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Morning Briefing for pub, restaurant and food wervice operators

Fri 31st Jul 2015 - Friday Opinion
Subjects: How brands can suffer resource starvation, the blurring of segment boundaries and the psychology of service
Authors: Chris Edger and Tony Hughes, Glynn Davis and Ann Elliott

What happens when a brands suffers resource starvation by Chris Edger and Tony Hughes

Incompetent leadership can have a devastating effect on hitherto successful brands but their demise is hastened if they are starved of oxygen – in the form of ‘hard’ financial and ‘soft’ human resources – to progress. Often organisations are subject to resource starvation because of a perverse domino effect. A blip in trading or a downward trend in sales causes brand leaders to cut back on property investment and reduce labour costs in order to recover the bottom line. Short-term, the profit lines (Operational, Ebitda and PBT) look better but longer term customers notice a marked deterioration in environment and service. Sales decelerate, going from being bad to considerably worse but the brand leadership – lacking a ‘plan B’ – continues to ‘strip costs’ out of the business. The upshot of such draconian action is that the brand begins to look and act ‘shabbily’, losing the confidence of both its employees and customers.

A protracted lack of financial and human resources undermines the functional and emotional benefits of the brand for both employees and customers. The brand cannot retain its distinctiveness in relation to its competitive set; rather its differentiation stems from being so awful. But apart from incompetent brand leadership what are the main causal factors behind resource starvation?

Economic adjustments – the first thing that triggers ‘resource anaemia’ within organisations is macroeconomic movements. Events such as the ‘great recession’ in the developed world 2008-14 had a profound effect on consumer buying behaviour in food service with consumers migrating to value-led offers due to squeezes in discretionary income. More recently – as confidence has returned – there has trend towards ‘trading up’ within the market. Food service offers have been ‘caught out’ by both ‘economic adjustments’; value offers faring well during straightened times (for ‘small treat occasions’) and ‘better’ offers prospering in more affluent circumstances (for ‘social’ and ‘celebratory’ occasions). Macro-movements in consumer behaviour – caused by seismic economic events – can cause companies to take short-term cost-cutting measures to ‘get to the other side’ but alienate loyal customers during the process of doing so; some of these customers being lost to the brand in perpetuity. 

Lines of credit – given the high failure rate of hospitality businesses banks are loath to lend money to ‘entrepreneurs’ that believe that they have the next big food service ‘idea’. This is understandable and, indeed, is one of the principal reasons why ‘crowdfunding’ has been such a popular way for food service entrepreneurs to raise initial seed capital in recent times. The issue for successful brands is different. Having established a strong consumer franchise, they might have hit a few roadblocks through inappropriate site selection and/or experienced temporary cash flow problems caused by rapid expansion. It is at this point that the brand owner might expect some support from their bank in the form of extended credit terms or a larger overdraft; given that they have already demonstrated some record of success. The reality is however – and it was certainly the case during the Great Recession – banks will seldom stand completely behind the brand unless further collateral or personal guarantees are given. Sadly, the fledgling existence of many promising brands has been terminated by unsympathetic bankers. 

Competitive pressure – the third thing that has a direct impact on resource allocation within food service brands is high levels of competitive pressure in local micro-markets that ‘strip sales’. Instead of reacting to this pressure through investing in changes to the brand’s marketing mix – providing a strong competitive response that improves the chances of longevity – policy makers can press the ‘panic button’ by putting prices up or taking ‘costs out of the business’; a response that (if sustained) will to perceptions of ‘brand dilution’ in the eyes of the customer. Again this course of action threatens terminal decline.

Ownership ‘gorging’ – another factor that can cause ‘starvation’ is moves by the owner to strip the business for the purposes of short-termist profit ‘gorging’. Why? The brand owner might need the funds to prop up failing businesses elsewhere or achieve short-term hikes in profitability to increase the Ebitda multiple of the business for sale and/or market listing purposes. Prospective buyers (of the enterprise or stock) should examine the ‘gearing run-rate’ of the business before they transact with the owner or they will receive a nasty shock when they find that they have bought a ‘hollowed out’ entity that requires a high degree of capital and revenue investment to survive! Caveat emptor!

Costs of doing business – the final factor that can affect ‘hard’ and ‘soft’ resource distribution within the brand are rising input costs that – on the basis of the brand’s positioning – threaten its long term viability. Costs such as rental increases, local tax hikes (such as business rates in the UK), minimum wage increases, energy and ingredient inflation can dramatically change the sustainability of the brand’s business model if they are unable to offset them with average spend per head and productivity increases that do not affect customer perceptions of quality and service. Indeed, one of the features of a truly great brand is its ability to absorb increased costs whilst simultaneously increasing sales, margins and levels of customer satisfaction! Those that can’t are in peril! 
Professor Christian Edger is author of multiple books on foodservice management and leadership multi-site leadership. He reaches sector executives at Birmingham City University. Tony Hughes is non-executive director of The Restaurant Group

Blurring of segment boundaries by Glynn Davis

When a pub company such as Punch Taverns announces it is to open a new concept, Brewed + Baked – that is a lethal sounding cocktail of a Costa, Greggs and boozer – then you know the definition of a pub is becoming increasingly flexible. There is absolutely an ongoing blurring of the boundaries between pub, bar, cafe, restaurant, coffee shop, and retail outlet with the result that the definition of what is a pub has become a whole lot more complicated.

It used to be the place where you consumed alcohol and everywhere else offered their own defined propositions, which ensured we could easily compartmentalise our leisure venues. This is no longer the case as pub operators have recognised the value of opening up for breakfast and offering the likes of coffee and pastries throughout the day. JD Wetherspoon, Fuller’s and many others have been generating plenty of revenues from their coffee and tea proposition.

