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Morning Briefing for pub, restaurant and food wervice operators

Fri 24th Nov 2017 - Friday Opinion
Subjects: Budget measures a good start rather than a victory, sector's move into rooms should not detract from the core business, reasons to be cheerful and pubs for all generations
Authors: Kate Nicholls, Glynn Davis, Elton Mouna and Ann Elliott

Budget measures a good start rather than a victory by Kate Nicholls 

Earlier this week the chancellor Philip Hammond stood at the Despatch Box to deliver his second Budget of the year with a background of continuing economic uncertainty. While the media coverage of his speech has naturally focused on the economic forecasts and pledges made around housebuilding and addressing cross-generational unfairness, there was again some welcome support for our sector.

At a time of rising costs, a freeze in alcohol duties and a continuation of support for pubs on business rates is very welcome. The chancellor credited an industry lobbying coalition – including the Association of Licensed Multiple Retailers (ALMR) speaking with a clear voice on behalf of hospitality operators – with his decision on business rates support. 

This demonstrates that hard campaigning pays off. The ALMR has worked tirelessly to communicate the pressures being faced by eating and drinking out businesses and it is good to see the chancellor acknowledging these challenges and listening to what our sector has to say.

Of course this isn’t to say the Budget didn’t present some challenges. The changes in the business rates relief for pubs on the whole is a step in the right direction, but considering State Aid rules stops the relief getting to many pubs, while restaurants, cafes and nightclubs aren’t included within this, there’s still a job to be done in the future. We need to keep looking forward, urging for a wider review to deal with business rates within hospitality as a whole, not just with select factions. 

While we certainly did not get everything we wanted (no-one ever does), we must view Wednesday’s announcement as another step on the journey. But the message we’ll be taking to ministers is they must follow this good work with continued reform of the rates system to help the engine of growth that is the UK’s eating and drinking out sector. By staying vocal and continuing to bang the drum on the unfairness and disparity of the current system, how it utterly undermines growth and investment, we can build momentum on the case for reform.

A freeze in alcohol duties at a time of increased costs is also very welcome. The ALMR has again been campaigning hard for a duty freeze and this positive move will help tackle rising costs, saving the sector about £116m, as well as underpinning consumer confidence. 

Our sector is one of Britain’s most dynamic, innovative and resilient. Last year it created one-in-three of all net new jobs and has grown by more than 5% per annum since 2010. Pubs, clubs and restaurants have driven a renaissance across high streets that is now being damaged by increasing financial burdens. It is clear this situation cannot continue indefinitely without gouging the heart of Britain’s high streets for good.

An extension of the pub-specific rates relief means the sector will save almost £20m and by bringing forward the move from Retail Price Index to Consumer Price Index to calculate bills, it will save close to £100m over four years. The promise of more frequent revaluations is also welcome and something the ALMR has strongly lobbied for; although we are concerned, in practice, there may be some administrative burdens that will need to be addressed.

Therefore, these measures should be treated as a good start rather than a victory. The next step is for the government to push ahead with its long-promised package of root and branch reform of business rates. The ALMR has consistently outlined a compelling case for wholesale reform of the outdated regime. The total rates bill for eating and drinking out businesses currently stands at £1.1bn. Businesses in our sector pay 4.5% of the total liability yet account for just 1.1% of turnover. This works out as an overpayment of £890m every year.

It’s clear that fundamental reform is needed to allow for a fairer distribution of the business tax burden across a rapidly changing economy. The system should absolutely incentivise businesses that invest in and improve properties. It’s worth stating again this issue is not going away. Business rates will continue to be critical until we have a fair system of business taxation, which is internationally competitive and encourages investment.

On wage rates, it is good to see the government accepting the recommendations of the Low Pay Commission on the rate of the National Living Wage, de-politicising the decision. Although this may present a modest financial burden for employers it will also put money in the pockets of our customers. 

The Budget campaign highlights the importance of having our vibrant sector reflected in the machinery of government. Issues critical to the sector straddle a number of different departments, encompassing employment, planning, taxation, food and drink, tourism and more. Our view continues to be that there is a genuine need for all of these to be considered holistically, to help promote a consolidated approach by government and better engagement with business.
Kate Nicholls is chief executive of the Association of Licensed Multiple Retailers, the leading voice for the eating and drinking out sector

Sector's move into rooms should not detract from the core business by Glynn Davis

During the now almost forgotten (odd) balmy days of the summer my family and I made a couple of trips away to very different hotels, which collectively served to highlight just how much improvement has been made in accessibly priced accommodation in the UK over recent years. The first stop was an Old English Inns accommodation in Hertfordshire that we had booked as a base for a short cycling trip.
 
