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Morning Briefing Strap Line
Fri 6th Apr 2018 - Friday Opinion
Subjects: Top ten restaurant trends for 2018, don’t change Draft House, the benefits of getting stuck in, and millennials and delivery – their relationship explained
Authors: James Hacon, Glynn Davis, Ann Elliott and Caroline Jameson

Top ten restaurant trends for 2018 by James Hacon

The recent Global Restaurant Investment Forum welcomed more than 400 industry professionals from 58 countries to Palazzo Versace, Dubai. Several key trends dominated the conversation during the three-day event, including a changing investment landscape, resourcing challenges and changing consumer ideologies. 

Here are the top ten key trends from the event:
 
1. Light through the darkness
From the US to the UK and Middle East, an overarching message from the event was it is tough for many hospitality businesses across the globe. While there are immediate challenges around saturation and an oversupply that is rebalancing, the long-term view is undoubtedly one of a sector that will continue to grow as dining out of home and ordering-in both increase in popularity.
 
2. Emotion trumps experience
For many years we’ve seen the experience economy overshadow consumer goods in popularity. We’re seeing yet further evolution of this trend, with consumers increasingly looking for experiences that trigger emotional responses and have deeper meaning than those that are overly superficial or commercialised. Brands need to consider how they are connecting with their customers on an emotional level, not just during their experience but during the entire customer journey, which means an increased importance on training and investment in the pre-experience remote touch points, whether that is in person, by phone or digitally. 
 
3. Tangibility provides protection 
When considering the tangible nature of the food and beverage sector, anchored in the real world rather than online and the primal need for food as fuel, we are a sector in a somewhat protected environment compared with many other retail industries. As more traditional retail moves online, there will be continued opportunities for our sector in terms of real estate and access to capital. When coupled with the relatively low barriers to entry as an entrepreneur in our sector, the likely outcome will be continued innovation and growth of the sector, with ever-increasing competition.
 
4. Challenge provides opportunity
The lack of transactions in recent months is associated with the short-term boom-and-bust nature of any consumer economy and sector. There are many investors waiting in the wings with money to back the right businesses. For brands that have grown sustainably, innovated and positioned themselves correctly in the market there is a great opportunity in terms of access to property. Many of the investors at the conference supported the idea there will always be funds for the right brands in the right market. This is an era of the innovative, smaller and more nimble operators. We were told to keep a watch out for increases in trade purchases of small operators by the largest companies, with legacy estates that will see acquisition as key to their innovation. 
 
5. Short-term staff pressures, mid-term opportunity
People are central to our sector, we’ve heard it a thousand times and the message was strong onstage at the event. There is deep-rooted concern in many global markets about availability of the right candidates. Many championed the idea for a more joined-up approach to building the reputation of hospitality careers in our sector and more responsibility from the biggest players to collaborate on industry-wide training initiatives. The attractiveness of the restaurant sector as a career option may gain a much-needed boost in the mid term through the sheer lack of options in other sectors – with technological developments and automation in retail, transport and manufacturing reducing their labour needs. 
 
6. Turning to technology
Technology is seen by many as the key to operational streamlining, improving guest experience and reducing costs in the sector. However integration, connectivity and a skills gap on boards means this is taking much longer than in other industries. There are outstanding examples of artificial intelligence driving better business planning and even considerably changing consumer behaviour through the automated triggering of sights, sounds and smells within a restaurant, yet these examples are few and far between. To fully embrace the opportunity, businesses will need to allocate much larger budgets to technology and concentrate on upskilling operators. 
 
7. A new type of leader
Where operators used to rule in the boardroom, leaders of the future will need to have a much greater understanding of customers, occasions, the market place and technology to succeed. Being able to take actionable insights from data is becoming an important skill that will set apart the great from the good. Gone are the days intuition alone would drive a restaurant group forward. Investors are looking for visionaries, grounded in intelligence, to take restaurant groups to a scale that makes them truly interesting. Entrepreneurial types need to recognise and plan for the point they no longer add value and senior leaders need to realise growth can’t run on adrenalin alone.
 
