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Morning Briefing for pub, restaurant and food wervice operators

Fri 9th Aug 2019 - Friday Opinion
Subjects: Why the smaller companies are more successful, the importance of change, an open letter to John Timothy of Portman Group and what the dine-in sector can learn from the Just Eat merger
Authors: Alastair Scott, Steve Sharp, Paul Chase and Gavin Peters

Why the small companies are more successful by Alastair Scott

In the hospitality sector the progressive small companies are outperforming the large ones to a significant extent. While of course the hospitality sector is just as much about site economics as scale economics, I have long puzzled about why this is the case. As a software supplier – and a small operator of three sites – who therefore gets to talk to lots of operators, my thesis is as follows:

The advantages of the large operators (for which I am defining as 100-plus sites) include many things such as focused marketing, category management, menu engineering and analysis. They can also afford to deploy many systems and processes that require the scale of many sites. In addition, they can often access more capital more cheaply and perhaps still also have the pick of the sites through the strength of their covenants. So, if they can design and create better businesses, why are they not more successful?

The answers to this are less easy for the spreadsheet-driven venture capital analyst to spot, and I probably need to justify them, as I am sure there will be plenty who disagree!

1. Focus: Where you have fewer sites you can give the site more attention. When I set up my own pub restaurant I was fearful of the might of Mitchells & Butlers nearby. I still look at its pricing, but I know we can deliver a more relevant offer to the Range Rover drivers of Harrogate. I know my customers because I see them, and talk to them. We have a more conservative customer base and we design the menu for them and also to fit the gap in our local market. Another example is we get lots of students working with us. This is great in the holidays, but a real challenge in May when everyone is doing exams. So we don’t allow team holidays in May, which is a complete departure from my training.

2. Trust: I think one of the gentle, and hard to observe changes, that occurs when you grow a business is one of trust. A small team trusts everyone to do a good job, and supports in delivering that. The management team knows its people's strengths and weaknesses and supports them. It is never one size fits all. A head office-driven culture gradually develops a control culture that removes the empowerment of the teams and strips away responsibility. This is of course corrosive but is understandable where lowest common denominator procedures start to rule the roost. And of course we all know if you treat people like children they will behave like children – or leave.

3. Consistency: Consistency is a real brand challenge. I once went around ten restaurants supposedly all doing the same risotto dish. Over the course of my visits, I encountered a multitude of ingredients and a multitude of cooking processes, all of course swearing they had made it better than the core brief. But how can you run a consistent brand and an inconsistent menu, let alone expect consistency from the people on the frontline, safeguarding your reputation, every shift? Great shift leadership is the solution, and it’s something that smaller operators focus on nailing. The only way seems to be to either dumb the menu down to a cook in the bag process (it’s a long time since I had risotto from a bag), or to have a collection of sites that have an individual identity, and not be phased by each chef taking a different approach. In truth, this probably depends on whether you can automate the offer. McDonald’s is very consistent, but it does give the opportunity for others to make a better burger.

My old boss and mentor, Tony Hughes, once said to me he thought no brand should be larger than 70 sites. I didn’t understand what he meant at the time, but 15 years on I think I do. The balance between the tensions above either require a different way of running our business, or they in effect reach an optimal level where trust at the site-level is not lost – there is enough focus so the managing director knows all the sites well, and a sufficient level of consistency can be achieved. I would like to think the improvements in technology should allow this number to grow, as we can see more of what is important without being on site. It will be interesting to see if the outperformance of the small and medium-sized enterprises improves or deteriorates over the coming years.

But we still can’t measure smiles, or an attentive team, or a plate of food that makes you excited. That still comes from sitting and observing. And that comes from the other secret ingredient – passion.
Alastair Scott is founder and chief executive of S4Labour

The importance of change by Steve Sharp

With several long-standing companies struggling or going into administration over the past year, it seems a pertinent time to stress the importance of keeping your brand fresh and current. So many brands, large and small, fall into the trap of believing if they had a brand that was thriving and current in the first few years since launch, it has somehow got the secret formula to eternal success and can remain the same forever…

This is a very dangerous way to think and when seemingly healthy brands such as Jamie’s Italian go under, you have to ask, what could they have done to prevent their demise?

