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Fri 10th Mar 2017 - Friday Opinion
Subjects: Crowdfunding’s all about the money not the free beer and buns, matching the right pub with the right people, and British foodservice industry proves its resilience
Authors: Glynn Davis, James Armitage and Cyril Lavenant

Crowdfunding’s all about the money not the free beer and buns by Glynn Davis

Wild Beer Co is a high-quality producer of some extremely flavoursome beers that take most people out of their comfort zone. As the name suggests, the brewer has a preference for making beers with great complexity, which partly comes from using wild yeast strains and barrel ageing. This is combined with a playful streak and it has brewed beers such as Millionaire – a richly flavoured salted caramel milk stout – that was naturally followed by Billionaire, which is an even richer beer produced with miso paste.

At the start of the month, Wild Beer Co announced plans to raise £1m on crowdfunding platform Crowdcube to enable it to build a larger brewery accompanied by restaurant and bar facilities. Such is the respect for the output of Wild Beer Co in the beer community, within the first day of fund-raising it had already received commitments for the bulk of the £1m and smashed through the target in a matter of days.

It’s clear the credibility of the company’s founders, Brett Ellis and Andrew Cooper, has been a serious attraction for many of the individuals pledging funds. They are undoubtedly big fans of their beers, as am I, but I have found myself at odds on occasion with many of my co-backers. I shy away from calling them “investors” because many are not backing such companies because they want a return on their investment. Instead, they simply want to be part of a club.

With a modest amount of money they want to play their part in supporting the growth of a business and gratefully accept the perks of doing so – such as free exclusive beers and invites to boozy launch events. This is laudable, and I’m pleased many people nowadays are putting their money where their mouth is, but it’s obvious many of these individuals do not accept the investor aspect of their involvement. They seem to forget it is an actual investment, with an equity stake involved.

Take Camden Town Brewery, for instance, which has been one of the most successful examples of crowdfunding. The company raised £2.75m and a mere eight months later the business was sold to brewing giant Anheuser-Busch InBev (AB InBev) for about £85m. To my mind, this was a pretty impressive return of more than 60%, which crept even higher if you threw in the free beer that had been one of the rewards to investors.

Apparently this was a spectacularly poor result for many of the other 2,172 people who had backed the brewery. They disliked the fact it had sold out to a big brewer and seemed largely uninterested in the money they had made in such a short space of time. They had completely missed the point of why Camden Town had invited them to invest in the company in the first place – to grow production and thereby improve distribution. The sale to AB InBev helped it achieve this objective at a faster pace than it could have achieved through further rounds of crowdfunding.

Rather interestingly, one of the backers of Wild Beer Co is James Watt, co-founder of BrewDog, which is undoubtedly top dog in the crowdfunding world having raised more than £25m so far. BrewDog has told its crowdfunding backers in the past it has no intention of selling out to a large corporation, which the Equity Punks lapped up like puppies! This was despite the fact it’s unlikely he could deliver on this statement because it would potentially impinge on the rights of minority shareholders. One wonders what Watts’ stance will be if Wild Beer Co finds a big brewer knocking on its door at some point in the future?

This is all quite messy and evidence that crowdfunding is still in its formative years. The conflicts between businesses and their supporters, with their differing objectives, will prompt some interesting discussions in the future. However, even the most anti-capitalist backer of crowdfunding campaigns must surely applaud Camden Town for its success – especially when the alternative could be losing all their money like those individuals who bought into the dream, and subsequent nightmare, of food and drink subscription club Flavourly and food brands Lick Frozen Yogurt and Feel Free doughnuts. They each failed and lost all their backers’ money. At the end of the day, people need to wise up and acknowledge the fact crowdfunding is all about the money and is not a game where you receive a bit of free beer and the odd complimentary sticky bun.
Glynn Davis is a leading commentator on retail trends

Matching the right pub with the right people by James Armitage

Recruitment is a vital part of Ei Group’s continued success and something we approach strategically. As a result, we’re attracting more enquiries from potential publicans who want to run our pubs year on year. During the past couple of years we have changed the way we attract and recruit new publicans and operators. Not so long ago, digital activity was second to more traditional methods but today we target 65% of all applicants digitally, with many going on to complete their application journey through our digital channels.

Our segmentation tool is also helping to shape the way we recruit people. It allows us to profile the people who run, or apply to run, our pubs so we’re building a clear picture of who they are and what they want. As well as enabling us to match the right pub with the right people, it’s also helping us target potential publicans with advertising we know will reach them. Radio advertising, for example, we have replaced with Spotify because we know that’s how to reach our prime target – entrepreneurs.