8. Owning your customers
The delivery debate has been rife for the past two or three years and many have cashed in on this growing consumer trend, yet few have truly adapted their businesses quickly enough. The sector has let a few key players come between them and their customers, taking away the direct relationships and giving over the power to these third parties. Much like the hotel market and online travel agent relationship, investors continue to be concerned by this model, seeing a risk of these players continuing to erode margin and potentially diversifying their business models to directly compete with them or taking a cut of other activities in the future, whether it be table reservations or a percentage of in-house covers through payment solutions. Some of the most innovative operators are working hard to create technological solutions that abate the risk through direct takeaway and delivery ordering, as well as incentives and improved usability when guests transact or book directly. 
 
9. Sustainable, controlled growth
The past few years saw a boom for casual and fast casual in the most mature markets, with the challenge of saturation now being felt. There is a feeling among operators that some of the blame sits at the feet of investors who were driving for short-term return over long-term success. Others argue that developers created a whirlwind effect that saw brands chasing properties, worried about being left behind in a quickly expanding market, resulting in them accelerating beyond a sensible, sustainable level in line with the constraints of their operational and financial infrastructure. Whatever the reasons, the rebalance is happening, with many larger companies restructuring to considerably reduce their estates. Investors say they are looking for operators that are thinking for the mid to long-term, growing in a controlled way. Operators say they are learning to push back on investors and ensure they are realistic with expectations. 
 
10. Changing consumers
The continued generational shift – for a long time attributed to millennials – is a mindset that is spreading. We are seeing a wave of thinking moving across the world where people want equality, they want to be respected and make a difference. Understanding the challenges people are facing as well as our impact on the world is growing. People want to know practices are sustainable. Our sector takes extensively from the environment around it, whether from ocean or land, and consumers see that as meaning we have a responsibility to sustain it. We need to contribute as well as take. Movements surrounding the cutting of single-use plastics is a great start but it is just that, a start. The sector will be come under increasing pressure from consumers to think differently and take responsibility, putting food-sourcing, waste and sustainability at the centre of the agenda. It’s not just about being seen to be doing good any more, it’s about making it integral to your strategy. While consumers become more global in reach and understanding, they value “local” more than ever. Having a connection to place is likely to be more important than ever to successful brands and businesses.
James Hacon is managing director of THINK Hospitality, a company that works with brands and investors to spot trends for the future, define development strategy and create value through recognising opportunities. He was one of the MCs and a key contributor to the Global Restaurant Investment Forum

Don’t change Draft House by Glynn Davis

For some people among the beer cognoscenti, the Draft House chain of craft beer bars would never be regarded as the coolest places in town because they would always be able to point to quirkier places with more esoteric beer selections. This does these bars a great disservice because when they opened in 2009 they became an early emporium for craft beer. However, founder Charlie McVeigh also wanted them to be accessible and not to become beer geek ghettos.
 
This ultimately led to a sometimes quite random mix of beers on the bar but in this combination there would invariably be sufficient to keep the knowledgeable beer drinker interested while also appealing to those new to the game tentatively dipping their toe in the craft beer pond for the first time.
 
I can recall meeting McVeigh for the first time – via a mutual friend – sitting outside the original venue in Northcote Road in south London not long after its opening. He had just thrown out the best-selling lager because he was selling too much of the stuff. He wanted to introduce people to something new so the only solution was to get rid of the recognisable mainstream lager. Instead McVeigh was incredibly enthusiastic that night for bottles of Yeti Imperial Stout from Great Divide brewery in the US that he was very keen to share.
 
To his credit he also initiated a three thirds paddle for a fixed £5 even though he knew it was extra work for the bar teams and for certain beers of a hefty ABV it meant the margin was not exactly great. The clear intention was to introduce people to new beers and encourage experimentation – damn the profits.
 
But he’s no mere philanthropist (well he might be now he has just sold Draft House to BrewDog for a reputed £15m) he’s a businessman and he wanted to build a profitable bar chain. It has never been a vanity project. If he hadn’t been just as focused on the P&L as the beer list then I doubt very much the respected leisure and hospitality specialist Luke Johnson would have come in as an investor in the Draft House operation.
 
