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Morning Briefing for pub, restaurant and food wervice operators

Fri 16th Aug 2019 - Friday Opinion
Subjects: Growing pains, F&B strategy, and Generation Alpha won’t stomach a lie 
Authors: Glynn Davis, Ann Elliott and Helenor Gilmour

Growing pains by Glynn Davis 

Shortly after Starbucks entered the UK market by acquiring Seattle Coffee Company in 1998, it rapidly opened a raft of stores in London before realising it might have been a bit gung-ho with its property selection criteria and retreated from some of those unsuitable and probably over-priced units.

From that point on the UK’s coffee segment has been on fire, with Starbucks opening about 1,000 units alongside myriad other players in the market – from single-store independents to big-branded chains. 

During this rampant growth period many headlines have been written about the “froth finally blowing off the buoyant coffee shop market” but they have all been wrong. However, things might be changing. It’s not that the category is going to hit a brick wall – far from it. Consider the UK consumed a modest 3.3kg of coffee per capita in 2015 versus 12.2kg in Finland and 6.5kg in Germany, which I didn’t even recognise as a particularly big coffee-drinking nation. This suggests further growth potential.

The change I believe is afoot is more about an industry that’s growing up and in which widespread consolidation will take place. This was set off by Coca-Cola’s acquisition of Costa earlier in the year and a new retreat by Starbucks from some of its London sites. It has been reported it closed 35 units in the capital in the past 18 months, which led to the company putting aside £20m for lease provisions in the UK. 

Plenty of activity is taking place in the space below these massive chains, with arguably the most informative being the sale of a 70% stake in the circa 90-strong Coffee#1 chain by SA Brain to Caffe Nero. The brewer had built the business into a pretty powerful operator but Brain’s management felt moving it on to its next stage of development could be carried out most effectively by a specialist.

A similar scenario is being played out for many sub-scale chains (up to 20 to 25 sites) across the UK, which are finding it tough in a competitive market to reach a size where the economies of scale from centralised sourcing, processes and functions really kick in. It has been hard for those operators looking to grow and raise the necessary funding to take them to the next level.

It’s interesting to note that through crowdfunding only £11m has been raised for 28 coffee chain campaigns (half of which went to Grind) compared with £72m from 61 campaigns for breweries (half going to BrewDog), according to Sapient Corporate Finance. 
Against this backdrop there’s undoubted strain on the market for those businesses that can’t raise the necessary money and build-out their growth strategies. This has led to an increased amount of corporate activity in the sector. This includes Taylor Street Baristas’ appointment of administrators to support its restructure – that might involve the sale of its coffee wholesale business – after it sold eight cafes to Black Sheep Coffee, which has plans to hit 70 units by the end of the year.

The most active player in the market is the well-funded Coffeesmiths Collective, which has built a powerful team of executives with the objective to acquire stressed branded coffee chains. It’s certainly finding fertile ground in the UK as it adds to its earlier Baker & Spice and Nordic Bakery acquisitions, which complement its flagship brand Department of Coffee and Social Affairs. In recent weeks it has bought two Spring Espresso sites in Yorkshire, ten Filmore & Union outlets in a pre-pack administration, and four CoffeeWorks Project cafes out of administration. 

With more than 7,000 independent coffee shops in the UK, most of them sub-scale, it’s fair to say Coffeesmiths Collective and other opportunistic players will find many more rich pickings in the market place as it benefits from a coffee shop sector that’s suffering some of the inevitable pains of growing and maturing. 
Glynn Davis is a leading commentator on retail trends

F&B strategy by Ann Elliott

We are currently working on three strategic food and beverage (F&B) briefs for operators – all requiring a bespoke and tailored approach. We use a core process to address these briefs – establish current state, determine true potential, build strategy, and create a realistic and achievable plan. Beyond that process, though, the input and output for each client varies incredibly.

All these operators are doing ok with food. Their performances aren’t bad, indeed in some cases covers are in growth. However, they feel they could be doing more – although more isn’t always easy to articulate. It could be more pride in their food, more positive customer feedback, more team engagement, greater chef retention, higher sales or spend per head, or more covers. It’s not that they haven’t tried to improve their F&B offer themselves, it’s more they feel they could do with some external, objective and experienced input to help them up the ante. 

Everyone has an opinion on food and often the loudest or most senior voice around the food-tasting table holds sway. Food is so personal, however, that eight people choosing lunch are likely to order eight different menu items. Their choice isn’t “right” or “wrong”. In much the same way, the most senior person in the room won’t be right or wrong and they can’t always be relied on to put aside their personal views and think about food while wearing their “customer hat”. That’s where we come in.

We start with a kick-off meeting involving all key stakeholders because they have to buy into and be an integral part of the process. We present the project journey from beginning to end and seek their input. What do they think are the key issues? What do they want to get out of it? What do they think the key deliverables should be? What do they want to find out? These meetings are hard work but great fun and set the project’s tone and pace. 

