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Fri 20th Jul 2018 - Friday Opinion
Subjects: Business rates unfit for 21st century, delivery is making casual dining industry eat itself, tapping into female beer drinkers and the evolution of all-day dining
Authors: Matthew Kirby, Matt Paice, Posy Parsons and Glynn Davis

Business rates unfit for 21st century by Matthew Kirby

This is going to sound like a bit of a rant but bear with me because I want to suggest a solution rather than simply complain.

Business rates are a 16th century invention with little relevance for the modern UK economy. It’s easy money for the government – few votes are lost when you put them up. The first rate was introduced as part of the Elizabethan Poor Law Act in 1572, which established relief for the poor at local parish level, paid for by inhabitants of the parish. The tax evolved during the 20th century to become known as business rates. In 2014-15, authorities collected a total of £22.9bn in business rates, representing 3.53% of the total UK tax income and achieving an average in-year collection rate of 98.1%. That’s nailed on tax income. Income tax and VAT can’t come close based on the fact the payer has no place to run.

Moving on to life in the 21st century, it’s clear the way we conduct business and purchase goods and services is changing but the way tax is levied has yet to reflect the dramatic effect this is having on operators and, to a lesser extent, consumers. Last year, according to the Institute for Fiscal Studies, the government raised £29.4bn in business rates. Our Paddington site in Praed Street has been given a 27% rate increase in the latest valuation based on the April 2017 figures. I know others face larger rises but by way of example this means our rates will rise from £21,000 to £26,670 unless we can find a reason to fight it.

In the meantime, according to Rightmove the average value of a four-bedroom house in the same postcode is £3.05m and the council tax is £1,421 (top Band H). In fact, a bit further down the road in Hyde Park a £10m home will also pay £1,421. So you have a £3m house of 3,000 square feet paying 47p per foot in tax and a 700 square foot cafe or restaurant around the corner paying £38.10p per square foot in business rates (and still not getting its bins emptied). It’s clear property tax has become unfit for purpose.

If you look elsewhere, agriculture is exempt. Even more laughable is unused or underdeveloped land attracts reduced or zero rates. The Institute for Fiscal Studies stated in a recent report: “This provides a clear and perverse incentive to use land inefficiently.”

There have been valid calls from UKHospitality and related bodies for a reduction in business rates but, rather like demands for a reduction in VAT a few years ago, it will have limited impact because when the government is scrambling to find another £20bn for the NHS, the idea of losing £5bn to £10bn in business rates revenue has no chance – unless an alternative source of revenue is proposed.

The only way to win the argument is to show how tax revenue can be rebalanced. Since 1995, the value of land in the UK has risen 544% whereas the value of the buildings sitting on it has only risen 219%, so a tax on land or Land Value Tax (LVT) would simply act as a corporation-style tax on the increase in value, which the Institute of Economic Affairs estimates could easily generate £12bn to £15bn of additional tax income if introduced at a relatively low level.

This is not some left-wing, anti-capitalist view. Here is what Winston Churchill, a proponent of LVT, said in 1909: “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is affected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

So my conclusion is we are having the wrong debate. As an industry we should be arguing for the restructure of taxation to create a fairer, more balanced environment for us to conduct business.
Matthew Kirby is chief executive of Chozen

Delivery is making casual dining industry eat itself by Matt Paice

Last week’s Friday Opinion saw James Hacon gallantly make the case for restaurant businesses to embrace delivery. James painted a picture of the industry marching forward with Deliveroo and UberEats towards the bright, sunlit uplands. I’m here to argue we’re approaching a cliff edge instead.

I attended a recent seminar organised by accountants Jeffreys Henry. One seasoned operator made the case customers would tire of delivery, as it offers such an inferior experience, and would soon come running back to the warm embrace of eating in at restaurants. My retort was I felt like I was at a music industry round-table in 2000, confidently asserting Napster would never take off because customers love the feel of vinyl and CDs. Delivery is not going anywhere. Customers, especially younger ones, absolutely love it and there’s nothing we can do to turn back the clock.

Not only has delivery become a fixed part of the environment it is also enormous – something that would be more talked-about if the industry shared more sales data. I’ve heard a well-known rotisserie chicken brand near my second site was taking £40,000 per week through delivery, a staggering sum. The general manager of a major better burger brand near me told me he saw its share of turnover from delivery rise to 65%. An operator friend of mine with a delivery-friendly offering does at least 30% of his turnover on Deliveroo. The knock-on effect of this is on associated costs – the proportion of food in delivery sales means relative increases in labour, wastage and price fluctuations.

The industry response to the delivery companies, as exemplified by James’ piece, is to join them, not beat them. You have restaurant brands, including established national operators, creating basic delivery-only brands to be run out of their kitchens. You have restaurant brands skewing their menus to microwaveable and hot-hold food. You could paint this as a nimble response to changing dynamics or you could say the industry is eating itself.

