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Fri 24th Mar 2017 - Friday Opinion
Subjects: The home delivery service dilemma, consumer direct is the next bright spot in US foodservice, and employee experience is key to ‘lessoning’ the skills shortage
Authors: Glynn Davis, Darren Tristano and Paul Mannering

The home delivery service dilemma by Glynn Davis

Pioneering home delivery service Hubbub had been consolidating online orders from specialist food retailers in London and delivering them to shoppers’ homes for nine years but sadly on 10 March it fulfilled its last orders. Having failed to close a funding round in recent months it realised the end of the road had been reached and it was forced to close its doors. In her goodbye email, founder Marisa Leaf acknowledged grocery delivery was a tough space to be in and, rather honestly, added Hubbub was the “most profitable – or, more accurately, the least unprofitable” model of its type.
 
This is the problem with home delivery – it is mightily tough to make money in this (mine) field. Taking a look at the big supermarkets – I’m informed they typically make only two deliveries per hour. This is a shockingly low level when you consider that many of their deliveries will be in densely located areas. And they are also supposedly using state-of-the-art routing software.
 
It is for this reason they make their accounts pretty opaque when it comes to highlighting the cost of home delivery versus those relating to their store operations. It was enlightening to hear Ewan Venters, chief executive of Fortnum & Mason, recently point out when he took the top job at the company he immediately ended its policy of offering free delivery on orders more than £50 because he reckoned it simply made no economic sense.
 
His stance is something of an exception because most retailers are offering free deliveries on pretty much all their home deliveries (and the same arrangement on dreaded returns) because they feel they have to do it. Unless they do it, their competitors will take all the business – regardless of whether it is profitable or not.
 
A similar scenario is being played out in the leisure and hospitality sector where there is a feeling restaurants and other foodservice businesses have to offer home delivery even if it makes little financial sense. NPD Group has calculated the average value of an order taken by a restaurant for delivery to the home is £6.90 compared with £12 for consumption on the premises. This reduced value is being compounded by the costs they are charged by delivery aggregators like Deliveroo and UberEats. This reduces their thin margins even further.
 
Despite this profit-lite situation NPD Group still advocates foodservice operators jump on board the delivery game. The argument being the channel is growing so quickly that any operator lacking a delivery strategy will be taking a distinct business risk. This all sounds rather similar to the food retailing industry.
 
Sensibly, NPD Group suggests foodservice companies could create specific meal deals that apply only to deliveries. This is a very sensible strategy and one that has been adopted by JKS Restaurants (owners of Gymkhana and Trisha etc), which has developed a new brand, Motu, which is for delivery only. It is part of Deliveroo’s Roobox initiative whereby it supplies the likes of JKS with kitchen facilities designed for producing food specifically for home delivery. This seems to be a clever move by JKS as it helps it avoid cannibalising its restaurants with home delivery orders that clog up its kitchens with barely profitable business when they are already busy creating dishes to consume in the restaurant and on which they do actually make money.
 
While Roobox is potentially a sensible solution for restaurants it is also an interesting extension for Deliveroo. If it can sign up enough restaurant brands then it surely must be more profitable than its core business that does not look particularly margin rich from my observations. It would enable Deliveroo to drive much bigger volumes of orders from these dedicated delivery kitchens than it ever would receive from a single high street restaurant. And it could also potentially consolidate orders from different brands on the same Roobox site.
 
Justin Landsberger, commercial director for UK & Ireland at Deliveroo, suggests such a move is effectively creating “unique content” for customers in those areas that would not have had access to its partner restaurants’ food. He likens it to the way Netflix creates content. This sounds a tad ridiculous to me because Deliveroo is massively labour intensive whereas Netflix is beautifully margin-rich digital.
 
This expensive labour intensive aspect is where the real issue with home delivery lies for foodservice businesses (and retailers) that are using delivery aggregators like Deliveroo to satisfy the growing appetite for home delivery from consumers. There is an unsustainable feel about the present situation and something somewhere down the line will undoubtedly give. The likes of Hubbub could well be a harbinger of some painful issues ahead.
Glynn Davis is a leading commentator on retail trends 
 

Consumer direct is the next bright spot in US foodservice by Darren Tristano

Consumer direct is an emerging channel with much hype around it because it provides consumers with new options for sourcing meals beyond traditional restaurant and retail establishments. This channel is comprised of both meal kit companies and third-party delivery services, both of which are taking the industry by storm, as noted at Winsight’s recent Consumer Direct Conference. Since consumer direct is projected to grow in size, it is important to understand why it is gaining traction with consumers.

