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Morning Briefing for pub, restaurant and food wervice operators

Fri 16th Dec 2016 - Friday Opinion
Subjects: Unprecedented restaurant closure numbers, RIP Alcohol Concern, the ALMR lunch, consumer confidence in a changing market and how to create a successful brand email
Authors: Glynn Davis, Paul Chase, Ann Elliott, Nielsen Harrap and Georgia Hall

Unprecedented restaurant closure numbers by Glynn Davis

Apparently bookings in pubs for Christmas Day lunch are up 12% on last year and an incredible 26% on 2014, according to Bookatable, which is indicative of how eating out is not a big deal special occasion anymore in the UK. In the early 1970s when my family used to eat out on Christmas Day it was an extremely rare activity. We were in the small minority and there certainly weren’t any pubs offering this special meal. It was very much the domain of decent restaurants and they used to charge an arm and a leg for the privilege. It was only when we hit the 1990s that pubs got into the act and since then the number of places offering Christmas dinner on the big day has grown exponentially.

This is very much in line with a general explosion in the level of eating out and to service this demand there has been a boom in restaurant openings. This has arguably accelerated in recent years to the point that there are some very worrying signs the industry is close to reaching a peak – with the expectation that there will be a growing number of casualties. There is a coherent argument growing that the level of supply is outstripping demand. As well as regular restaurant and bar openings that serve food there has also been a massive increase in the percentage of food outlets in shopping centres, there is the pop-up phenomenon, and it seems every venue you enter on the high street has a dining outlet of some description within it – from book stores to cinemas, to fashion shops.

While we are seeing unprecedented openings of these many types of establishment there are signs of stress already in the market and this is resulting in closures. According to figures from the Office of National Statistics, 15,830 restaurants, takeaways, and food stalls opened over the past year across the country while 12,606 closed – the second highest figure on record.

Needless to say the leading edge of this trend is in London where the number of new restaurants opened over the past year hit a record 200 – beating the previous high of 179, which was set only last year – but the number of closures reached a sizeable 76, according to restaurant guide Hardens. This takes the ratio of openings to closures from 3.2:1 to 2.6:1. This is a serious year-on-year jump and could indicate the peak has been reached in the restaurant market in the capital.

Further evidence supporting this argument comes from the fact it is no longer the case that the closures are related to poor restaurants. This might have been the case in the past but today the oversupply in the market is exerting significant pressure on established restaurants that are finding it tough adapting to not only a more competitive environment for attracting customers but also one where they are required to pay significantly higher rentals.

We have already seen the pressure become too much for the likes of Hibiscus and the Truscott Arms, which were both successful but found the rental burden too much and had to close. It looks like they won’t be the only ones forced to take such drastic action and that many more restaurants will find it tough to keep the lights on and the stoves burning. As many as 87% of restaurants in 100 sites in central London that were surveyed admitted they would be unable to continue in business in their current format if rent and rates continued to rise as forecasted, according to Cedar Dean Group. Of this worried grouping a hefty 40% are considering closing while 57% are looking at relocating to a cheaper area. Of the total bunch surveyed 36% of restaurants are paying 20% or more of their turnover on rent whereas the sustainable level is regarded as a more modest 15%. 

This pressure from upward rentals is also evident around the country. In Manchester rentals per square foot have hit £40 to £50 in prime locations compared with £30 to £40 five years ago, according to Savills, as a result of demand from restaurateurs. The number of dining establishments in the city now stands at more than 150 – with 14 new brands opening up in the past year alone including Simon Shaw’s El Gato Negro and Grafene.

It is the case that we are not quite on the levels of Manhattan in New York City where the ovens in most apartments have never been switched on because of the frequency with which the residents eat out. But even with the increased demand for such a lifestyle in the UK it is looking to be insufficient to support the number of new restaurant openings, with the result that the establishment you ate in last week might sadly not be there next week. I just hope the deposit you put down with the restaurant you booked for your Christmas Day lunch is not too big that you can’t afford to lose it. 
Glynn Davis is a leading commentator on retail trends

RIP Alcohol Concern by Paul Chase

It may have escaped your attention, but Alcohol Concern (AC) and Alcohol Research UK (ARUK), the UK’s two leading anti-alcohol sock puppet charities, are to merge. This merger has consequences for the way in which anti-alcohol advocacy will be conducted going forward, but first, a little bit of history:

Alcohol Concern and the International Order of Good Templars
The International Order of Good Templars, or “IOGT International” as it now refers to itself was the most zealous of the clutch of anti-alcohol groups that sprang up in the 1850s. Despite the repeal of prohibition in America in 1933, it remained in existence as a hard-line anti-alcohol sect until the 1970s, when its leader Derek Rutherford, recognising campaigning for the outright prohibition of alcohol was a lost cause, moved IOGT to an apparently softer line of campaigning to reduce alcohol-related harms. Initially, in the UK, IOGT worked with the National Council on Alcoholism, which later evolved into the anti-alcohol advocacy group Alcohol Concern (AC). 