Johnson’s involvement gave the business an injection of capital and the push/confidence to take the model to significantly larger (and more profitable sites). When you compare the Charlotte Street site in central London with the two units in the City of London then size-wise they are from different planets. With these chunky openings came tank beer from Pilsner Urquell, which again managed to appeal to more mainstream drinkers while also maintaining the respect and interest of the beer aficionados. 
 
It is this balancing act of appealing to the various camps that I’d suggest has been the most successful aspect of the Draft House business and the legacy of McVeigh. This democratisation of craft beer has also been part of the manifesto of BrewDog. Whereas lots of its soap-box grandstanding has become a tad skewed, hypocritical even in some cases, and rather confused, there is no doubting its constant underlying objective of introducing better beer to as many people as possible is fully authentic.
 
No doubt this like-minded stance came into the thinking of BrewDog when it approached Draft House with its takeover offer. Now the deal is done my one big concern is the wide choice of beers McVeigh made a core part of the proposition of the Draft House business will be compromised because BrewDog is clearly in the game of selling its own beer.
 
Rebranding them all as BrewDog bars would also be a retrograde step as it would undoubtedly give the Scottish brewer a rather concentrated central London portfolio and take it a step closer to being an over-bearing presence, just like the monolithic brewers that it constantly rails against.
 
In the ideal world little would change and Draft House would continue to operate as the equivalent of the JD Wetherspoon of craft beer bars (without the sticky carpets) – accessible to all and always something different you want to drink. I personally cannot think of a greater compliment.
Glynn Davis is a leading commentator on retail trends
 

The benefits of getting stuck in by Ann Elliott

There are so many awesome people in this sector but the meeting I had a few weeks ago with one person has really stuck in my mind. I can’t name her as she will be mortified – she is as modest as she is amazing – but she is a highly regarded board member in our sector.
 
I met her for a coffee one afternoon and as she sat down I asked her where she had just come from. I was a little surprised when she said she had just been working a shift in one of her sites, which she did every Wednesday, Thursday and Friday, reserving the beginning of the week for office work. She didn’t say she tried to do it – she said she did it. No bragging, and she certainly wasn’t telling me for effect or to impress me. She was just very straightforward and down to earth about it.
 
This isn’t one of those “back to the floor” initiatives where the whole board swops places for a night with the team who usually work the evening shift or an HR scheme where everyone in head office has to work a day in the business to see what it’s really like. Nor is it a weekly BDM call to go through the PNL and talk to everyone on the floor. This is a “week on week” genuine desire to understand the business from a team and customer perspective – hands on.
 
The team now trusts her when she arrives and they talk to her. She has gained their confidence by putting on the uniform, doing their job and simply being another member of staff with all the delight and the trials and tribulations associated with that role.
 
It meant she understands the perspective of the team’s working on a day-to-day basis. A few weeks ago, it was obvious a piece of kitchen equipment simply couldn’t cope with the level of trade in the site and was likely to break down soon – a disaster for the kitchen team and speed of service. The fact a senior person in the business had noted it and would get it sorted meant a tremendous amount to the team there. This sort of pre-emptive action can save money in so many ways.
 
We can all recount instances where restaurant teams have complained about the equipment/tools they have to work with but often that communication has become lost in the machinery of corporate bureaucracy and nothing changes. Teams can so easily become frustrated and disillusioned when their feedback is not acknowledged or is ignored. That’s not likely to happen if a member of the management team has to work with the same tools three days in a row and to personally have to face the consequences when they serve tables.
 
Working regularly on-site means she can also hear what customers have to say about the food – what works, doesn’t work or needs to change. She doesn’t need focus groups, comment cards, mystery guests or online surveys. Her influence then on menu development is huge, so nothing goes on the menu that she knows won’t work with the chef team, the floor team or with customers.
 
She can see too what customers leave on their plates and has to be thrown away. She can appreciate any dishes the servers don’t want to put on the table. She knows what customers feel about price points and value for money. She knows the pressure points in the kitchen and knows where chefs are likely to jump up and down with what’s been asked of them. She knows where her customers go if they are not coming into her sites and who her competitors really are.
 
