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Morning Briefing for pub, restaurant and food wervice operators

Fri 1st Mar 2019 - Friday Opinion
Subjects: Vegan state, alcophobia and the politics of drinking, an open goal and to boldly go
Authors: Glynn Davis, Paul Chase, Michael Penfold and Simon Iddon

Vegan state by Glynn Davis

For a business best known for its steak slice and traditional sausage rolls, it has been a remarkable turn of events this past couple of months for bakery chain Greggs. Its launch of a vegan sausage roll as part of the Veganuary trend has helped the company enjoy what it describes as an “exceptionally strong start” to the current year.

There is no doubt Greggs was jumping on the vegan bandwagon when it pitched such a product to the growing number of people adopting a vegan diet or flexitarian approach but with a bit of celebrity recognition, demand for its Quorn-based vegan sausage roll went off the charts.

It was originally launched in 950 stores on 3 January but such was the public’s appetite it was quickly rolled out to 250 more stores per week and will be in 1,950 locations this month. The vegan sausage roll certainly helped put some wind into Greggs’ share price and it rose to a record high of about £18 on the back of the group’s overall strong trading performance.

If Greggs can get a bounce from the growth in vegan food I’d argue anyone can and, in reality, every foodservice company is giving it a go in some form or other. The number of vegan restaurants in the UK has risen 55% in the past year to 48, according to the Local Data Company, which found it’s not just a London-based phenomenon. Yes, 18 are located in the capital but the other 30 are spread far and wide, with Yorkshire and Humber having the second highest concentration with 12 outlets.

Further evidence of the momentum behind veganism can be seen in the level of new product development (NPD) surrounding vegan products in the UK. Almost one-fifth (16%) of food products launched in 2018 had a vegan or no-animal ingredients claim, double the figure in 2015. This compares with a much lesser 9% for food products launched across Europe as a whole, which ensured the UK toppled Germany as the top dog for NPD of vegan foodstuffs last year.

It is likely many of these vegan products would have been launched previously as regular food items but in the current frenzied move towards veganism we have producers and foodservice companies recognising the potential of overtly marketing them as vegan products.

Consider technology firm Spoon Guru, which combines artificial intelligence data processing and optimisation capabilities with customer insight and nutritional advice to create dietary tags. With these it can classify food products. When it did this across Tesco’s entire range, it found its vegan range (products overtly branded as such) consisting of a mere 162 items immediately leapt to 16,000 items.

From this we can say a lot more food items and dishes in restaurants are vegan than previously thought, but this has not necessarily been highlighted and certainly not promoted as such. However, there is now a gung-ho rush to add the vegan label in an overt manner and for restaurants to promote their stance in a righteous way. This has worryingly resulted in fall out for some operators deemed not to be fully on board.

William Sitwell lost his job as editor of Waitrose Food magazine for his rather ham-fisted (pun intended) attempt at humour when he responded to a freelance journalist’s pitch for features on plant-based recipes with the suggestion for a series on killing vegans one-by-one instead. There has also been a worrying rise in the number of protests from what are being described as “vegan activists”. Direct Action Everywhere is a group that has held protests outside meat-focused restaurants and disrupted diners’ meals.

It would be a great shame if the positive moves by a growing number of people towards adopting a more healthy and planet friendly diet were hijacked by aggressive groups hell-bent on attacking animal products in all its forms. It would be just as sad if they were hoodwinked into paying more for a vegetarian chilli, for example, on the grounds it was suddenly rebranded “vegan” by cynical companies which, unlike Greggs, aren’t positively developing the vegan category.
Glynn Davis is a leading commentator on retail trends

Alcophobia and the politics of drinking by Paul Chase

There’s no doubt alcohol as a social problem has made a spectacular return since the Licensing Act 2003 was introduced at the end of 2005. The pendulum has well and truly swung back in the direction of restriction and control. EMROs, the Late Night Levy, minimum unit pricing and cumulative impact zones are all examples of an effort to keep the public permanently alarmed about alcohol, with no sign of letting up. But what has driven this over-reaction? We have, and we’re witnessing a resurgence of the Temperance Movement in a modern form driven by a neurotic, obsessive, anti-alcohol phobia in the health lobby. I have dubbed this “alcophobia” and it represents a modern manifestation of puritanism.