The two groups parted company in 1982 after a row with the new chairman who said he had no time for “a bunch of Methodist teetotallers”. IOGT walked out and Rutherford, along with Andrew McNeill, set up the Institute of Alcohol Studies as an alcohol research organisation. So, whilst the National Council on Alcoholism and IOGT parted company, the legacy organisations they spawned have their roots deeply embedded in historical temperance.

Alcohol Research UK (ARUK)
ARUK is another organisation with its roots in historical temperance. Indeed, today 70% of its income is derived from returns on an investment fund that arose out of the Licensing Act 1904! The government of Conservative prime minister Arthur Balfour established the “Licensing Compensation Scheme” to compensate licensees who lost their licences through no fault of their own, but as a result of action by local justices to close down premises in areas where they deemed there was overprovision. The scheme was funded by a levy on all licensed property, from £1 on small beer houses to £150 on large hotels. The scheme was not popular with either side in the alcohol/society debate, with temperance campaigners dubbing it the “Brewers Endowment Fund” and brewers calling it the “Mutual Burial Fund”.

The scheme didn’t last for long, but the money collected was not returned to the trade from whose pockets it had been picked. The fund was left in abeyance, and it wasn’t until the 1981 act that half of the residual funds were transferred via a liquidator to establish the Alcohol Education and Research Council (AERC). In 2011 the AERC was wound up and the investment fund was transferred to a new charity, Alcohol Research UK. 

The merger
On 7 December 2016 there was a joint press release announcing AC and ARUK are to “merge” by April 2017. Why has this happened? If you look at the published accounts of both organisations this gives you a clue. AC has struggled to fund itself since it lost core funding from the UK government in 2012. It still received taxpayers’ money from the Welsh Assembly government totalling £185,108 in 2016, with its second biggest funder being the Big Lottery – Pembrokeshire, which contributed £62,459 in the same year. In the recent past AC has received money from the pharmaceutical industry for its support for a treatment for “mild alcoholism” that was marketed as “Selincro”. However, in 2016 its expenditure exceeded its income by some £72,330 and it is apparent AC struggles to make ends meet, and if the UK government isn’t going to finance its sock puppet activities using public funds to lobby for public policy change, then its long-term future looked uncertain at best.

ARUK, on the other hand, is losing even more money, with its expenditure exceeding its income in 2015 by £317,701. Whilst this is a much bigger budget deficit than AC’s, ARUK does have a dependable source of income from its historical investment fund of £15.7m, which delivered £548,855 in 2015, with just £51,972 from voluntary donations and an income of just £17,864 from “charitable activities”. 

So when is a merger not really a merger? Well, the chief executive of the newly merged organisation will be Dave Roberts, who currently heads up ARUK. AC’s current chief executive Joanna Simons was appointed with the specific remit of looking at options for its future strategy and she will leave in April 2017, when the merger is accomplished. Emily Robinson, AC’s deputy chief executive has already left. So, it appears that ARUK will gain AC’s income of about £950,000 a year, lose the cost of the two biggest earners from its payroll, and, presumably merge the two offices and save even more cost. All very sensible.

But what will really remain of AC’s campaigning efforts in the future? “Dry January” will presumably still go ahead in January 2017, but after that will it be retained, rather like Fidel Castro’s cigar, as the signature symbol of a dead icon, or will it be dispensed with? I guess that will depend on whether AC’s funders are prepared to fund the AC part of the merged charity. 

And what will be the position of those key figures in ARUK who insist theirs is an objective, independent research organisation, now they are about to acquire an organisation dedicated to advocacy and campaigning? ARUK states its aim is to “reduce levels of alcohol-related harm by ensuring policy and practice can always be developed on the basis of research-based evidence” whereas AC states it “works throughout England and Wales towards our vision of a world where alcohol does no harm”.

There is a big difference between reducing levels of harm, and creating a world where alcohol does no harm, which, given the mantra of “there is no safe level of alcohol consumption”, can only mean a world without alcohol. Whose vision will prevail? Given the tendency of anti-alcohol groups to undergo Trotskyite-like splits, will this marriage of financial convenience last, or might the Institute of Alcohol Studies and IOGT win-out in the neo-temperance merger stakes? We’ll have to wait and see.
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol policy

The ALMR lunch by Ann Elliott

Oh, I just love the Association of Licensed Multiple Retailers (ALMR) lunch. The moment the date arrives, I book a table, invite my guests and then look forward to what is, to me, the best day in the year in our sector. I haven’t been to all 22 unfortunately but probably about 15 of them so have experienced all their highs and lows.

