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Morning Briefing for pub, restaurant and food wervice operators

Fri 12th Oct 2012 - Friday Opinion
Subjects: Binge expansion, minimum pricing, losing staff.
Authors: Peter Borg-Neal, Paul Chase and Dawn Redman

The dangers of binge-expansion by Peter Borg-Neal

We can be clear about one thing – times are tough. Whichever way you look at it, we are all operating in an extremely tough environment. The economy is bumping along the bottom, the government is taxing the life-blood out of us, input prices are rising and funding is thin on the ground. The latter is a particular worry in a capital hungry industry such as ours. There are, however, silver linings to the dark clouds that stubbornly persist. 

One important one - though I know this comment is guaranteed to attract a flood of hate mail - is that by the end of this recession there will be fewer pubs. This is a good thing. Unprofitable pubs do no one, no good, no way. Their owners (or more typically their lessees) have a horrendous time enduring a slow and painful journey down the road to ruin. The rest of us have reduced profits while these unfortunates limp along burning their last cash reserves - and the only winners are the insolvency practices. Consolidation is essential to the industry. We need fewer pubs than we have today. We need larger, more profitable pubs that are properly equipped to serve the needs of an ever-evolving market place.  We need multiple operators that are not over leveraged, that are able to re-invest in their businesses, that have the ability to constantly evolve their offer and that have the foresight to invest in their people. This consolidation is not only necessary it is inevitable. 

Furthermore, and from a strategic perspective, slower growth has another silver lining: it will help move the industry away from the destabilising lurch between all-out expansion and retrenchment that has been a regrettable feature for many years. Not only is it damaging to the people involved, it creates a bad reputation for our sector. Too often hospitality businesses tend to be akin to binge drinkers. Flushed by the good feelings generated by some early success (or the first couple of drinks of the evening), they often lurch forward with a feeling of indestructability. The end result is often similar to that of a big night out - a spectacular crash followed by the mother of all hangovers. The smart move, today more than ever, is like a slow, enjoyable drinking session only taking on what you can afford and handle.

The silver lining, therefore, is that we will all have to proceed in a more moderate fashion. If we can’t have self-discipline, the capital markets will provide it for us. The funding for irresponsible growth is no longer there and the industry will have to proceed with more caution and wisdom than was the case before 2008. I believe that this will prove to be a good thing in the long term. Of course there is a converse danger. Will good, well-managed businesses struggle to attract funding? There is no doubt that that is already the case. The even bigger danger is that investors will only back our industry on terms that are hugely unattractive to us.

My business is going through a funding round at present. To date we have grown using only our own funds plus some senior debt. We have consistently performed well and the business is in real long-term growth. However, if we are to further accelerate our growth, we will need external funding – but not at any price. We have had two offers to date. Whilst we were flattered and grateful to receive them, the terms were not attractive to us and we have politely rejected them. If we cannot get the right terms, we will revert to a slower growth model. That will not be a disaster. 

I often hear people talking about funding as if they are in receipt of some kind of enormous gift. That is not always the case. These hugely acquisitive and ambitious management teams will often regret their excesses in due course. If we can’t get the deal we want, we will simply continue to find ways of increasing our sales, decreasing our costs and delighting our customers. Slow, organic growth will eventually fund expansion and we will continue to enjoy our journey. As ever, a gentle night’s drinking is always more fun than binge drinking and sensible expansion is a better idea than binge expansion. 
Peter Borg-Neal is chief executive of Oakman Inns and Restaurants.

The argument minimum pricing by Paul Chase

I read with great interest Tony Brookes’ article in Propel Friday Opinion on the 5 October entitled “Ridiculous supermarket pricing”. I found his views interesting not least because he’s an operator with nine pubs in the north east and therefore very much on the frontline. In his article, Tony addresses, in a detailed way, the issue of cheap alcohol in supermarkets, citing numerous examples of very low prices. My first thought is that it’s good that pub operators are addressing the issues surrounding competition and the possible impact of minimum unit pricing (MUP), and engaging in the debate. But the conclusion that he reached at the end of his article that “a high minimum price for alcohol needs introducing as soon as possible” is one that I have to challenge.

Without wishing to put words in anyone’s mouth I’m guessing that his logic might read something like this: “Supermarket prices are a threat to the pub trade. Yes, it would be nice to see an end to the duty escalator, and yes, we’d all like to see VAT in pubs reduced to five per cent to create a level playing field, but that’s not happening any time soon, if ever. In the meantime, I’ll take anything I can get, and if the government wants to introduce a minimum price that will increase prices in supermarkets and narrow the gap between their prices and mine, then more power to their elbow!”

I’d like Tony to read the University of Sheffield Report, prepared for the Scottish Government in 2009, in which they modelled the consequences of a differential MUP for alcohol in the off and on-trades. I’d like him also to consider the fact that minimum pricing is but one item in a shopping list of items that go far beyond supermarkets. Included in the wish-list of the health lobby are MUP, a ban on all alcohol price promotions for all sectors of the trade, restrictions on advertising, restrictions on hours and a reduction in outlet density (less pubs).

