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Morning Briefing for pub, restaurant and food wervice operators

Fri 20th Dec 2013 - Friday Opinion
Subjects: Where the money went out-of-home, pub numbers, sector costs, engaging customers
Authors: Paul Charity, Martyn Cornell, David McHattie and Mark Melford 

Where the money went out-of-home by Paul Charity

There’s a host of high quality, independent restaurants in Horsham and my family uses them a fair bit. But it’s fair to say branded food and beverage claim the majority of our household out-of-home spend. So I thought I’d make list of where we spent the most money in 2013 and why. The following list doesn’t include branded offers that we would certainly frequent if they traded in Horsham. YO! Sushi, for example, is our 14-year-old’s favourite branded restaurant but we have to travel to Guildford to find one. So, here’s where the most cash was spent in 2013 in descending order.

1) Costa Coffee claims top spot by dint of its ubiquity. The daily routine starts with a Costa Coffee purchased when picking up the newspapers. There are four Costa Coffee machines dotted at service stations close to Horsham and a shop in the centre of town. Often, I’ll pop out and buy the office a Costa as a treat. Most days involve buying at least two and sometimes three. Such is the need for a morning caffeine fix that I’ll drive between Shell stations looking for a machine that’s actually working.

2) There’s a Premium County Dining Group site at Handcross near Crawley, The Red Lion. It was converted from a Chef & Brewer when Paul Salisbury and Paul Hales were still in favour at Mitchells & Butlers. It started well, nose-dived and has come storming back in the last year or so, as a young and talented manager, Neil Robertson, has taken it by the scruff of the neck. The menu is little short of wonderful, with lot of great choices and great fixed price options. It’s a first choice for post-work and weekend comfort eating. PCDG contains the wow flavours that set Browns apart in its heyday. It’s a 20-minute drive from Horsham, which is testament to how good this site is.

3) Wagamama: How do they serve food with such speed and consistency? No nonsense, super-friendly service. Tasty choices galore. When you’re in the mood for slurpy noodles nothing else will do. And then, this autumn, they brought back our all-time favourite, kare lomen, whose absence I never quite got to the bottom of despite badgering the ever-patient Ingrid in Wagamama’s marketing department. I think we went to Wagamama three times in four nights to satisfy the kare lomen cravings. Sometimes they ‘comp’ our meal because we’re regulars and they’re very nice people.

4) Cote: Metronomic service, great value, utterly consistent. Breakfast is hard to beat for complete reliability and we go most weekends. Nerdishly, we travelled to the Reigate branch on opening weekend for breakfast – and it was just as good as Horsham. We take friends to Cote on special occasions, too.

5) Bill’s: Some of the magic has been smoothed away since its evolution from the Lewes template, but the menu’s still outstanding, with lots of things you actually want to eat. And it’s still charmingly eccentric. Invariably, something goes wrong during service at Bill’s in Horsham. And service is far from quick. But the staff are lovely and quick to acknowledge the screw-ups. We keep going back because they are so darn nice – and they’ll get there eventually.

6) PizzaExpress: The venerable pizza brand is still the family first choice for pizza and pasta, especially now there’s a calzone option. It’s just so reliable and feels like pretty good value-for-money. We like Prezzo too, but not quite as much. We don’t ‘get’ Strada and we’re tried Ask Italian a few times in the past year and been disappointed – everything felt a little pinched and mean, portion-wise.

7) Toby Carvery: When you’re in the mood for a roast dinner, Toby is hard to beat. It’s worth enduring the long, snaking queue at the carvery, the unsmiling service from the put-upon carver and the shambolic atmosphere induced by the sheer number of customers piling in at peak times on a Sunday. It’s a slam-dunk people-pleaser and there’s been a blizzard of coupons this year to provide even sharper value at the Langley Green branch in Crawley. Makes you wonder why Mitchells & Butlers isn’t adding them much faster.