We’re seeing a definite trend for people in their late 20s and 30s coming into the pub industry, they tell us it’s because they like the idea of “being their own boss” and the social element of running a pub. It’s also appealing to those members of “generation rent” who are unable to get on the property ladder, as often publicans can live on-site.

Perhaps it’s because they are of a similar age and more in touch with millennials who are the driving force behind change in so many aspects of life, but these potential publicans are more likely to want their information digitally. They also go on to share information digitally and are more likely to use social media to its best potential, identifying and maximising key sporting occasions or key footfall-driving events. This works for today’s customers who are more digitally connected, socially networked and better informed than ever before. They expect a consistently great experience with personalised content, accessible when they require it.

One of our forward-thinking younger publicans, Jack Baker of the Castle Inn in Bradway, Sheffield, had a clear vision of the retail offer he wanted to create. We helped him identify the perfect site and, with our help, he transformed it to deliver his vision. He knows the customers he wants to attract and uses digital marketing to drive them to his pub, which features an open kitchen serving flatbread pizzas to order, a chicken rotisserie and a barbecue outside alongside a Pimm’s area. The pub is pulling in the crowds because it is so relevant to the community it serves.

The demand from millennial consumers to have increasingly better experiences is not just true for customers. Employees in the pub trade are equally demanding, which is why we’re placing a much bigger focus on apprenticeships. We currently have about 200 people “in learning” across our leased and tenanted estate, and last year we launched an apprenticeship scheme for our managed pub estate, Bermondsey Pub Company. An apprenticeship can make employees feel far more valued, they’re more likely to stay in a role for longer, and perform much better too. We believe apprenticeships will be increasingly crucial to the future of the pub trade.

We’re in a stronger position than ever before to attract the best operators in the business and our segmentation tool is also helping to ensure a higher success rate for our publicans. If we’re putting the right people in the right pubs and setting them up with the best retail proposition for the area, they’re more likely to thrive.
James Armitage is director of sales and marketing at Ei Group

British foodservice industry proves its resilience by Cyril Lavenant

The foodservice industry faced a range of challenges in 2016, including slower GDP growth, which has affected consumer confidence, a higher National Living Wage, and concerns over Brexit. However, the industry has proved resilient as it managed to grow for the third consecutive year.

In the year ending November 2016, total foodservice visits in Great Britain rose by 1.1% versus the same 12-month period the year before, reaching a total of 11.3 billion. Total spend amounted to nearly £53.5bn, up 2.9% compared with the previous year. The increase in total spend is linked to a strong rise in the price per item, at 3.1%, directly impacting the number of items we consume (-0.8%). This is a distinct change as consumers had been ordering more items not fewer during the previous two years. Higher wages, concerns over Brexit and the weakness of sterling have clearly had an impact on price. Prices are likely to keep increasing in 2017 because of inflation, which is expected to be about 3%.

For the first time in several years, British foodservice is not the fastest-growing market in western Europe. Last year, Spain was the fastest-growing country at 1.4%. Britain was second at 1.1%, followed by Germany (0.7%), France (0.4%) and Italy (0.1%). 

Once again market growth has been national, with most of Britain’s regions enjoying growth in visits. However, London is no longer leading the way. On the contrary, it registered the slowest growth (0.7%). The London market is quite saturated and now the major restaurant chains are expanding outside the M25. When looking at dayparts, it is interesting to note only breakfast and lunch are growing, while dinner and snacking lost almost 1% of their visits. Breakfast continues to thrive but this daypart probably needs to be reinvigorated in 2017 to continue to succeed.

2016 at a glance
• Foodservice in Great Britain grew visits by 1.1%, a third consecutive year of growth.
• Total spend rose by 2.9%, up to £53bn
• Brexit is already weakening the industry
• Leveraging on the delivery trend is key to success
• Local sourcing and healthy menu options are indispensable

Lunch is benefiting from the improvement operators have brought to the occasion and to the fact it has a lower average ticket than dinner. Dinner was on a positive trend until Brexit, then it started to drop driven by the defensive posture consumers have adopted when it comes to spending money in uncertain times. The same analysis applies to social classes. In the first half of 2016, ABC1s and C2DEs were both eating out more than in 2015 but, as the year began to close, C2DEs had reduced their eating-out and drinking-out occasions. Another demographic insight is that, following Brexit, adults have cut their eating-out occasions with children but adult-only eating out has increased.