There’s a reason why most of the world’s best and most durable brands stand the test of time. And it’s their willingness to change. To move with the times; to keep their brand fresh, current and evolving; to not be afraid to realise their existing persona (and it does come down to a brand’s “personality”) is not what resonates with their current audience. Coca Cola, Pepsi Max, McDonald’s and Burger King continue to change, recognising differing needs and tastes of their consumers, and indeed to recognise their audience may change or have changed entirely.

In 2014, McDonald’s, which had been experiencing underwhelming results over the previous few years owing to negative press around its menu selection and employee relations, vowed to undergo a major re-branding, not just looking at its identity, store design and environmentally friendly credentials, but also its offer. It focused on providing a better experience all round – healthy menu items and sustainable beef production, comfortable and contemporary interiors and complimentary Wi-Fi. It also brought innovative self-service ordering screens to reduce overheads, increase upselling opportunities and give the customer more control of their purchases.

This rebranding has undoubtedly been the saving grace for McDonald’s, which could well have continued with declining sales if the company hadn’t recognised the need for change. Instead, it has reversed its fortunes and has recently announced plans for its new McDonald’s to Go concept.

Greggs is another rebranding success story – a high-street mainstay that could have disappeared. But with a rebranding exercise under its belt, it has reported pre-tax profits for the first 26 weeks of 2019 at £36.7m, an increase of more than 52%, which is largely thanks to the vegan sausage roll. It also invested heavily into diversifying its product range, clever marketing initiatives – such as the successful “reverse signage ” in Newcastle – and finally its most recent headliner, its partnership with Just Eat – reinforcing how integral delivery service is to any food and beverage proposition in the current market. 

These are just two examples of displaying the importance in making sure your brand evolves with the times and you make the adjustments necessary to your business to allow it to fulfil its full potential.
Rebrands happen for different and varying reasons – some have been to simply keep the brand current and thriving; some have been due to a radical necessity to save the brand from a permanent demise. But whatever the reason, it’s much better to anticipate the need for a rebrand before it’s too late, so if you’re wondering about your business, ask yourself the following questions:
1. Has your business had a major change in management?
2. Are you looking to expand or diverse the markets your business sits within?
3. Has your product or offer changed since you launched?
4. Has your customer profile changed since you launched?
5. Have your competitors increased in either numbers or market share?
6. Have there been technological advances since you launched that you haven’t explored?
7. Does your brand identity work across all media now with the impact of online?
8. Do you need to reach out to new audiences?
9. Have you received any bad press or negative feedback from customers?
10. Are sales still increasing at a healthy rate?

If you answer “yes” to most of the first nine questions and “no” to the tenth, then it is likely time for you to consider refreshing your brand to help drive growth for your business. This doesn’t necessarily mean a total overhaul – it could be a brand audit and then some subtle changes to positioning, strategy and identity to the way you communicate with your customers. 
At the end of the day it’s all about adapting and innovating. Now may be the right time to review your look and feel and the consumer environment and think about how you can look to keep them interested and coming back for more. After all, we all need a bit of help to stay looking fresh, vibrant and in touch with modern life. Brands are no different.
Steve Sharp is managing director of branding and design agency Mystery

An open letter to John Timothy of Portman Group by Paul Chase 

Dear John,

The Portman Group has recently announced its producer members will voluntarily include the UK chief medical officers' “low-risk” drinking guidelines on all beverage alcohol product labels on bottles and cans as soon as is practicable. This follows criticism from the usual bunch of anti-alcohol zealots and sock-puppet charities that “industry self-regulation isn’t working” because many products do not carry the current guidelines, or else they carry the previous guidelines that are now out of date. Just to remind our readers, the current advice is men and women should not regularly drink more than 14 units of alcohol a week in order to reduce the risk of alcohol health harms. This equates to about three quarters of a pint of session beer a day, or two 25ml pub measures of spirits.