8) Harvester: We have two options – Crawley and Haywards Heath and they both got used a fair bit in 2013. Again, tremendous value and the salad cart knocks spots off the equivalent at Pizza Hut, whose new generation site in Crawley Leisure Park is disappointing. Harvester lays claim to the only mainstream restaurant brand whose takeaway option we actually use once-in-a-while. That food critic Tom Parker Bowles didn’t like Harvester was as predictable as Will Self feeling nauseous in a JD Wetherspoon.

2014 sees a Giggling squid and Nando’s opening in Horsham. How much our leisure spend will they capture? I’ll let you know in a year or so…
Paul Charity is managing director of Propel Info

The words nobody wants to hear about the on-trade by Marytn Cornell

In 1908, Herbert Asquith, the then Prime Minister, made a powerful and eloquent speech at a public meeting on the controversial Licensing Bill that his Liberal Party government was trying to steer through a hostile Parliament. After the speech, according to the Manchester Guardian in 1952, a lady on the speakers’ platform asked Asquith if she could have his notes as a memento. He handed her an ordinary envelope with a few words scribbled on the back of it. The only ones legible were: “Too many pubs”.

Move on 105 years, and one big message given to the Department for Business Innovation and Skills this week in the 44 pages of the report it commissioned from the financial consultancy London Economics on the likely impact of the proposed reform of the tied trade looks as if it could be summed up in the same three words as were on the back of Asquith’s envelope: “Too many pubs”.

The authors of the report appear to take a grim pleasure in declaring that, even after the decimation the pub industry has suffered in the past decade, “there is clearly surplus pub capacity, in quite a volatile market … with so many pubs on the margin of viability.” The report failed to give its own estimate of how many surplus pubs there are in the country, but happily quoted others’: “A number of stakeholders interviewed noted that the UK is probably still operating excess pub supply of approximately 6,000 pubs, suggesting a sustainable number of pubs of approximately 45,000.”

That 6,000 pubs – 12% of the current stock, one in eight pubs, an entire large pubco’s-worth – need to close to bring the sector down to sustainability is not a message anyone wishes to hear: not licensees trying to make a living, not pub customers who love their locals, not the communities already fighting to keep threatened pubs open, not brewers and other suppliers anxious to have as many outlets as possible for their products to be sold in, not pubcos keen to continue with the maximum possible advantages of scale, not anybody who loves the British pub for what it is, a unique institution and an important and vital part of British life.

Delivering that message, however, meant the report’s authors were able to make the main thrust of their report – that whatever choice was made among the various types of reform suggested, “although there is very great uncertainty about the precise value,” it was “our conclusion that the reforms proposed in the consultation will close up to 1,600 pubs” – seem almost a relief. After all, with 1,600 pubs out of the way, plenty of customers would move to the pub down the road, with the result, the report suggests, that “on average, pubs which remain will see footfalls 7.2% higher than present. This would be sufficient to turn a poorly performing pub into a more attractive prospect.” Would the many pubco tenants clamouring for the reforms to be brought in be happy if the result was 1,600 fewer pubs, but more custom for the ones that survive the cull?

The proposed reforms are meant to ensure that no tied-house publican is worse off, in the percentage of profit he takes from his pub, than a free-of-tie tenant. There are two big problems here: the first is calculating “no worse off”. As Bernard Brindley, chairman of the British Institute of Innkeeping, said in his evidence to the Business, Innovation and Skills Committee on pubcos and the tie in June: “The difficulty I have is how you get to the point of proving or analysing the figures as to where a tied tenant should be no worse off than a free-of-tie tenant. I have spoken to several chartered surveyors who have told me that it cannot be done, because you cannot compare apples with oranges.” The second is that messing about with the tied house system could cause an implosion: as the London Economics report says: “There is a real possibility that each of the proposed policy reforms, except possibly the code without permitting guest beer, instead of delivering the policy objective of ensuring tied tenants are treated fairly, ie, “no worse off” than free-of-tie tenants, may lead to the end of a large-scale tied pub system.” In other words, the big tenanted and leased pubcos might feel the attraction of their business model had been wrecked by the reforms, and simply pack up, in an “Everything Must Go” distress sale. Some might feel that no more pubcos would be a good thing. But here’s Bernard Brindley again: “There are a lot of free-of-tie tenants who would rather be in a tied-tenant situation. The equation works both ways.”