The whole population approach
Today’s new puritans are not religious moralists, they just behave like them. The health lobby and “medical temperance” has replaced “moral temperance” but many of the basic beliefs are the same:

– The substance of alcohol is, in itself, the main cause of drinking problems
– It’s the availability of alcohol that makes people drink it
– The overall level of alcohol consumption across the whole population drives drinking problems, therefore we “all” need to drink less, not just problem drinkers
– Price and availability drive alcohol consumption; the first needs to go up, the second down!
– Alcohol education and policy should focus on “excessive consumption” and promote abstinence

The alternative view
The drinks industry needs to deconstruct the “whole population” approach, expose its myths and outrageously distorted statistics, and articulate an alternative analysis. In my forthcoming book, Alcophobia – An Exploration Of Puritanism And The Alcohol Issue, I have tried to do this but we can’t be “alcohol harm-deniers”. We have to acknowledge alcohol is a substance with the potential to be abused without seeking to appease a health lobby intent on crafting our destruction. That is why it’s so important we promote the pub as the home of moderate drinking and are seen to be proactively working to make drinking environments safer. I attended the National Pubwatch Conference last week and was really impressed by work going on at local level to ensure responsible drinking and keep customers and staff safe.

The health lobby presents a view of alcohol that is so one-sided it can be likened to knowledge about cars and their use if knowledge about them was limited to facts and theories about accidents and crashes. What’s missing is a narrative about the positive functions and attitudes about alcohol use in our society and the social and economic value of the pub as a centre for community cohesion, jobs and added value for local communities. That narrative is in place but it doesn’t get a proper hearing in the public square.

The politics of drinking, moving forward
The two “sides” in the alcohol responsibility debate are likely to become even more polarised in the future. The basic position of the health lobby is the only way to reduce alcohol-related harms is to suppress the mass market for alcohol. That’s what the “whole population approach” means in practice. The industry response has to be to champion social responsibility in advertising and sales; champion the pub as the home of moderate drinking; health education in schools; and targeted help to that minority of people whose relationship with alcohol really is unhealthy.

The holy grail of trade unity
The problem for “the trade” in opposing the remorseless attacks of health lobby alcophobes is it is a house divided against itself. Not just between the on and off-trade but even within those categories – supermarkets versus convenience stores versus independent off-licences. Pubs versus city centre bars in the night-time economy. When the going gets tough the tendency is for solidarity to break down – “we” becomes “me” and everyone points the finger at other sections of the trade in a never-ending, destructive blame-game. 

In addition to the excellent work of trade bodies and organisations such as Best Bar None and Pubwatch in promoting positive aspects of the pub and lobbying against over-zealous and restrictive legislation, we need to involve the drinker in the debate. People want information about what they drink and eat and want to be treated like the adults they are, not talked down to by a patronising health lobby intent on nannying them into submission.
Paul Chase is director of CPL Training and a leading commentator on alcohol and health policy

An open goal by Michael Penfold

What now for the pub investment market, who will lead the mergers and acquisition (M&A) and expansion activity, and what can the pub sector learn from the experience economy and competitive socialising?

Time for more at the bar
The pub sector doesn’t really go for radical change but what it can offer is resilience and robustness, with both in large supply in 2018. While its casual dining cousins were hit by the maelstrom of higher costs, economic and political uncertainty, and a cautious consumer landscape, pub operators took advantage in an upsurge in wet-led sales, a long hot summer and a World Cup in which, for once, England exceeded expectations.