As restaurant operators, we’re coming to this from a point of weakness – the delivery platforms are keeping all the data. When I wanted to know where our customers were ordering their delivery from I had to type 150 postcodes from the ticket print-outs into a spreadsheet. I had no way of knowing how many times a given customer had ordered from me in the past month – and never in a million years would Deliveroo or UberEats let me email my customers directly. If data is the “black gold” of industry, the delivery platforms are the oil barons.

Meanwhile, it is not capable of belief that Deliveroo won’t soon start creating its own “restaurant” brands – why would such a dynamic, growing company not want to take greater control of its supply chain? Its Editions sites are now using small street food operators – it would be a short step for Deliveroo to franchise those brands for Editions in other cities. Similarly, it is having planning issues around its mobile kitchens so a clear next step would be to take some leases on permanent sites. I can easily imagine a situation in two or three years where there are restaurant brands that in effect work for Deliveroo.

I’m not here to praise or bury Deliveroo and UberEats. Their progress is inevitable change but they bring two major changes for the historic way casual dining chains have been organised.

Firstly property. The company voluntary arrangements we’ve seen from Byron and Prezzo are surely just the beginning. Paying £100,000 or more for a suburban high-street site when a significant chunk of your turnover could be run from a back street is unsustainable.

Secondly the business model. The pure-play hospitality offering of casual dining businesses – where 100% of our customers are humans who walk in through the front door – is finished. The current model of an expensively fitted-out room with top-of-the-market rent and rates staffed by charming and able front-of-house staff is overkill when a third or more of your business is basically retail. As Chris Miller, of White Rabbit Fund, observed last week, the days of the 30-site roll-out are over. Restaurant operators can no longer be tied to that pure-play model.

The “restaurant owner” of the future is in the intellectual property business, licensing their brand and know-how to delivery platforms, grab-and-go sites, street food arenas, franchise operators, contract caterers and travel hubs – but an awful lot of value in existing chains will be destroyed along the way.
Matt Paice is founder of Killer Tomato, two ‘burritos, tacos and cocktails’ restaurants in west London

Tapping into female beer drinkers by Posy Parsons

Until a few years ago beer in the UK was predominantly made by men, for men. From the brewers and beer writers to the marketers and beer appreciation clubs, women were, for the most part, left out of the equation – and actively discouraged from the beer world. In fact one of my first memories of life in the UK after moving here in 2006 was of heading to the pub for after-work drinks and being advised to stop ordering full pints because they weren’t “lady like”.

Slowly but surely we have seen incremental changes. While a beer-drinking stereotype remains, more and more women are making their voices heard. From well-established icons such as Melissa Cole to emerging brewsters such as Jaega Wise fighting sexism at every turn, women are no longer sitting silently on the sidelines.

What has always surprised me is the fact women have had to “reclaim” beer at all. For thousands of years brewing in Europe was traditionally a woman’s role alongside bread-making and other domestic duties. It was only during the onset of the Industrial Revolution that large-scale breweries took over this position and almost a century later bombarded the nation with male-dominated advertisement that has discouraged female drinkers.

The result is a largely untapped customer base with women only making up about 20% of the nation’s beer drinkers. While huge strides have been made to combat sexism, breweries are still not actively targeting women. When they do, they tend to massively miss the mark, for example “beer for her” marketing campaigns such as serving beer from prosecco-shaped pink bottles.

This is not only bad for the millions of women missing out on fantastic brews, but also bad for business. The female consumer is far too important to ignore and more effort needs to be devoted to tapping into this under-represented market.

When Claire (Russell) and I first decided to get into business in 2014 there weren’t many women talking about home-brewing. It had the reputation of a throwback to the 1970s – something your father or uncle might try in a garden shed to save money with the inevitable result of an undrinkable science experiment gone wrong.

Yet for us home-brewing seemed a natural hobby for both men and women who love experimenting with flavours and getting creative in the kitchen. We decided to look into what it was about the market that made it such an unattractive option to women, with the hope of overcoming those obstacles to make it much more accessible.

After trying some of the extract kits on the market, we encountered the first home-brewing stereotype – an undrinkable product that couldn’t taste further from a beer. We then decided to try the all-grain method from scratch, which produced much better results – but they took up far too much space, time and equipment.

We agreed there had to be a better way. Most large-batch brewing equipment requires heavy lifting and takes up far too much space in the house, so we really made a point of adapting the “from scratch” method with attractive equipment that could be used for a number of purposes in the kitchen. For example, our high-quality pot can be used for all cooking needs, not just brewing, and the brew bag can be used for anything that requires a fine sieve. Even the fermenter can be used as a drinks dispenser in between brews!

The “brew in a bag” method allowed us to replicate all-grain brewing in just one pot so we could brew in any-size kitchen with minimal mess and clean up. Rather than a one-sheet page of brewer jargon instructions we made sure our instructions read like a good cook book guiding you through a recipe.