To quote the wise Phil Dixon, from his own evidence in June to the BIS committee: “The problem we have in our industry is, everything is about estimate.” The London Economics report runs a host of reform scenarios through the computer, and comes up with a wide range of estimated results, though all result in the closure of pubs: bringing in a statutory code on pubco-tenant relationships without the “guest beer” option many want could see between 1,500 and 4,800 pubs close in the short term, the report suggests, which, for an estimate, is pretty wide. Other options, including having a “guest beer”, and banning the beer tie completely, because those options make many already barely viable pubs unviable for pubcos trying to cover their own associated costs, could see between 4,600 and 6,400 pubs close. (Though the report suggests around a third of those would open again, run by operators without the pubcos’ financial burdens.)

With respected economists saying the inevitable result of proposed legislation is the closure of huge numbers of pubs, it should not be a surprise that the government has decided, as the Irish say, to put its decision on bringing in a statutory code to cover the pubco-tenant relationship on the long finger. Political memories are usually short, but this government remembers that the whole current mess is a result of the dreadful shambles its predecessor made 24 years ago of the Beer Orders, brought in to try to “solve” the problem of the dominance of five big pub-owning brewery companies. The unintended consequences of that piece of interference in the market were the collapse of the bulk of the British brewing industry into the hands of overseas competitors and the rise of those big pubcos who are now themselves the target of proposed market interference. As the London Economics report says, “irrespective of what changes may be proposed or considered … almost any policy reform may have noticeable and unpredictable effects.” The government knows that, and it wants as long a think about what it should do next as possible. Preferably, some might suspect, until 2015 and the next general election.

The other big point from the idea that there are, basically, 6,000 unviable pubs in Britain working on the edge of survival is that the problems faced by so many tenants may not be all down to the much-demonised pubcos, but too many knives chasing too small a cake. With a scenario like that, it is inevitable a number of people are going to get hurt. If that statistic is true, any proposed reform of the system is unlikely to lead to thousands of tied-pub tenants suddenly freed from the pubco shackles and laughing and smiling over glasses of champagne as the gold and silver pours through the pub front door. Instead, we face – at current rates of closure – six more years of pubs shutting, tenants in distress, communities angry at the loss of important and much-loved local assets, and buckets of vitriol being thrown about as people argue over whose fault it all is. I wonder what Herbert Asquith would think.
Martyn Cornell is managing editor of Propel Info

We are not a cash cow by David McHattie

If governments continue to treat our sector as a cash cow for the Exchequer, then they are risking not only further closures but a reduction in jobs, apprenticeships and overall tax contribution.

We can and should say thank you for small mercies so … Mr Osborne, thank you for hearing our messages and, more importantly, for acting upon them to stop the damaging beer duty escalator and cutting tax on beer.

During a recent conversation with George Osborne, it was pleasing to hear how the collaborative work of the ALMR and other trade bodies had resonated with him. He appreciated the coverage and recognition the cut afforded him. It was the lead item post-budget: a 1p cut – yes, only a 1p cut – yet the direct effect on hard-working people was clearly evident.

Such changes, that directly affect thousands of businesses the length and breadth of the country – in every constituency – are a win-win. Such changes create positive sentiment and help thousands of businesses (which were first into recession and are demonstrating that they are first out) to believe and invest in jobs and growth. We want to continue to create jobs, support charities and contribute huge sums to the Exchequer to support the stabilisation and growth of the UK economy. But this could all come to an end if we do not get the message through to government that further changes jeopardise all that we contribute.

Our industry is not only a phenomenal meritocracy, a hive of innovation and entrepreneurial spirit, but the best engine of growth this coalition and the UK has at its disposal. We have tens of thousands of apprentices (6% of the UK total, approximately 30,000) and create one in six new jobs among 18 to 24-year-olds and one in eight across all age groups – though it use to be one in five! 