Next we set about understanding customers and their view of the brand and its F&B proposition. The research is usually both quantitative and qualitative in nature – one without the other can give a very one-sided view of customer thinking. We start with a clean sheet of paper and ask the obvious (and less obvious) questions. What does the food and drink offer say about the brand? What works well/less well for them? How would they describe the food (and drink) of this brand and its competitors? 

Often but not always, and depending on our client’s view, we talk to the teams on the ground about the brand and its F&B offer. Sometimes these are face-to-face interviews, sometimes groups, online, social or a combination of all these techniques. I love this part of the process because it gets to the heart of the brand in a very real way. There’s no substitute for speaking to those who liaise directly with customers on a daily basis. They rarely hold back and, if they do, that usually says something about the brand’s culture. 

Alongside this research it’s always incredibly useful to run an operational audit to understand the organisation’s ability and resources to deliver a new strategy and plan. There’s no point developing a strategy that simply can’t be delivered.

All this research is analysed, understood, summarised and taken back into the next stakeholder meeting. Here we present the research and begin the process of truly understanding the essence of the brand and the role of F&B in delivering this using the information in front of us. This can feel like the typical consultant’s role of “give me your watch and I’ll tell you the time” and I understand that reaction. It never feels like this, though, and it’s always invaluable because this process is built on such comprehensive and objective feedback. It’s not about my view of the brand and the food offer, it’s what customers think – it’s reality. 

Next we develop a potential F&B strategy and plan based on the outcomes of this meeting, which naturally have to be agreed by the key stakeholders. By this stage the thinking is robust and the strategy and plans often blindingly obvious. Our role is then to hand over the process to the internal team or take the plan further in terms of food briefs, menu-testing, pricing and margin proposals, and internal/external comms.

I have seen a covers decline turn into a double-digit increase as a result of this process – the results are always measurable and attributable. One of the key questions I’ve been asked when working with these clients is “what is fresh food?” – now that’s a whole new and fascinating subject.
Ann Elliott is chief executive of Elliotts, the leading integrated marketing agency in the hospitality and leisure sector –

Generation Alpha won’t stomach a lie by Helenor Gilmour

Somewhere between the oat-milk flat white and the smashed avocado on sourdough we realised millennials love eating out and had built their lives around it. Instagram pages, weekend activities and holidays now centre on where to grab your next espresso martini or bottomless brunch. In fact, millennials make up almost a third of restaurants’ annual revenue and spend 13% of their total income on eating out.

While I can’t deny we have learned a lot from this phase – poke bowls for one are delicious – millennials shouldn’t be our main concern any more, we already know so much about their habits as consumers. It’s time to focus on the next challenge, their children. This is Generation Alpha – those born after 2010.

Last week the Soil Association released a study that found many chain restaurants serve children single-use plastic such as cups and straws and “dish up deforestation” by serving meat fed with uncertificated animal feed. These findings are hugely concerning, not only for the environment but because they spark questions around the future of the restaurant industry. 

Generation Alpha is already having a huge influence on major household purchasing decisions such as choice of car, holiday destination, weekly shop and, crucially, where the family eats out. This generation asserts more than just “pester power” and, interestingly, is being guided by its moral compass to focus on “pestering for good”.

Gen A is hugely passionate about the environment, sustainability and eating healthily. In a recent study we found two-fifths (40%) of six to 14-year-olds felt it their personal responsibility to save the planet and, from the mass school protests led by Greta Thunberg, it’s clear they are already taking action.

In fact, our Beano Studios’ Generation Alpha report found one in five of those aged between five and nine have already been on a march or protest for something they care about with the help of their parents – the much-maligned millennials – almost half of whom support their children speaking out. 

Businesses can no longer get away with lacklustre support for the planet. Members of Generation Alpha see through non-authentic principles and, more obviously, know why a plastic bottle is damaging to the environment – and they won’t stand for it when they see one! 

The Soil Association claimed some supermarket cafes offer no vegetables on their children’s menus and no British meat. It also found brands were unable to trace the meat back to the farm and many of the chains surveyed fail to support British farmers.

Members of Generation Alpha are inquisitive, have a strong moral compass and are outspoken critics. We have seen evidence of this in their reactions to certain behaviour by the influencers they follow. These children don’t passively accept something they don’t agree with.

Cancel culture is alive and well for Gen Alpha and if they feel a restaurant doesn’t live up to their morals, they cancel it from their favourites list and encourage their parents to do the same. 

The Soil Association study shines a stark light on the restaurant industry and the work still required. There are no excuses – JD Wetherspoon and Ikea pipped the top spots showing cost isn’t a barrier to healthy, sustainable food. 

By 2030 there will be more than two billion Gen Alphas around the globe and, while they are already influencing their families, within a decade they won’t be children any more – they will have their own jobs and money to spend wherever they see fit, which will be at cafes and restaurants that align with their ethical stance.

Unless they act fast, restaurant brands that fail to serve sustainability are going to find themselves increasingly off the menu for the next generation of consumers.
Helenor Gilmour is director of insight at Beano Studios

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