Let’s start by first examining the appeal of the consumer direct channel. Today’s hectic lifestyle is increasingly leading consumers to seek convenience, speed and quality in their foodservice occasions and that has led to a large shift towards off-premise occasions. Consumer direct platforms not only deliver on all of these attributes, they take off-premise a step further by delivering food and beverages direct to your doorstep.

Meal kit companies offer a subscription-based model that delivers restaurant-quality recipes and the premium, pre-measured ingredients needed to prepare the gourmet meal at home. The cook-your-own meal kits allow guests to enjoy the same quality of freshly prepared at-home meals without the inconvenience of having to visit the supermarket for ingredients. Leading meal kit companies are HelloFresh and Blue Apron, but emerging startups are increasing competition in this sector. Some are even offering highly specialised meal kit solutions. Purple Carrot only delivers plant-based meals that “reduce your environmental footprint”, and Sun Basket, a company that promotes clean eating, caters to specific lifestyles by offering meal kits with gluten-free, paleo or vegetarian recipes.

Third-party delivery companies also provide on-demand service by giving consumers the luxury of choosing from a variety of restaurants and retailers for foodservice occasions without having to leave the couch. Foodservice options typically comprise a mix of independent restaurants, regional chains and national chains, along with retail options such as drugstores and grocery stores. These companies promise speed, with deliveries usually made in less than an hour, as well as late-night or all-day hours. Another norm of these services is that they offer cashless deliveries, meaning everything, including tip, is paid for through the mobile app or website. Leaders in third-party delivery include DoorDash and Postmates, although Amazon Restaurants is an emerging third-party delivery service that is quickly gaining traction.

So who are the consumer direct users? Technomic research shows the on-demand user skews to higher income, caucasian and younger in age. In fact, while all generations engage with on-demand services (including one out of four baby boomers), millennials comprise 41% of the on-demand consumer. Generation Z, while only making up 14% of on-demand customers, is expected to become a larger user for this channel as members of this cohort come into more spending power. Interestingly, men and woman are relatively balanced in their on-demand foodservice usage (48% female versus 52% male).

Many consumers are first enticed to try consumer direct deliveries through offers of free meals and discounts. And the appeal of this channel is catching on, with a considerable proportion of consumers saying they would consider signing up for or using one of these services in the future. But the consumer direct channel does have its Achilles heel and that is value. To some, on-demand options are perceived as costly due to the related delivery fees and subscription model fees. While it is projected this alternative channel will have a greater alignment with the median household income by 2025, consumer direct companies that can promote value now will have the best chance of gaining the loyalty of new customers early on.

As I see it
Consumer direct is still in its infancy and has much growth to undergo before it transitions to a mainstream channel. Some companies will come out on top, others will fade away over the next few years. Having household names like Amazon enter the consumer direct arena will help make on-demand ordering more of an everyday habit for consumers. And this channel will also greatly benefit from the loyalty of Generation Z and millennial users, who will gain more discretionary spending as they grow in their professions.

What’s on the horizon for on-demand channels? Expect to see chain operators who don’t want to see loss of quality control or decreased margins increasingly evaluating the development of a custom in-house delivery platform. Emerging technology will continue to make on-demand ordering and delivery even more efficient and attractive to consumers. And we’ll also see more advanced customisation options, as well as greater daypart and occasion expansion for these services. Similar to traditional operators, consumer direct companies must keep a finger on the pulse on the demands of consumers, stay in the know with new technology, and foster an internal atmosphere that bolsters imagination and innovation in order to thrive in this fast-paced industry.
Darren Tristano is chief insights officer at insights and research firm Technomic 

Employee experience is key to ‘lessoning’ the skills shortage by Paul Mannering

It’s no secret there is a chronic shortage of skilled chefs and hospitality professionals in the UK. Over the years there have been many suggested remedies, including bringing in more overseas chefs and movements to fundamentally change what is often a high-pressure work environment. However, we’ve not yet cracked the issue. The industry still needs somewhere in the region of 11,000 new chefs by 2020 in order to meet demand and that’s before we take the effects of Brexit into consideration.

There is no doubt, the hospitality industry is a high-octane career choice and the sector is a transient one, with people leaving faster than they can be replaced. But with 58% of hospitality outlets reportedly less productive compared with other sectors as a direct result of the skills gap, practical and realistic measures need to be put in place. This is required within individual businesses and across the sector as a whole to stop the impact trickling down to the customer experience.