Meanwhile the coffee shops have been playing around with alcohol. Pret A Manger has been running a trial selling wine and beer in the evening at a single outlet in London, while Cardiff-based Brains brewery has been investigating offering alcohol at its fast-growing chain of coffee bars Coffee#1. It’s a similar story at the Tesco-owned Harris + Hoole coffee bar chain.

Starbucks has also played around with switching its coffee bars into licensed venues in the evenings. Cue beer and wine, lower lighting, change of pace with the music, a different food offer, and away you go. In the UK it has been running a trial at its Stansted Airport site. To affirm the viability of this coffee bar/pub hybrid type approach a recent survey by CGA found that as many as 25% of people would drink alcohol in coffee shops.

When you throw in the growing number of cinemas, theatres, and even garden centres, that now have destination bars and cafes as part of the mix then the blurring of boundaries becomes very clear. The hybrid nature of venues is stretching ever further at an accelerating pace. This all suggests that consumers are very comfortable mixing their food and beverage consumption across a whole host of different types of outlet and are willing to break out of the constrained rigid models of yesteryear. Against this backdrop it is tough to pin a precise definition of what the modern day pub is.

The pub tag has stated to feel like is a limiting definition for outlets that serve differing functions throughout the day – from breakfast through until supper – and where alcohol is simply one of the components of its ever-broader model.

Maybe with this continued blurring, and inadequacy of rigid definitions, we should give little credence to some of the surveys that have been released lately. Research by Ritz Crisp and Thin found that only 13% of 2,000 people questioned visited the pub for a drink after work every week. Sixteen per cent stated they visited pubs just once a month.

And The Mirror newspaper found that entertaining at home is twice as popular as visiting local bars and pubs. Only 23% of people surveyed stated they would prefer to socialise at their local pub than at home.

The conclusion of much of this research and surveys, it would seem, is that the pub has become a dinosaur whose days are numbered. The question is – how is the pub now being defined in these surveys? Were some of the people questioned visiting hybrid-type venues instead of what they regard as a pub? Were they visiting pubs/bars but they didn’t actually know it? Who really knows anymore?

As consumption of alcohol continues to drop at an alarming rate among the younger demographic their desire to frequent venues that offer a broader experience and product mix is inevitable. It is this trend that the more progressive pub companies have been picking up on and which newcomers into the market such as Loungers and Yummy Pub Company have fully recognised and have been building their models accordingly.

With the increasingly flexible mindsets of these forward-thinking managements and the chameleon-like tendencies of their venues we won’t be calling time on the pub – or whatever else we choose to call it – just yet, thankfully, for those of us who love the pub in all its incarnations.
Glynn Davis is a leading commentator on retail trends

The psychology of service: it’s what you don’t say that counts by Ann Elliott

There is a vast amount of research out there on the “must do’s” of the service world – predominantly because many servers (pretty much anyone front of house) want to know what they can do to make their customers’ experiences more positive, and so potentially increase their tips.

What isn’t so prevalent in this domain is the “don’ts”. Some are givens, such as profanity, but what about body language?

Positive body language is a huge communication tool, and goes a long way in creating a strong customer experience. Research has shown that the following techniques can significantly improve, and add to, this experience:

Contrary to popular opinion, a light touch on the shoulder does elicit a positive reaction from customers. Rather than an “invasion of personal space” research has shown this technique is received positively by them.

Bringing service down to customer seating level works incredibly well in increasing engagement. Squatting next to the customer not only brings a server closer to the customer, but also makes eye contact a lot easier, which in turn implies closeness.

There has to be a balance of eye contact though. Overuse can be seen as hostile, threatening and even rude. Too little eye contact can be construed as uneasy, uncaring, or even unprepared. A complete avoidance of eye contact implies that there is ‘something to hide’.

The shape of a server’s posture can also convey more information than you might think. Slouching, with shoulders curled forward, doesn’t command respect or attention. Hunched shoulders are another subconscious indicator of dishonesty, as well as disrespect. Lazy body posture is a no-go area for servers. Customers think it’s important that service staff carry an air of authority.

The way a server moves their hands (or doesn’t), when talking demonstrates more than words can alone. The lack of hand gestures is a sign of indifference, a lack of investment in their role.

Large, open gestures on the other hand (the only pun, I promise), aside from risking knocking drinks over, can infer that the speaker is stretching the truth. From our research we know that servers need to appreciate that hand gestures – small and controlled – are really important when communicating to customers. These are traits of the reliable and confident.

It won’t surprise you to know how crossed arms can be perceived by people. In front of the body, they indicate that the server feels defensive – they are a real indicator of anxiety or discomfort. Most people are aware of the connotations of this stance, but they don’t consciously think about it, especially in stressed restaurant environments like a busy Saturday night on the floor.

Fidgeting is another barrier to customer engagement – be it messing about with a watch, a pen, an order pad – and conveys defensiveness, frustration, a feeling of being uncomfortable and boredom. Movements such as foot-tapping and pencil-tapping are viewed as being impatient, a sure fire way to upset customers.

Team members also need to think about the way they stand when serving customers – it is crucial that customers have their full and undivided attention. Standing sideways, or facing away from customers, is a no-no that portrays a lack of attention – especially if it’s in the direction of another customer or another server. Servers just cannot show that they don’t care, aren’t interested, or have better things to do.

So rather than focusing solely on what service teams should be saying, operators also need to take the time to consciously think about what their body is saying too. Sending out the wrong message with body language could be incredibly detrimental to the customer’s experience, ever important in a digital age where customers have a bigger voice than ever.
Ann Elliott is chief executive of leading marketing and public relations agency Elliotts –

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