My point is that MUP isn’t an isolated measure, it’s part of a strategy designed to reduce alcohol sales wherever they take place. MUP is also a divide and rule strategy. Consider this statement from Dr. James Nicholls of Alcohol Research UK, made in a speech at the recent Westminster Policy forum: “Minimum unit pricing is an extraordinary policy, it was virtually unheard of six or seven years ago. Now it’s Government policy in both Scotland and England and it has sufficient levels of public, and indeed trade support, particularly in the on‐trade, to make it politically viable. In fact, I think its capacity to split trade interests between the on and the off trade, as well as tapping into public concerns about binge Britain, is what has made minimum unit pricing become politically possible so quickly.” (my bolding).

The health lobby set a trap, and above you can read the comments of a man gloating about the fact that it worked! They proposed MUP at a level that was deliberately intended to split the trade. But if it fails to achieve its health objectives and a higher MUP for the on-trade is proposed, how would Tony Brookes view that? Stonegate’s chairman Ian Payne has made the point that once we accept government as the price setter for the sector, we can’t control where that goes next.

Competing sectional interests have always impeded the licensed retail sector in presenting a united front to those who want to consign us to the status of a sunset industry. We can’t behave as if our understanding of politics stops at the door of the pub. And we can’t address the very real concerns faced by operators like Tony by grasping at anything that might give us temporary respite. We need to see the bigger picture. Given that the relentless attacks of the health lobby, and their allies in Parliament and the media, are aimed at reducing alcohol sales from every kind of outlet, and alcohol consumption across the whole population, I would argue that we can’t defend any section of the trade without defending every section of it. That’s the leap in consciousness that we need.
Paul Chase is a director of CPL Training and the on-trade’s leading alcohol policy commentator.

Why staff leave by Dawn Redman

It’s commonly known that every time an employee resigns it has a huge knock on cost effect to any business - it costs companies time, money and effort to replace them.  What is evident over the last couple of years is that we are all being more cautious when employing new staff and why shouldn’t we be! We have all had experience of someone starting and then, a few weeks into their role, the employee decides to leave for whatever reason or just because “It’s not right for them”.
With over 20 years of experience working in recruitment across many sectors but mainly retail and hospitality, I have to say the worst culprits for leaving within short periods of time are chefs, bar staff and waiters.  Research shows that when a chef leaves your company the effect can be costly due to the impact it has on the kitchen and front of house team – not to mention the time recruiting a replacement chef. This includes: advertising, sifting through CVs, talking to potential candidates, interviewing and then trialling, with unsuitability often the outcome. (However, on a more positive note it is so much easier to replace bar staff and waiters.)
Many employees leave over what seems the most ridiculous of reasons, which can include an extra 50p an hour, their partner does not like them working long hours or simply the job they started was not what they expected at the initial interview. One of the main reasons employees leave is because the first few weeks “on the job” have not been a good experience. This can include the induction and ongoing training support or, quite simply, the welcome they receive when they start.
Companies often have a nice induction and training manual, which is glossy and full of pictures. But it’s surprising how often companies seem to fail to give new starters the time and support they need in their first few months to ensure they want to stay and develop their career. I would urge employers to regularly talk to their team and have scheduled one-to-ones to understand staff career aspirations. Here are the top five reasons we, as an recruitment agency, find people leave their jobs: 
Effective people management: Often people don’t quit their jobs - they quit their bosses.

Money: Employees “life situations” often change and their salary and benefits no longer support their life needs.

Under-staffing: Employees are expected to carry unrealistic workloads that see them working long hours day-after-day without recognition or management support.

Lack of challenge or empowerment: Disgruntled employees often leave because they feel unable to present their own ideas and are not empowered to take reasonable decisions within their role.

Lack of recognition: Departed staff frequently complain that they feel employers do not recognise their efforts over and above their normal responsibilities and provide sufficient rewarding. 
And here are my top five tips on retaining staff:
Empathise with staff: No matter how busy employers are, they should consider how much busier they will become if they lose one of the team. Five minutes should be set aside every day to think about employees and their issues in the round.

Undertake regular performance reviews: Employee need the opportunity to share their thoughts about their job – as an employer it’s a great way to discover whether staff need additional training to work smarter.

Gain feedback from staff on company and management communication: If required training should be organised for middle management in the areas that are identified.

Work with employees to identify career paths within the company: There is an absolute need to understand employee career aspirations and empower them to make decisions which should reinforce their confidence that their employer has confidence in them.

Consider the non-financial ways to recognise and reward employees: Personal recognition in front of  work colleagues often brings a far greater satisfaction to employees than any monetary reward. Adding more fun and enjoyment to a work environment costs nothing – but makes a huge difference.
Ultimately, if an employee has decided to leave, an exit interview is crucial - this is invaluable information in understanding exactly why employees leave and whether there is an entrenched internal problem resulting in high turnover.  After all, there is nothing more destabilising than the revolving door of staff departures.
Dawn Redman is chief executive of Retail Recruitment Company.

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