Another huge advance is the number of different styles of beer and flavours now available in the beer world. When I first arrived in the UK, your options were pretty much a lager, bitter or mild. Today the UK has a wider range of beer flavours and styles available – from coffee porters to raspberry gose!

This not only opens up the world of beer to more women but also lends itself to great food-pairing potential. We thought it was important for people who love cooking to feel confident in using our kits to play around and experiment with flavours and have fun making beer to accompany any dish. For someone who likes to have friends round for a meal, home-brewing should be the natural extension to match their menu.

Following this, Home Brewtique was born and we’ve been working since to promote home-brewing as part of modern life. We’ve tried to make our kits as customisable for the home brewer as possible, from the wide range of beer styles available as set ingredient packs to the recently launched “recipe builder”, which allows you to control every aspect of the beer you make – from the variety of hops and roast of grains to yeast influences and carbonation levels.

We haven’t completely cracked the case on how to get more women involved – a depressingly low percentage of our home brewers are still made up of women. However, I am confident that the more pubs and stores offer a wide range of interesting beer styles and more women are exposed to the range of flavours available, the better the stats will become. As an industry we need to identify what barriers there are to getting women involved in enjoying brewing or writing about beer – and do what we can to remove them.

The days of sexist advertisements and pink bottles must be put firmly behind us. It is time to start listening to what the female consumer wants and deliver on it. I would encourage everyone in the industry to have a think about what it is that drives their female consumers and how they can involve more women in their products in the future.
Posy Parsons is co-founder of Home Brewtique

The evolution of all-day dining by Glynn Davis

To say an A-board displaying the words “all-day breakfast” would have elicited great excitement from me when I was younger would be pushing it a tad too far – but I do recall it sounded rather decadent for the day. The fact these boards were typically placed outside greasy spoons (often outside vans on motorways) did not necessarily diminish the impact it had on me.

Such was the lack of flexibility with the standard meal times of breakfast, lunch and dinner – and the respective dishes served at each of these meals – the all-day breakfast was a bit of a mould-breaker.

Indian food was indicative of the situation. When this exotic cuisine began to hit the mainstream in the UK it was seen as post-pub food, and nobody would really venture into these typically flock-wallpapered establishments before 9.30pm. This slowly changed but I can recall that even in the 1990s, it remained a meal solely for dinner time. When I formed a curry club at a company I worked at, which involved a group of us enjoying an Indian lunch once a month, it was an unusual activity.

Fast-forward to today and you have Indian chain Dishoom, which has made its name with a breakfast offer that includes its iconic bacon naan roll. The creation of this dish arguably smashed the mould for Indian food and paved the way for it to be served from morning until night. Queues outside Dishoom sites on weekend mornings are a regular sight.

The breakfast market has been recognised as particularly powerful as it is a great way to highlight that a venue has an all-day offer. It has been extended in recent times to include brunch, which is arguably the new all-day breakfast, and in some venues there is now the bottomless brunch, which for a fixed cost might include unlimited prosecco.

These propositions get people through the door first thing and potentially keep them there. This has certainly been the case at JD Wetherspoon, where the breakfast offer has become a serious revenue driver and can seamlessly take people on to their first pint and perhaps a spot of lunch!

Such flexibility in the way we eat is being driven by the willingness of consumers to be much more experimental in their eating patterns as well as an important economic driver – the necessity for operators to sweat their property assets. Having a seriously expensive site empty except for a couple of hours at lunchtime and during evening service is a killer for many businesses – especially as they are now operating in a high-cost environment.

Coffee shops have, to some extent, set the scene for the all-day type of dining. By becoming the “third place” – beyond the home and office – and setting themselves up as venues where people can eat and drink throughout the day, formal meal times disappear. Dishes such as burritos, bagels and toasted sandwiches with varying fillings are sufficiently flexible to be served at any point of the day or night.

The rest of the market doesn’t have it quite as easy as coffee shops when it comes to menus, with their lighter-dish menus not usually pinned to a specific cuisine or country. But if Dishoom can be massively successful with Indian food at breakfast then it can arguably be done with any cuisine. It is noticeable in recent weeks Patty & Bun has acquired two sites in London and has stated it will introduce a breakfast menu for the first time. Clearly McDonald’s has managed to do quite well with its breakfast offering over the years too.

Also in the capital we have the tasty prospect of Andrew Wong (chef proprietor of Michelin-starred restaurant A Wong) opening a new site, Kym’s at Bloomberg Arcade, which he says will enable him to realise an ambition he has had for some time – to operate a Chinese restaurant that is open all day.

It is unlikely Wong will introduce the Chinese equivalent of the all-day breakfast but the ubiquity of being able to eat a “full English” at any time of the day highlights how we have experienced a revolution in the flexibility of dining and with it the gradual dismantling of formal eating times.
Glynn Davis is a leading commentator on retail trends

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