And yet for many reasons it just shouldn’t be that great. Having a pint of cider at 11am is not usually a portent of good things to come. Packing 200 people into a pub meant for 50 doesn’t often enhance one’s mood – and that’s before the event has even started. Not being able to see the bar at the event, never mind being able to reach it, isn’t helpful. Belonging to a herd of 1,400 people being shepherded out of one room into another (twice) and then out of the building altogether, isn’t mood enhancing. Hearing a speaker on the mezzanine floor over the din from the bar is challenging (but, then again, not quite as challenging as trying to order a drink at the table). And queuing for hours to collect your coat because you are among the last 100 to leave can be immensely frustrating. 

But it’s all wonderful and all taken as part of the experience. It’s always been like that and, I am sure, will always be like that. It’s what makes the event what it is. Yesterday’s (Thursday, 15 December) event was just brilliant. Steve Richard’s introductory piece was serious, authoritative, compelling and convincing. Next year is going to be extremely difficult for operators particularly those who are trying to deliver profit growth against a backdrop of increasing costs of rates, wages, input costs and the Apprenticeship Levy. The ALMR has thrown its weight behind delaying the impact of wage increases and has been incredibly successful on behalf of the industry. 

And that was one of the key messages behind Kate Nicholls’ speech pre-lunch. The ALMR just gets on with lobbying government – quietly and effectively. It has saved the industry (if my scribbled notes are to be believed) more than £350m this year through impactful lobbying. I think it keeps its light under a bushel and those companies not in the ALMR should be delighted it is acting on their behalf. Perhaps this lunch will have prompted some non-members into joining the organisation and helping to pay for the work it does rather than simply benefiting from it without contribution. I hope so.

The post-lunch entertainer was Jimmy Carr who was reliably not PC. Some may have found him rather provocative (and/or offensive) to say the least but most would have taken him for what he was – a professional, inventive and hugely amusing comedian. He played to his (largely) male audience very well and was probably the best post-lunch act the ALMR has seen in recent years. It cannot be an easy gig. Charity fund-raising is a huge part of the lunch and this one raised £17,000 for charity with more than 20 prizes being handed out from the raffle. 

The mood in the room was very upbeat considering the potential for doom and gloom around next year’s onslaught of cost increases. Most operators seem to be having a good December and have great bookings in place for Christmas and the new year. It felt as though many were just enjoying the moment for now – tomorrow (and its issues) will come soon enough. All in all it was a great event. Thank you to the team at the ALMR for pulling it, and the sector, together in such a positive way. 
Ann Elliott is chief executive of leading PR and marketing company Elliotts – www.elliottsagency.com

Consumer confidence in a changing market by Nielsen Harrap

Leisure, from casual dining through to the cinema, is the bellwether of the market. This normality and habit displayed by consumers within the choices in their leisure time means the sector has been resilient to market change whilst serving as a good indicator of future market trends. The mergers and acquisitions market has invested heavily over the past ten years within the food and beverage sector demonstrating its significance and clear return on investment, however of late we have started to see some deals falling by the wayside and questionable valuations, with the levels of expansion required to provide target returns unachievable. So has the bubble finally burst? 

Consumer confidence is key to understanding this. CACI’s consumer confidence tracker with the BPS (British Population Survey) asks a nationally representative sample: “Thinking about your financial situation at present, how do you think it is likely to have changed, if at all, in three months’ time?” This enables us to track how geo-political and economic changes are affecting our consumers in the leisure market.

When we review the long-term trends we can see a clear picture of the significant changes in the market from the decline in confidence since the coalition government in 2010, with confidence turning negative in the so-called double-dip period of the recession, the false-dawn of confidence around the 2012 Olympics and then the steady growth from December 2012. Ever since then, confidence has been in positive territory, reaching a peak in March 2015 of +12.

Between March 2015 and March 2016 confidence had remained high, fluctuating by just 2% as confidence held remarkably steady, off-setting the usual seasonal variations in confidence which typically rise in the summer and fall in the run up to Christmas. Reviewing the seven turbulent months in the run up to, and out of, the EU referendum we can see a clear marked decline in confidence, though nowhere near the levels many experts predicted. We have seen a drop to +9%, which, to put things into context, is still only three percentage points behind the 2015 high.