The top-three winning channels in 2016 were quick-service pizza/Italian (4.3%), full-service chicken (4.1%) and quick-service burger (4%). Pizzas and burgers clearly continue to be British favourites. Full-service pizza/Italian, in-store cafes/restaurants, quick-service bakery and quick-service coffee also had a strong year. At the opposite end of the spectrum, canteens in both the workplace and education categories continued to lose visits strongly (-2.9% and -1.7% respectively) as they are not managing to compete with the growing appeal of the high street. The vending machines category was also slightly down.

The casual dining sector has bounced back into strong growth (5.2%) but this performance is because of the expansion of casual dining outside the saturated London market, where the sector is in decline after years of strong performance. Casual dining restaurants must work hard in 2017 to regain the momentum in London, a market where consumers have access to an extraordinary choice of food. 

The good performance of the foodservice market continues to be driven by chains, which have increased visits by 3.5%, while independents are still losing ground with visits decreasing 1.9%. Some independents do a great job at continually renewing their offer to ensure they appeal to consumers and retain their loyalty but the vast majority are simply not doing enough to address the expectations of increasingly demanding consumers.

The fear and uncertainty among Britons that has followed the Brexit referendum has had one important and immediate effect – it has changed our confidence in the future from slightly positive to negative. And we know all too well how a consumer who is not confident about the economy, job security or financial resources will be more cautious when it comes to eating and drinking away from home. Because of this fall in consumer confidence, the market has started to slow. From July to November 2016, the foodservice market has only managed to increase its number of visits by 0.4% versus the same months in 2015. This is a big contrast to the visit growth of 1.5% recorded between January and June.

What can we expect for the rest of 2017? Inflation will build and the market will continue to see only slow growth. The importance of meal deals and promotions will increase and the lower-income demographic will cut down on visits more than the higher-income demographic. Meanwhile, the number of items consumed during each visit will decline, and snacking dayparts will struggle.

Consumers have clearly cut down their eating-out occasions since the EU referendum but will the British foodservice industry fall into recession? This is unlikely because the industry seems strong enough to avoid the fate of 2008. Currently, chains account for 56% of the market, up from 44% just eight years ago. The well-known chains have deeper pockets, enough to weather a period of poor trade. But they also have more funds to invest into understanding what consumers are expecting when eating and drinking out and to make further investments to satisfy consumer needs and expectations.

Whether you are an independent or part of a chain, there are some clear market trends you can tap into to help build success in 2017 and beyond. As consumers, we are used to having everything at our fingertips and that’s why we increasingly shop online. Delivery is not new in foodservice but it is growing rapidly thanks to an aggressive push by aggregators and non-food providers. With consumers enjoying greater choice than ever, operators are finding it increasingly difficult to maintain customer loyalty. How do they respond? They need to develop a flexible business approach. This could mean introducing a delivery service or partnering with the most relevant delivery aggregator.

The foodservice industry is facing a storm of cost increases from the National Living Wage, inflation, weaker sterling and growing business rents. At the same time, consumers remain cautious about how they spend their money. Operators will have to focus on maintaining the quality of their food and drink offerings and retain menu diversity while delivering an ever-better customer experience. This will help operators engage with customers and drive loyalty and repeat visits.

Consumers are increasingly looking for good-quality food – they don’t accept low quality. The weakness of sterling, inflation and the impact of the National Living Wage will force operators to find local suppliers capable of providing high-quality products on a commercial scale. As the number of local farmers and growers who can provide high-quality meat and ingredients is limited, creating a strong bond with them will also be key for operators. Operators that source locally will benefit from consumer approval of local provenance and support for British farmers.

For many consumers the availability of a “healthy choice” is a reassuring sign of quality. Having relevant healthy options will also help operators cater for consumers’ constantly changing health expectations. Consumers might be vegan or vegetarian, some want gluten-free food while others are looking for low fat or low calorie options. This all results in increasingly complex menu and product sourcing – but there’s no alternative. Operators that understand consumer sensitivity to sourcing, waste and environmental protection will find it easier to succeed.

Consumers love seeing a wide variety of food and drink on a restaurant menu, and many operators have successfully catered for this need. Yet consumers are also creatures of habit who – when it comes down to choosing something from a menu – will often be happiest enjoying a classic or traditional dish. If done well, a new take on a classic dish will wow the customer and keep the menu fresh. Operators need to offer the reassurance of the traditional dish while adding a surprising twist that wins the customer’s heart.

Look at these five keys to success and you’ll see two common themes. Foodservice operators are continually increasing the quality and diversity of the food and drink they offer consumers – and they do this to make consumers feel better when they spend money on eating out.
Cyril Lavenant is director of foodservice for the UK at NPD Group

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