In your capacity as chief executive of Portman Group, you commented: “The Portman Group is encouraging all alcohol producers to include chief medical officers' guidance on labels. We are committed to helping consumers make informed choices about their drinking and this is an important step in the process. While labels are only one means through which to communicate information, as a responsible sector we believe it is important to do everything we can to promote moderation and minimise the risk of harm.”

Would you kindly explain why producers should feel obliged to reproduce guidelines that were clearly gerrymandered and have no evidential basis in the first place?

Let me explain. When the chief medical officer, Dame Sally Davies, lowered the drinking guidelines in 2016, she cited a report from the Sheffield Alcohol Research Group (SARG) as supporting evidence. SARG had been commissioned by Public Health England to help define a “low-risk” level of alcohol consumption in October 2014 after using its computer model to predict the impact of minimum pricing on several occasions in the past. The SARG report was published on the same day as the chief medical officers' new guidelines and its view of low-risk drinking limits was very similar to the new advice that reduced consumption for men from 21 units a week to 14 units – the same as for women.

We now know a year before the guidelines were changed, a draft of the SARG report was sent to Public Health England that was very different to the final publication. Reflecting the epidemiological evidence, it stated mortality risk is lower for light drinkers than for teetotallers, but it then rises. According to the original draft of the SARG report, a drinkers’ mortality risk rises to that of a teetotaller at 17.6 units per week for women and 21.2 units per week for men – very similar to the guidelines that existed before they were revised downwards. So, what changed?

Chris Snowdon, head of lifestyle economics at the Institute of Economic Affairs, discovered the following as a result of a series of Freedom of Information requests: 

“On 22 December 2014, the Sheffield team sent Public Health England the first draft of its report. Several revisions were suggested, and a second draft was submitted on 14 January 2015. In an e-mail that accompanied the second draft, the Sheffield team made it clear it did not expect to make any significant changes to its findings. Explaining some of the team had been off sick, the author of the e-mail said they would ‘like to go over the text again before committing to a final public version’ but ‘we do not expect to make any further changes to the numbers’. Although the team had made substantial changes to the text of the report since the first draft was reviewed, the basic conclusion had remained the same – a safe level of alcohol consumption was ‘between 12 and 21 units per week for males and 15 and 18 units per week for females’.” (Spectator Health, October 2017 C Snowdon)

PHE passed the draft report to the low-risk Guidelines Development Group, which was packed with temperance campaigners, and it suggested to the SARG researchers they should “estimate risk curves without threshold effects for wholly alcohol-attributable chronic conditions”. The significance of this linguistic gobbledegook is it is generally accepted there is a threshold above which a person needs to drink to put themselves at risk of these alcohol-attributable chronic conditions. If you only have one drink a day, for example, you are at no more risk of alcohol-induced pancreatitis than a teetotaller. 

Removing these thresholds from the Sheffield model at the behest of the Guidelines Development Group was calculated to make moderate drinking look more hazardous than it is. This change would make it appear there was no safe level of alcohol consumption for several of the more serious alcohol-related diseases. In this way the Guidelines Development Group was able to suborn the SARG model to produce the outcome it wanted: “There is no safe level of drinking”.

I understand industry-sponsored responsible drinking groups such as Portman Group have a thin line to tread between doing enough to satisfy the health lobby, but not so much it upsets the industry. And the object of the exercise is to use self-regulation to ward off the threat of legislation. But the compromise always seems to go one way. It would be nice to see Portman Group stand up to this kind of bullying and say to the health lobby: “When you can produce some honest low-risk guidelines, we’ll print them, but we’re not printing something that has so obviously been gerrymandered as the current guidelines.”