Our venues are not only the first place that many successful people found work, but a valuable sanctuary for many from the bills, the demands of running a house and the stresses of the office. They are also the place many people first met each other, and where they still celebrate with loved ones and friends. Society needs the escape outlets and the social contributions our businesses afford.

As the table below demonstrates we are at the point where we all need to help government understand that this industry, which creates jobs, invests in communities, supports charities and grows people’s careers, can take no more cost burden. We don’t want protectionism just equitable treatment. Although we are not an industry of large oligopolies, government should think carefully about the impact of further changes on thousands of businesses up and down the country, which employ two million-plus and serve millions more.

The growth in cost prices of food and drink has been dramatic, while relentlessly “upward only” energy and property prices are also eroding margins. The table below illustrates the typical profitability of the sector at weekly sales (ex VAT) of £15,000, given different wet-dry sales splits. Margins are derived from sector and all-sector averages from the data collected in the ALMR Benchmarking Survey, now in its 7th year and based on more than 2,000 outlet details.

While businesses that rely on wet sales are profitable, societal changes have meant that more and more businesses need to move to offering food to attract customers; but food-led businesses face even more challenging margins, with the average wage percentage across the ALMR Benchmarking Survey sample (>2000 outlets) being 34.5%. To say the 5.3% typical sector capital expenditure of last year, used to fuel growth and jobs, is unlikely to continue is self-evident. “Squeeze more at your peril” has to be the message to government, especially given what is coming or proposed to be coming our way as operators.

What lies ahead – a taste:
Wage costs: Growing expectations among guests require ever better experiences, given the challenge to compete against supermarkets, while the minimum wage rose by 1.9% from 1 October. These changes have a greater impact in our more labour-intensive sector, where we make and serve the products, than they do in retail or online shopping.

Pensions: While the principle to provide pensions is applauded, the initial 1% of the employee’s wage rises to 3% by 2018. Where does the 3% come from?

Property rents: “Upward only” rents have been a real albatross for many operators for many years and with the current RPI at 3.2% there is no good news here.

Business rates: Another dagger through the heart of community businesses: operators can expect the current RPI of 3.2% to be reflected in their new business rates bills from April 2014. Beware: we have one example of an operator who saved an ailing pub, turned it around, created many new jobs and generated large contributions for the Exchequer, only to find his rates had been revalued from £13,000 to £110,000.

PPL: They were seeking a 4,000% increase in fees. We appear to have combated that, although a proposed fee rise above 5% is still expected shortly.

Late Night Levy: Fees range from £300 to £4,400 a year, and this is before local authorities get the power to increase annual fees on a cost-recovery basis from April 2014. Given that 70% of alcohol is now drunk at home and pre-loading is the norm, the responsible place to drink becomes more expensive and exclusive.

Calorie counting: Expect a cost of £6 to £25 per recipe item for calculating calorie content, plus the costs of menu changes, which will depend on breadth of menu and the frequency with which changes are made.

Individually it is easy to gloss over these changes but add them up and consider them in light of the typical P&L performance in the sector and the impact is dramatic. These changes will inevitably have to be paid for by above-inflation price rises, diminution of service levels or less investment in new opportunities for jobs and growth.

Considering the tight and diminishing net profit margins and the consumer drive toward food, the impact of these potential changes could actually spell the difference between growth and job creation or closure for some operators.

Government and operators are in this together. I am sure the constant erosion of our growth potential is due to a lack of understanding rather than an intentional desire to choke the growth of jobs in a sector vital for the economy and communities up and down the country. We need to work collaboratively to help government understand that no longer can governments (of whatever persuasion) squeeze with impunity to take advantage of what has been their tax cash cow for many years.
David McHattie is owner of Inn Ideas and chief executive of the Association of Licensed Multiple Retailers

Engaging customers in an engaging way by Mark Melford

We make and supply a somewhat odd product, which Forbes has described as the “best of British ingenuity”.