This sort of insight is invaluable. It’s instrumental in ensuring team happiness and, as a result, in driving repeat visits from customers. It’s critical in saving costs. It helps in getting all elements of the offer absolutely spot on. I am in awe of her commitment and passion and her ability to not allow day-to-day stuff to get in her way. I know her business will continue to thrive (it’s great anyway) because she knows what to do to make it thrive – from the ground floor to the board floor.
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 
 

Millennials and delivery – their relationship explained by Caroline Jameson

Who are millennials? Discussed frequently, but rarely understood? Let’s start at the beginning. They were born between the 1980s and early 2000s and came of age during the smartphone era. The native understanding of the choice at their fingertips is what sets millennials apart. Most importantly, they love eating, with a dining expenditure already worth £27bn annually – 30% of total spend.

The instinctive use of technology means 85% of millennials in the UK are now ordering online. Consequently, the value of the delivery channel is estimated to reach £5.3bn by the end of 2020, a growth of nearly 50%. Given these game-changing figures, we’ve looked into the BrandVue Eating Out tracker, Morar HPI’s daily survey of the top 150 UK eating out brands with 100,000 interviews each year, to delve further into millennials and their habits and attitudes towards delivery.

Millennials favour the speedy service of fast-casuals over the less affordable sit-down casual dining chains. They’re more likely to use mobile apps to order ahead and will not tolerate being forced to wait. Even breakfast cereal is being ditched because mixing in milk is less convenient than grabbing a yogurt or fast food breakfast sandwich on the go. As the eagle-eyed among us might have spotted, they are particularly higher spenders in the morning (40%), but much lower at lunchtime. They also tend to eat at less traditional times – mid-morning and afternoon being prime examples.

Think clothing retail in 2005 – that is where we are now with food. Delivery is augmenting where millennials eat with a growth ten times faster than that of the core dining-in market. Technology has blurred the boundaries between dining out and eating in and the main players are gaining traction – Deliveroo saw a 650% growth in 2016 and now operates in 12 markets; Just Eat recently reported sales up 45% to £546m and in the UK they have 10.5 million active customers who purchased £1.9bn worth of food from 28,400 restaurant partners. A total of 65% of Londoners aged 16 to 35 have ordered via Just Eat in the past 12 months.

There are still obstacles to the delivery sector’s growth. A consumer’s delivery usage drops as their age increases, and the clear upward trends we can see have yet to be fully established outside of London. Just Eat is the only delivery brand that isn’t London-centric, with a usage difference of only 5% between London and the rest of the UK. The company’s openness to independents and local restaurants has allowed it to establish itself nationwide and not just in urban areas.

Profit margins are not necessarily larger either – average delivery spend sits at £11.22 versus £16.10 for meals in-situ, dropping even further for delivery brands that offer less branded casual dining. However, annual delivery frequency is higher at 4.5 times a year versus 2.6 times. This suits millennials comfortably who prefer not to fork out for drinks and starters, going straight for a main course at home. This trend of millennials removing the perceived superfluous aspects of a meal is a further reason behind such large growth in the food delivery sector. 

It is clear changing demands are affecting the dining sector, but they are also affecting the work-life balance. A total of 30% of millennials order food from Deliveroo on weekend evenings, proving delivery is not only perceived as easy but also as a treat – a way of making the best of being at home with friends and family. 

Unsurprisingly pizza appears to be the favourite delivery dish – similarly, 60% of the online food delivery market in the US is pizza. This reminds us food delivery isn’t completely new – in the past it was only associated with traditional types of food, such as pizza. Now, it has extended to encapsulate almost all regional and contemporary cuisine.

So, in terms of the delivery brands, who is leading the pack? Just Eat dominates delivery frequency at +7 times a year compared with other brands such as Pizza Hut, Deliveroo and Hungryhouse. To put it into a wider category context, only quick-service restaurants and coffee shops have an average frequency of order of +4 times a year.

Having said this, millennials are not very likely to recommend delivery brands, so widespread use is not a proxy for something to shout about – the variety on offer and ease of purchase are what matters to this cohort. To adapt, operators need to figure out how they can meet millennials’ demands. Delivery may not be right for all brands, especially those who focus on the experiential. But remember the start point – millennials are well connected, well informed and immersed in choice. If you don’t provide a solution, they will head to somewhere that can.
Caroline Jameson is a director of Morar HPI

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