It proved an ideal hotel from which to explore the local area, including the Henry Moore museum, which my children loved (sort of). We had an excellent-value family room and made full use of the property’s bar and restaurant. The facilities were perfect for all our requirements – from the decent-quality menu to the friendly team who even allowed us to store our four bikes in a function room on both nights. The only downside to the whole trip was the disappointing choice of beer, which resulted in me switching to drinking wine during both our evening stints in the bar. 
 
The second venture away was to the Botany Bay Hotel located on a clifftop in a very idyllic spot on the Kent coast. The sea-facing rooms were among the best we’ve stayed in at that price point, with an airiness that perfectly complemented the sweeping views of the coastline. The public spaces – lounge, bar and restaurant – were just as welcoming and one night really was not enough time to spend there.
 
The only weak element in the overall offer was the beer selection, which did not include anything overly tempting on draught in my opinion and led to me instead having a couple of bottles and then making the switch to wine. What might therefore be surprising about these two hotels is that they are owned by long-established brewers. Old English Inns is part of Greene King and the Botany Bay Hotel is one of the first-class properties owned by Shepherd Neame. It is one of a clutch of Kent coastal properties that are the real jewel in the crown of its growing hotel portfolio.
 
Both their moves into accommodation are eminently sensible. I can absolutely understand the need for diversification. Life has certainly been tough for brewers of their standing over the relatively recent past and it is not particularly surprising that similar manoeuvres are being undertaken by myriad other brewers and pub companies. Making money from rooms is arguably easier than flogging beer it would seem!
 
In only the past few weeks Young’s has reported its revpar had increased by 6.6% from its 486 rooms and that average room rates had moved up 5.7%. It’s little surprise more hotel rooms are to be added to its estate. Over at Fuller’s the number of rooms stands at 750 and there is an intention to grow this significantly over the next few years.
 
JD Wetherspoon continues to add rooms to its pubs and the latest move involves it seeking approval to add 39 rooms to its Rann Wartha pub in St Austell. Wetherspoon founder Tim Martin has been increasingly positive about the value that accommodation brings to his outlets where there is space to add rooms. Even bar chain Loungers is potentially getting in on the action with the recent announcement that it had secured planning permission to add five rooms to its Albero Lounge site in Bedford.
 
Such is the general level of improvement in accommodation today – and a willingness by consumers to spend well when undertaking domestic breaks – that Adams has spent the past nine months on a serious refurbishment of its flagship 35-bedroom Swan Hotel in its home town of Southwold in Suffolk.
 
While I applaud the hotelier skills of both Greene King and Shepherd Neame, as well as the other companies I’ve referenced, it is a shame whenever the beer and pub aspects of their offer does not fully reflect their rich heritages in brewing and/or pub hospitality.
 
Surely the next step in this evolution of moving into the land of the hotelier would be to simply build a bland hotel and then stick a bog-standard pub on to it that serves a largely captive audience. Hold on, isn’t that what the once great brewer Whitbread already does. Yes, and it’s made a very profitable business from it, but I just hope that not everybody takes the same middle-of-the-road approach to their diversification into accommodation that distracts them from their core business.
Glynn Davis is a leading commentator on retail trends
 

Reasons to be cheerful by Elton Mouna

We really can be a downright gloomy bunch in our industry. Past history reveals us as an industry that makes a habit of getting very glum and agitated at the drop of a hat and very, very glum and very, very agitated at the drop of even just a single like-for-like sales percentage point. If I actually believed all the negative trade press I read I would be looking for a change in direction to something altogether more cheerful like being an undertaker or something altogether less challenging like giving career advice to Grace and Robert Mugabe. 
 
The line trotted out I particularly dislike (that seems to be a specialty of the big pub company PR departments and our industry lobbying groups) is the old chestnut that our sector is “facing the perfect storm”. It must be the longest storm in history as I have been hearing that phrase all my working life and I have been around for quite some time.
 
The stark reality is that sales do actually ebb and flow and there are times we should just go with the flow and not overreact and definitely not become glum. The only genuine so-called perfect storm to my mind is self-inflicted. It happens when the person at the helm of their business gets all doomy and gloomy and shouty and stroppy. This drifts down to the area managers and then the doom and gloom filters down further to the managers and then to the bar staff and before you know it the atmosphere of doom and gloom directly impacts on our wonderful customers.

Meanwhile, elsewhere in that same business people are overreacting left right and centre trying to please the boss. Wage bills get cut by a hastily written diktat from a numbers person who has never actually stepped behind a bar or into an industrial kitchen in his or her life. In tandem the catering guys cut the portion sizes and reduce the quality of ingredients in order to score a brownie point and a percentage point of margin by what is effectively short-changing our wonderful customers. Add to the mix the purchasing department going off doing deals with beer suppliers for beer our wonderful customers don’t really want to drink anymore. 