So, come on John Timothy – this is an invitation to explain to Friday Opinion readers why you have capitulated to this pressure and what makes you believe this sort of appeasement works.
Paul Chase is director of Chase Consultancy and a leading industry commentator on alcohol and health

What the dine-in sector can learn from the Just Eat merger by Gavin Peters

In yet another indicator of the sheer scale of technology’s impact on the food delivery market, two industry giants, Just Eat and, have recently announced t they have agreed a £9bn merger. 

It’s already been a somewhat turbulent year for Just Eat, with a number of mixed reports about the company’s performance and ability to compete in the long-term with rivals such as Deliveroo and UberEats. Many analysts were less than optimistic about Just Eat’s long-term competitiveness after Amazon’s investment into Deliveroo earlier this year, and further alarm bells were rung when first-half results showed a 98% drop in profits from the same period in 2018. However, as with any fast-growing technology company, initial profits are unlikely to be a good indicator of future success, and often merely reflect the company is investing back into the business to grow its market share. And with orders up more than 20%, and revenues up 30% in the same period, that certainly seems to be the case here.

And now, with the news of the merger with, it appears Just Eat (or perhaps Just Eat is doing everything it can to retain its position as an industry behemoth – that makes sense in a rapidly-growing and ever-more competitive sector that was worth more than £8bn in the UK alone in 2018. 

But all this talk of multi-billion dollar mergers between “food delivery giants” would perhaps have seemed like madness just a few years ago. The fact Deliveroo was only founded in 2013 and UberEats launched in 2014 brings home just how fast technology has disrupted the takeaway and delivery market.

So what can the wider restaurant industry learn from this disruption?

Consumer behaviour can flip almost overnight
In less than five years, ordering takeaway from an independent mobile platform has gone from being a curiosity to the norm. While the technology has been there for a while, a tipping point has been reached in the past few years, as consumer behaviour has rapidly evolved alongside the growth in delivery services. A whole generation will now order takeaway without thinking about contacting a restaurant brand directly.

Restaurants, cafes and bars must now be preparing for the next big shift in consumer behaviour. In-restaurant mobile ordering hasn’t yet become the norm in the same way as it has for delivery, but with the technology now available to offer a seamless order and pay service, and companies such as Starbucks and Wetherspoon making early gains in the space, the eat-in sector could be set to follow. Those unprepared for the shift will lose out to digital-first brands. 

Don’t ignore the data
Just Eat, Deliveroo and UberEats have acted like all successful technology giants – they’ve been laser-focused on understanding customers through data, and evolving their offering based on analytics. As aggregator platforms, they have all accumulated a wealth of consumer insights, and used it to roll-out new services – testing and learning at every step of the way. As this technology enters the eat-in sector, anyone accumulating deep customer insights through mobile will have a huge competitive advantage. 

New restaurant business models
It’s almost impossible to predict exactly how the market will change when technology starts taking hold, but it’s a pretty safe bet new revenue streams and business models will quickly open up and challenge the old. The rise in delivery services has seen the innovators in the market react. In recent years, we’ve witnessed a big rise in ghost kitchens opening up, with online-only brands launched to satisfy increasing demand. This will continue, and we’ll see a similar rise in innovation throughout the dining sector. Don’t be surprised to see successful mobile-ordering-only restaurants serving the digitally savvy, time-poor millennial market – and they won’t need to worry about the legacy of outdated physical point-of-sale systems or reworking their operational flows. 

A battle for the order
Many restaurants now have a complicated relationship with the delivery giants. They need access to the market place and have seen considerable return on investment from becoming part of an online ordering service without needing to implement a new operational set-up themselves. However, this may come at a long-term price for the brands, as they become detached from the ordering process – allowing the apps to aggregate all the important consumer insight, and relegating themselves to suppliers, in a business-to-business-to-consumer model. This complicated relationship will continue to heat-up, as brands look for more controls of their own online orders, and the delivery giants potentially look to expand beyond the confines of at-home ordering.
Gavin Peters is chief strategy officer at Wi5

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