During the course of the year that positivity was matched by interest in investing in the sector. At AG&G, we advised on £171m of freehold pub sales in 2018, with the highest lot size £17m and the average net yield 3.44%. A good year and we expect more sale and leasebacks as pub operators exploit the hungry, low return-seeking investment market and utilise their own capital more effectively than being tied up in bricks and mortar. 

This investor demand is largely driven by the deemed security of buildings that have traded as pubs for hundreds of years in many cases, held on long leases and widely perceived as secure in this time of company voluntary arrangements. We also expect group transactions to be more prevalent to satisfy investor demand for pub assets.

What’s the big deal?
Despite the uncertain economic background, M&A in the UK’s pub sector was strong and spread across all parts of the sector, from NewRiver’s acquisition of Hawthorn Leisure to Punch’s acquisition of Laine Pub Company, Fuller’s deal to buy Bel & the Dragon and Stonegate’s purchase of Be At One. The Restaurant Group also showed keenness to add to its Brunning & Price pub arm through the acquisition of Ribble Valley Inns, Food & Fuel and a number of single-site deals.

The start of this year has followed a similar theme. Stonegate has further consolidated the high-street bar market by acquiring Fever Bars, Young’s recently acquired 15-strong Redcomb Pubs for £34m, and Ei Group has agreed to sell the majority of its commercial properties arm for circa £350m to investment fund Davidson Kempner.

There are currently a number of businesses in process, all with good credentials and strong trading momentum behind them, including Coaching Inn Group and Arc Inspirations. It’s expected The Alchemist might join its bar-operating peers and test the market later this year but some investors may hold off to see how the Brexit fall-out goes before firming up their investment strategies for this year.

Initial public offerings (IPOs) also remain an attractive option, with Loungers and Oakman Inns intimating this could be a route each could explore in the future. The former has reportedly selected brokers to advise on a circa £250m IPO, which could take place as early as this quarter. Loungers is a stand-out company and a successful IPO would be a shot in the arm for the industry and hopefully a positive rallying point for investors that have become cautious about the wider sector following 18 months of negative headlines.

Are you experienced?
The experience market is expected to continue its strong growth trajectory this year, with the likes of Flight Club, Puttshack and others opening or seeking new sites. We are seeing a trend for bar operators to create something novel to entice customers with operators such as Mission Mars, Inception Group and Adventure Bar opening venues with specific themes and staff that go the extra mile whether acting a specific role or getting people to dance on the tables and sing!

These operators are looking to create an edge over the average bars, often using social media to show potential customers what a great time they can have at their bars. The use of an Instagrammable moment is becoming a necessity for social media-savvy operators. How long before we see larger, established operators using social media influencers who have millions of followers to drive footfall as this is already an important part of many up-and-coming bar operators’ marketing strategies.

With the experiential market likely to continue growth, we expect its influence to become stronger across the pub sector, especially with operators looking to better utilise space. City Pub Co and Laine Pub Company have both been moving into this space through the addition of crazy golf, virtual reality or escape rooms. Laine has been dabbling in the experiential and immersive market for some years and recently opened Ninth Life – one of AG&G’s 2018 freehold deals – an ambitious, festival-themed multi-storey venue in Catford with a street food village in the trade garden.

Mission Mars’ Bohemian bier palace, Albert’s Schloss, has been winning awards and praise since it opened two years ago and is another great example of how pubs can tap into the communal, experiential market. Incipio Group, the company behind the Pergola On The Roof and Feast venues, opened The Prince in West Brompton, which houses four restaurants, three bars and a woodland pergola garden. If pub operators need ideas on how to reimagine some of their more established sites, this would be a good first point of call.

The issues the retail sector faces has left high-street voids up and down the land, creating opportunities for the food and beverage sector to step in where retailers have failed. Debenhams has been one of the businesses to feel pain but has been trying to counter that with what it calls “social shopping”, bringing in the likes of Franco Manca to take space in its sites alongside concessions for bars and food retailers. 