Strangely (to some), this product, which can be found in washrooms across assorted on-trade venues in 12 different countries, is helping brand owners and operators to drive, in many cases, dramatic uplifts in the rate of sale of promoted brands, in-venue.

If you haven’t seen what we do, the product is available to view in all its glory on our website, but in short, we make HD media screens with a twist. The screens are located above urinals where they command a man’s undivided attention while he answers nature’s call. The twist is that they are interactive: they respond to a user’s approach, and allow him to control a game on the screen with his stream.

The reality of our product tends to provoke a strong reaction (either way) and without the benefit of having used our device, it may have you thinking “really?”. Hopefully, many of you will have road tested it by now, especially if you attended yesterday’s end-of-term ALMR celebration at Old Billingsgate Market.

Of course, what we really do is harness digital media in an engaging way to give venue and brands an opportunity to engage consumers – and influence their buying decisions. And it seems to work: venue owners enthuse about the buzz created and sales of (subtly) promoted products have grown by up to 180%. Why?

Message overload
First – some context. Today’s consumer is saturated with ads. By some estimates we are all exposed to over 5,000 a day! So-called ‘location based media’ – screens in novel places like bus stops, taxis and elevators – are growing at 20% per annum.

Unsurprisingly, consumers have learnt to screen out this stuff (who doesn’t fast forward through the ad breaks on TV nowadays?). Younger consumers in particular filter all broadcast messages in a way that you and I don’t. This ‘wallpapering’ means that anyone who tries to win in this space without a precise understanding of how people receive messages is destined to fail. Various early attempts to throw screens into bars, clubs and supermarkets have done just that. 

At the same time, brand owners we talk to, from Coca Cola to Diageo, express frustration at the limited opportunities available to them in on-trade venues (via screens or otherwise), versus the off-trade. The reasons for this are obvious – on-trade venues are not supermarkets. By their very nature they need to offer enticing and welcoming environments: authentic, aspirational, and often free from clutter. Many landlords, rightly in our view, don’t want TV ads all over their bar.

Make ‘em smile
That is not to say there is no role for media, nor for brand presence. The question is how and what: The quest for a very long time has been how to do this in a way that is attractive to venue owners (building perception or ‘equity’ with customers) and delivers value for brands.

Aside from backbar and table tops, the washroom is surprisingly interesting. It’s an environment in its own right: connected yet distinct from the main bar area. From a consumer point of view it’s an almost uniquely ‘clutter-free’ moment in their visit, thus an opportunity – we believe a hugely underrated one. The trick is not to squander it.

Our approach is, before all else, to deliver fun: novelty, games, entertaining clips, informative news. Consumers genuinely appreciate this, and because they appreciate it, they reward the venue (or the brand) with permission to engage them – just for a moment. Studies by JCDecaux last year found consumers were four times more likely to remember a message if they were happy at the time they received it. And if there’s something in it for the consumer too: maybe a 500ml bottle of beer instead of a 330ml bottle of beer at no extra charge, you’ve hit the sweet spot. The beer brand in this example saw sales rise 19%.

Drinkaware saw awareness rates rise 41% after they engaged us to develop a humorous quiz game testing users’ knowledge of alcohol facts. Yo! Sushi have promoted new product launches, hotels their forthcoming events, and bars their house shots, all making shrewd use of this oft-overlooked window to their customers.

In my previous career as a marketing consultant I didn’t ever envisage writing an article like this (I advised media firms like the BBC, Channel 4 and Guardian Media Group on engaging their audiences better, and boosting ad revenues). Nor at Captive Media do we have an over-riding obsession with washrooms or pee-controlled games. What we’re passionate about is smart use of technology coupled with consumer insight to change behaviour. We believe there is a huge opportunity for both venue and brand owners to unlock the value from their customers, in venue in a way that pleases consumer, publican and brand alike.
Mark Melford is co-founder and director of Captive Media. Visit

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