This shows that consumer confidence is still in positive territory even with the significant pressures within the market, remembering that we had seen negative sentiment for 20 consecutive months across 2010 to 2012 during a period when the UK population on average thought their finances were going to get worse. We can see it has been a fairly gradual decline in confidence, no doubt caused by the uncertainty of what Brexit is yet to bring and no initial shocks to the system.

When we demographically profile our consumer confidence respondents we see an interesting pattern emerge. “Affluent Achievers”, our most affluent in society, see a -3% decline in confidence immediately after the Brexit shock (two of the three “Acorn” groups that make up this category, “Lavish Lifestyles” and “Executive Wealth”, being pro-remain) before bouncing back to nearly the pre-vote level. 

“Rising Prosperity”, our younger career-driven urbanites, conversely has seen the largest drop month-to-month from July to August 2016 of 6% before continuing to an aggregated -13% since July. Perhaps no surprise with these “young, cash-rich and time-poor” and those on the career ladder being the groups with the highest majority voting to remain in the EU.

When we interrogate the Acorn groups within “Rising Prosperity” in more detail we see a stark contrast between our “City Sophisticates” and our “Career Climbers”. With “City Sophisticates” playing such an important role in leisure sector spending, alongside our “Wealthy Achievers”, it is positive that even after these significant political impacts they are showing confidence of +13%. However, “Career Climbers”, who are slightly younger and more junior have seen the bigger drop and have dropped back to their lowest level of confidence since December 2013. This is perhaps unsurprising as it is a step into the unknown for a group who have grown up entirely within the EU and voted very much to remain. Their job security will feel more at risk and the perceived social and free movement implications will appear to limit opportunity and therefore their confidence.

So what does this mean for the leisure sector? The initial expectations of a longer term drop off in consumer confidence post the Brexit leave vote has fortunately not come to fruition, even with the undercurrent of uncertainty and we see our consumer confidence all still in positive territory. Perhaps the realisation that nothing will truly be determined for the country or the economy in terms of the single market means that consumers have very much decided it’s “business as usual” and we can only hold our breath for so long. As highlighted, some of our most important demographics within the leisure sector that have the highest spends and frequency after initial negative reaction have recovered. 

With new business rates kicking off next year, inflation already reported to be at its highest level in two years, Article 50 to be triggered and continued aggressive expansion within the leisure sector, some would argue we are in for the perfect storm of leisure sector challenges in 2017. Consumer confidence will be fundamental to weather this storm and deal with these challenges. However while consumers may be cautious over the coming weeks and months, I expect with leisure now such a fundamental part of all our lives it will be one of last things to be struck off the Christmas shopping list. As the market changes the key to success for operators in 2017 will be understanding consumer behaviour and mission, while maximising the consumers who engage with their brands. We’ll see post-Christmas what Santa has brought the sector.
Nielsen Harrap is a partner at market insights firm CACI and heads up the leisure division

How to create a successful brand email by Georgia Hall

Email marketing could possibly be one of the greatest marketing and brand promoting tools of all time. More than 122 billion emails are sent out around the globe hourly. Nearly three-quarters (72%) of consumers say email is their favoured communication (with companies they do business with) and 61% say they like to receive promotional emails weekly while 28% want them even more frequently. 

I’ve been directing email strategies for more than 20 years, most recently for Casual Dining Group as well as Chelsea FC, Virgin Atlantic, Vodafone, Microsoft, Tesco etc. While emails have progressed in popularity at a staggering rate, the premise of promoting a brand to a digital consumer is the same as ever. 

An email is a direct marketing communication and potential persuasion tool, interfering with people’s thought processes, time, and ultimately pushing the process of purchasing. As 90% of mobile users check emails on their phone, you can have people in the “palm of your hands” if your email is great.

The rules:
1. Get your headline right. Grab their attention – the subject line is the most important thing. Also, emails don’t always have to be connected to a discount.
2. Ensure the opening sentence is inviting, warm and commercial. This is the second reason people look before clicking. Create a little story. Intrigue the reader. Also, get it spell checked.
3. One mouthwatering evocative image must be used, which makes the viewer remember and love your product. A group shot of your preferred audience smiling, eating, drinking and living the life is far more engaging than a stock photo of an empty restaurant or a lonely hamburger.
4. Have a commercial call to action. What do you want the e-reader to do – eg “book now” or simply “buy now”? Position it in the top right hand corner of the email, to catch the eye.
5. Make it relevant to the reader. As databases can now be segmented, it’s very important the targeted consumer is talked to with relevance to their demographic. 
6. Decide on your “send-out strategy” and consider when you want the person to see your brand. 
7. Read it through once more and cut out any unnecessary copy – less is more.
Georgia Hall is former brand director at Café Rouge and founder of independent brand, digital and marketing consultancy GH Brand – www.ghbrand.co.uk

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