What’s the consequence of all this? Not enough staff to serve the overpriced poor-value food and poorly selected drinks to our wonderful customers who then vote with their feet. Then to rub salt in the wound the PR team put out a press release telling everyone there is an industry perfect storm. The PR teams are actually factually correct of course but it is a perfect storm created by their own colleagues. 
 
We have dealt with bird flu, horse meat in our sausages, the duty escalator, the smoking ban, Islamic fundamentalists, Generation Y drinking less, and we will deal with Brexit, minimum alcohol pricing, Deliveroo, the increasing switch to the on-trade, rising teetotalism, “centennials” drinking less, coffee shops nicking our trade, and more.
 
We will do it because we always do and because right now is one of the best times our brilliant vibrant industry has seen for a long time. As the mighty Ian Dury once sang there are so many “Reasons to be Cheerful”. Off the top of my head here are eight cheerful reasons. The World Cup 2018; the Elizabeth Line; Crossrail; HS2; a vibrant craft beer market driven by creative people with a youthful zest for life and business; an equally brilliant craft soft drinks industry driven by people with that same creative youthful zest for life and business; new brilliant ways to digitally market ourselves; and low unemployment and a freeze on beer duty.
 
Yes, undeniably there are some strong headwinds ahead but a perfect storm? No, no! Perfect storms are made through our own margin-grabbing and cost-cutting meddlings and can be avoided. As an industry let’s face the headwinds with a spring in our step, a smile on our faces, with great gusto and with our wonderful customers at the forefront of every single decision we make. 
Elton Mouna is managing director of Remarkable Pubs. The latest Remarkable Pub, the Virgin Queen, opens in Hackney in December
 

Pubs for all generations by Ann Elliott

Every time I drive past the two pubs in my village and see them closed for most of the week, I feel a bit desolate. They are both paying rent and rates even when they are closed so could they sweat their assets more effectively and become more profitable as a result? It’s not easy I know. It all takes time, effort, thought and commitment. Pubs now, though, have a unique opportunity to be a more valuable part of the lives of those who live and work close to them.
 
With everything going on, many national operators and chains are focused inwards considering a range of major issues. How can they pass on food price inflation and still deliver value? How can they recruit and retain staff? How do they get rid of toxic leases? How can they continue to provide a return to their investors?
 
Local pubs, while experiencing some of the same pressures, have perhaps more space to look outwards, to think less about themselves and more about their customers. I think they have a real opportunity now to win market share back from some of the casual dining and managed pub multi-site operators.
 
Everyone seems to be obsessed with how they market their brand to millennials but they are not the only target market out there for pubs. And I think it’s rather a major generalisation to assume that every millennial behaves in the same way (but that’s an issue for another column). They have to be multi-generational.
 
Many pubs will have “home alone” potential customers living nearby who crave companionship. Pubs could be a real catalyst for this – breakfast, tea and cakes, quizzes, cinema clubs, television and tea, early suppers, book clubs – the list is endless. It’s sharing of another kind versus the selfies and Instagram alternatives.
 
They can provide space (and refreshment) for local community groups to meet (and even start them up themselves). They could be sports groups, fitness/yoga sessions, NCT meetings, mother and toddler catch-ups, Rotary or Lions meetings or even University of the Third Age-type learning and/or training sessions. A quick brainstorm with the team and/or customers will throw up many more. Some pubs I know have board game nights, Lego evenings, bridge lessons, computer skills sessions as well as the usual darts/pool/quiz nights. They will try all sorts of ideas to encourage their own community around them to use their pub and its facilities.
 
Local businesses can become more involved in their local pub if it can provide meeting space, a screen, food and drink. In a world where more and more people are working from home, the pub could provide a real centre for collaboration and sharing.
 
I have run a number of focus groups with women to talk about pubs and they generally like the flexibility of pubs versus the more formulaic approach of restaurants. They can sit on their own more comfortably, they don’t have to wait for a bill, the menu is often more flexible and a pub can feel more friendly and welcoming than the “wait here to be seated” sign suggests in restaurants. It still amazes me that I don’t see pubs running Strictly Come Dancing prosecco and canape nights on Saturday or Sunday evenings – women would love that (well, I would). Its easy for a pub to get a group of local women together and ask them what would encourage them to come to the pub more often.
 
Of course, there are many other target markets other than “home alone”, community groups, local businesses and women for pubs to attract and of course Pub is the Hub has encouraged pubs to think like this for ages. Now is the time to really ramp this up and make a difference to all generations in a community.
Ann Elliott is chief executive of Elliotts, the leading integrated marketing agency in the hospitality and leisure sector – www.elliottsagency.com. Follow her on Twitter: @elliottsagency

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