Can it really be too long before traditional retail and bar experiences combine and shoppers are encouraged to take refreshments while trying on clothes? Indeed, might fashion-resistant men such as those in the AG&G office welcome a personal shopper one day who offers fashion ideas while they watch the football, beer in hand? Now that’s an open goal someone should take advantage of.
Michael Penfold is a director at AG&G

To boldly go by Simon Iddon

Why is the sector behind when it comes to benefiting from tech? Yes, some of us are doing things reasonably well but by many measures it’s too s-l-o-w.

But what exactly is “tech”? I don’t mean “IT stuff”, essential foundations but less interesting. I’m talking more “digital” – that over-used phrase – the interesting stuff, digital customer journey, data and insights, more efficient and effective ways to work, and creating new opportunities be they business models or channels.

Lego was my favourite toy as a youngster. For me it wasn’t so much about making the model on the box, it was about getting the new pieces you could glue together with other sets to create something “better”. Our industry should be thinking more like this – gluing different “tech” together in different ways to gain advantages and benefits.

“Digital” means different things to everyone. To me it’s about exploiting the effective use of technology for the benefit of consumers, operations, employees and the whole business (not just customers) to solve current challenges and deliver new opportunities.

Tech or IT was always the boring backroom cost centre and problem-solver but in whichever carnation it’s increasingly being accepted as the opportunity-creator and deliverer, bringer of incremental revenues and benefits beyond just “cost savings”.

Slow? That’s unfair
Well we are. Have a look around. The US has led the way in operational systems for years, employees receiving decent tools and benefits. Look at the automotive industry, which has been years ahead of the curve in using virtual and augmented reality to sell product. We want that too but don’t assume you have to wear a headset.

Airports have been using beacons for proximity and presence beyond GPS and geo-fencing for several years, and when was the last time you saw a retailer high-fiving because they launched click and collect? This isn’t new stuff any more, we are late to the game and playing catch-up – catching up well but we need to move faster. Consumer digital? Yes, some of us are doing OK but there are so many areas in which we can improve – not bleeding edge either.

OK slow, but why?
Years ago “interoperability” – for instance some suppliers wont talk to other suppliers – was a common issue and getting things done was like walking through treacle – slow, painful, and costly at times. The issue now, though, is different. Suppliers are acknowledging they can’t be the best at everything and expect customers to want all eggs in their basket. They need to offer choice and that means joining forces. Recently we’ve seen some suppliers work together where the benefit of their whole is greater than the sum of the parts. But it’s not that either. It’s education, knowing the art of the possible, but mainly the appetite for risk.

Risk appetite
Years ago there were R&D budgets, scrapped by many in recent tougher years to be replaced by more onerous business cases and cost-saving projects. Thankfully, with phrases such as “fail fast” bandied around, we can start to trial and error a bit, pushing boundaries and taking risks. People don’t like risk but change is risk and the biggest risk of all is not changing. We all know about Blockbuster and Netflix. We need change to adapt, improve and transform. Look at Star Trek – boldly go, and strange new worlds. Off-trade through delivery and click and collect, and virtual brands are two great examples of strange new worlds to casual dining compared with the not too distant past.

Today we have more ways to choose where to go, place an order, pay, get feedback and be enticed back but, when you lift the lid, it’s all pretty simple stuff and there’s so much more we can do to make some of the digital engagement transformative and game-changing rather than baby steps.

We should learn from other sectors and they, in turn, will learn from us. It was Herbert Spencer not Charles Darwin who coined the phrase “survival of the fittest”. We should learn from others and be bold with what appear to be strange new worlds. Being the last to evolve doesn’t have a great ring to it.
Simon Iddon is chief executive and founder of CxOwn, a strategic hospitality consultancy that focuses on delivering informed decisions and improved returns through missed opportunities, digital journeys and operational transformation

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