A one-size-fits-all approach certainly isn’t the answer but there are steps the industry can collectively take to help change the outdated and negative opinions of the sector and highlight the benefits and opportunities of having a lifelong career in hospitality. If we take a look at the younger generation, who are effectively our stars of the future, 54% now look favourably on pursuing a career in hospitality However, this positive attitude shift is diluted by the 42% of parents who would actively discourage their children from working in hospitality. This mixed opinion can lead to younger recruits having an unrealistic view of the industry and result in them leaving when the pressure becomes high.

As when operators evaluate their customers’ experience and look for new ways to continually improve this, the same notion should be used when it comes to employees’ experiences. When you consider the average person spends a third of their life at work, and as we know for chefs this can be higher, it’s vital to ensure team members have a work-life balance, are being well looked after, are continually challenged in their role, are paid fairly and are offered development opportunities.

This is where the benefit of investing in training schemes comes into its own. Enabling not just those who are new to the industry to gain relevant skills but employees at all levels to up and cross-skill. This helps to keep skills current and to potentially plug any gaps that may open up across your business, as well as empower employees to maintain standards and encourage innovation. The emphasis needs to be on high-quality and relevant training, suitable for the needs of a business as well as the ability of the employee. There is a huge range of courses available but if the programme doesn’t work for you and help to solve a business need, then it’s a wasted resource.
 
Training can take many forms from short online courses to apprenticeships or bespoke training academies – such as the HIT Chef Academy we set up in 2015 to provide extra training opportunities for apprentice chefs. It’s all about finding what works best for your business and within the budgets you have available.

Of course, from April this year apprenticeships are undergoing a huge change in the way that they are administered and funded, with the introduction of the Apprenticeship Levy. If you don’t have a programme in place, now is the time to look at it in more detail as your business could benefit. Essentially, the levy applies to all businesses with an annual pay bill of more than £3m – each of which will automatically contribute 0.5% of this into an online account that they can use to pay for apprenticeships. An estimated 98% of UK businesses fall below the £3m threshold and will not need to pay the levy but they can still access funding, with up to 90% (and in some cases 100%) of costs being met by the government.
 
Setting up a programme can be a little daunting, especially for smaller operators or those that have never had an apprenticeship scheme in place. To help with this, here are a few tips to get you started:
 
1. Know the basics
Apprenticeships take the format of on-the-job training and the apprentice will work with a mentor within your business to study role-specific skills. Typically, most businesses will partner with an external training provider who can create the apprenticeship programme for them. The training provider will set out the course structure and training required. They will also assess and quality assure the apprentices’ development and prepare them for the end point assessment – acting as a support network for both the employer and the apprentice. Intermediate, advanced, higher and degree-level training courses are available for all positions and ability levels.

2. Work out what you want to achieve
Before embarking on an apprenticeship scheme, it’s imperative you are aware of the benefits both to the apprentice and to your business. For example, do you want to plug a skills gap or train existing members of staff to move up the management structure?
 
3. Understand the regulations
When it comes to hiring or appointing an apprentice, there are a number of standards that need to be met. For example, an apprenticeship must be a minimum of 12 months, with apprentices working a minimum of 16 hours a week. Learners also have to receive training in Level 2 English and maths if they do not already have these qualifications.

4. Choose the right partner
Finding the right training partner to suit the individual needs of your business is fundamental to the success of your apprenticeship programme and there are a number of criteria to consider before making your final choice. Here are a few points to provide a good starting point for your research:

Look at a training provider’s completion rates for the sector and the subject that suits your business – such as professional cookery. Information can be found by searching all registered training providers on the government website here. All training providers with government contracts are subject to regular Ofsted inspections, providing an independent opinion on the effectiveness of leadership and management within the training provider and the quality of their teaching, learning and assessment. These reports are available online here

If your business has outlets across the country, finding a training provider with the ability to deliver apprenticeships in each of these locations will help to deliver a consistent quality of training across your business. Multi-site employers can make the whole process easier by working with just one specialist training provider and one point of contact.
 
Whichever route you choose, training schemes need to be well researched with a clear idea of expected return on investment. Quality training – such as apprenticeships – can save countless issues further down the line. It also helps to build a strong, reliable and well-resourced team – translating into business success and more importantly, a satisfied and highly skilled workforce. Happy staff provide that positive third-party endorsement that will help to alter any negative perceptions of the industry and encourage others to join the ranks – making strides to end the skills shortage and continue to drive innovation across the sector. For more information, visit www.hittraining.co.uk or call 0800 093 5892.
Paul Mannering is principal of the HIT Training Chef Academy

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