obvious) correlation between live customer feedback and the financial performance of outlets in revenue and profit-growth terms. At the same time, with increasing input cost pressures and heightened consumer sensitivity to price rises, companies just have to be better at managing costs and margins. Technology has a part to play here whether its labour scheduling or tracking every facet of the business or driving operational efficiency. Sharing Part of the move to constantly monitor guest satisfaction is driven by social media, which along with the economic climate, will ultimately continue to drive standards. There is no hiding place anymore – Facebook (500 million users and growing) and Twitter offer a window to the world on your business. If you’re providing customers with a good experience, they will tell their friends. And if you’re not, they’ll tell everyone. Social media is also an opportunity – it allows businesses to get close to their guests, young and old (witness Toby on Facebook), and drive loyalty. Economy The media is hungrier than ever for doom and gloom news – especially in the first quarter. This may serve to create an over-arching sense of gloom. Undoubtedly 2011 will be no less challenging for consumer-facing businesses but hopefully the UK economy will plod along for the first two quarters (no more snow please) before beginning to register more meaningful growth toward the end of the year. Of course, day-to-day consumer sentiment and disposable income will play the biggest part in shaping the sector’s fortunes. But the market, especially eating out, has proved incredibly resilient thus far. There are also a few forthcoming fillips for the sector that can hopefully drive comparable sales growth. As Robert Cook of Malmaison and Hotel Du Vin told me recently, the London 2012 effect should not be underestimated – it might just be what pulls the economy up by its boot straps. No other western economies have the prospect of such a momentus and galvanising event on the horizon. Cook says that for his business, this is not a three-week event next year, but an 18-month one that starts early this year. Among other things he is targeting the 800-plus separate visits to the UK from various delegations and training squads that will take place before the event. For companies like Novus Leisure, it is another Christmas – an intense four or five week trading period when its venues will be at capacity and which will add a significant amount to its annual profit. Discounting It is clear that the consumer is still very focused on value and price. This January is all about the offer. The strong brands positioned in less sensitive parts of the market can box clever on this issue, dipping in and out, and focusing on value-added offers rather than blatant price slashing. And, as Horizons recently noted, the whole discounting game (by and large) is evolving. Over the last two years there has been a substantial change in the types of deals on offer. In 2009 “Two for One” and “% off” deals accounting for over half of all offers. But by the end of 2010 a more focused, sophisticated approach saw deals directing customers to specific dishes were the most important type of offer. Meal deals and vouchers will continue to be important to operators, but they are now using them more cleverly, targeting particular audiences and individuals through Facebook and mobile phones, and promoting higher margin dishes. Again it comes back to giving something to receive something. Faster and better The food revolution in QSR and fast-casual will continue, with tastier and better quality food replacing inferior offers. This applies to pubs too. The challenge for everyone is to make it faster and better. It’s what many customers want – and they are growing more accustomed to receiving good food quickly, thanks to killer fast casual concepts. So everyone must respond. Sites Good restaurant sites will remain rare and expensive, and while many firms are returning to meaningful site expansion, there will be just as much focus on investing in existing well-established sites – in these times investing in 10 rock-solid businesses is as appealing as dropping the same amount on one new venue. There is more movement in the pub market as the behemoths continue to shrink their estates, creating opportunities for sharp and innovative multiple operators (more below). Pubs are such an interesting market at the moment – opportunity and threat seem to abound in equal measure. The changing role of the pub was recently illustrated once again in the Leisure Wallet Report from Zolfo Cooper, which examined consumer leisure spending, with particular focus on the eating and drinking-out market. It highlighted the fall in heavy pub usage and the growth in light usage: Its research showed that now just 1% of pub goers go everyday, 3% go four times a week or more and 17% go two or three times a week; conversely 24% go once a week, 25% go two or three times a month and 18% go once a month. These lighter users are a very different type of customer, with different expectations, the pub visit is becoming less habitual and more of a retail-type transaction, with a repeat visit dictated only on the strength of the experience. The nightclub sector will continue to haemorrhage sites as the sector continues its contraction, led by entrepreneurs and a handful of top corporates. Deals Distress will continue to play its part, mostly fuelled by excessive debt married to dire trading performance, with the sites of weak operators picked off via administration. In the main, until the debt markets ease, transactions will be few and far between, executed by those with deep pockets (Young’s / Geronimo) or with unique circumstances or with compelling reasons to execute a deal (Clapham / Nando’s, Carluccio’s / Landmark). Some private equity groups, mindful of attractive valuations, will take a view on debt in the mould of TDR’s purchase of Stonegate. Regulation (A real cheery one this) the sector will continue to experience increasing regulatory interference, whether it’s the recent ‘biggy’ of yet more new licensing rules or the increasing influence of the health police on food served in pubs and restaurants. What this increasing complexity does do is create further barriers to entry, strengthening the position of established operators. Clearly there is much more to say besides, such as the ongoing shift of the sales mix away from alcohol in pubs, the role of health and the health lobby in this market, CSR and so on. This year will be challenging for sure. But the challenges are not insurmountable, and there remain many businesses performing very well and taking market share, which points to one final theme for the year: the strong, those with the right brands, property, people and execution – will continue to get stronger. It is time to have your say in the Retailers’ Retailer of the Year Awards, the awards programme for business leaders in the eating and drinking-out market organised by M&C Report. To review the short-listed companies, concepts and individuals visit www.rroty.co.uk