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Fri 24th Apr 2020 - Friday Opinion
Subjects: What's the exit strategy – part two, the four stages model, an opportunity to press the restart button and responding to coronavirus
Authors: Paul Chase, Nick Popovici, John Gater and Daniel Davies

What's the exit strategy – part two by Paul Chase

Strategies for dealing with coronavirus
Broadly, there are two distinct strategies for dealing with coronavirus. The first approach is “disease suppression” (Germany), where there is a massive effort to test and trace so the chains of viral transmission are broken and the disease is suppressed and lives saved, at least for now. The second approach is “flattening the curve” (UK), which is not about reducing the incidence of infection in the population, but reducing the velocity of viral transmission so the NHS isn’t overwhelmed, critical care capacity is available and lives are saved. This approach accepts a given percentage of the population will eventually be infected, but we need to elongate the timescale in which this happens. 

It is easy to misrepresent this approach as a herd immunity policy whereby we just “take it on the chin” regardless of how many lives are lost, and opponents of the government have been quick to do this. My view is herd immunity is not a policy but an outcome. The German approach is producing lower numbers of deaths than ours, but it is a mistake to draw conclusions from short-term data. Johan Giesecke, emeritus professor at the Karolinska Institute and an unpaid advisor to the World Health Organisation, said this: “We should wait a year before we start passing judgement on the different approaches to coronavirus. While some countries might have fended off the worst of the epidemic for now, they face a longer battle against the disease because their populations are further away from gaining immunity.” In Giesecke’s view coronavirus is seeded in the European population and will pass through it and there’s no way to stop this – only different ways of managing it. This view, if correct, has implications for how we come out of lock-down.

Dilemmas for coming out of lock-down
In my previous article for Propel Opinion I asked what was the government’s exit strategy from the coronavirus lock-down? We still don’t know, but we do know the criteria that will have to be met before it will consider easing the restrictions. Essentially, it is new infections and daily death rates expressed per head of population will have to demonstrate a persistent downwards trend – that we’ll have “flattened the curve” – sufficient for the NHS to cope and provide enough critical care for those in need. But then what?

The approach of the public health community seems to be emerging from lock-down will need to be a slow, gradual process; that it will be complex; one sector at a time; with different levels of freedom granted to people on the basis of their viral status. An app is being developed, like the one used in Wuhan, to check whether you’ve had the virus and therefore, presumably, have some immunity in which case you’ll have more freedom of movement than those who don’t. Am I alone in thinking that what you can get away with in a one-party totalitarian state you won’t get away with in a liberal democracy? 

The idea police will stop and check an app on your mobile phone to determine whether you have the right to be out and about is one I find totally grotesque, unthinkable and, frankly, unworkable. It would require a reliable antigen test, which we don’t have; for the majority of the population to download an app; and for a level of testing for antigens the UK has come nowhere near achieving when it comes to testing for whether people currently are infected. This is simply pie-in-the-sky, authoritarian nonsense.

The economic imperatives that will drive policy
The government must find the right trade-offs between public health and economic health. According to the OBR, government borrowing this financial year, which was predicted to be £30bn, is now predicted to rise to £273bn – and this is likely to be an underestimate. The chancellor initially said he was confident this money could be raised in the bond market, but now the Bank of England is said to be ready to monetise government spending – literally to print money and give the government an unlimited overdraft for a short period until money can be raised in the bond market. That suggests government is having trouble raising this money because every Western government is trying to do the same thing. 

The government can’t put the arms of the state around the economy for an unlimited time regardless of the cost. The economy will have to reopen in the next two months. I predict this process will start around the third week in May. Small shops, and then offices and other workplaces. And, yes, pubs, clubs, bars, restaurants and hotels open by the end of June. I think mass gatherings and big sports events will remain closed until the end of the year. Even if the release from lock-down happens this way we will emerge with unemployment at about 3.5 million.

A new financial world order
If you look at the history of economic theory, it almost exactly mirrors the history of economic crisis. Each time there has been a systemic crisis, a new theory of money has been created to explain it and deal with it. At the end of the Second World War finance ministers met in a small town in America called Bretton Woods to fashion a new global financial order. The imperative was to create financial stability and sound money in order to rebuild a world economy devastated by war. The architect of this plan was John Maynard Keynes. 

The level of indebtedness of the developed countries after we emerge from this pandemic will be compounded by the indebtedness we still have to deal with from the financial crisis of 2008. We need an intellectual giant, another Keynes, to get us out of this one. And we need political leadership that can develop a strategy for getting us out of lock-down, coupled with a communications strategy that prepares public opinion for the second, and hopefully smaller, wave of infections that will inevitably follow once we begin to relax restrictions. That’s the trade-off between public health and economic health that must be made. We simply can’t stay locked down and with a third of the economy shut for a year until a vaccine is found.
Paul Chase is director of Chase Consultancy and a leading industry commentator on alcohol and health

The four stages model by Nick Popovici 

If you’re anything like me, you’re still secretly wishing the past month has all been a bad dream. In mid-March, reality flipped – suddenly people were panic buying toilet roll, hoarding hand sanitiser and wearing face masks on the tube. Restaurant visits fell by 20%, 30% and then, in the third week of March, the government instructed restaurants, pubs and bars to close altogether.

This has been, and continues to be, a uniquely challenging period for our industry – economically comparable to wartime. If you’ve made it this far with a measure of sanity, stop and give yourself a pat on the back. If not, join the club.

With such uncertainty about the future, it can feel impossible to begin planning for the return to normality – whatever normality looks like in a post-covid-19 world. At Vita Mojo, we have developed a handy model for doing this that has helped us immensely, and we hope might help you too. It’s called the four stages model, and it looks like this:

Stage one – shock adjustment period (two to three weeks)
Stage two – temporary “normal” – life during lock-down (two to three months)
Stage three – reboot, transition to new “normal” (three to six months)
Stage four – new “normal” 

Stage one we have, thankfully, passed through and finished. This was the period when covid-19 went from being a far-off news story to an imminent crisis. We saw sudden, dramatic change, as restaurants closed and Boris Johnson told everyone to stay home. Productivity in all sectors took a nosedive as businesses were in shock, struggling to adapt. Operators were forced to make impossible and painful decisions, laying off staff they couldn’t afford to pay, with guests staying away, government support yet to be announced, and no clue what lay ahead. Tons of unsold food went to waste as supply chains halted. Basically, it was a mess.

Once the dust settled a little, we found ourselves in stage two – the temporary “normal”. This is when we stopped mourning, rolled up our sleeves and got to work. The industry saw campaigns to feed the NHS, breweries switching to produce hand sanitiser, and restaurants converted to mini supermarkets. Businesses started to adapt, planning how to survive this crisis, and do some good along the way. Consumers turned to low and no-contact food ordering, benefiting operators with established delivery and click-and-collect systems, and dark kitchens. Wholesalers and suppliers pivoted to sell direct-to-consumer with delivery. Some of these changes were temporary, suiting only a world in lock-down, but many will continue into the “new normal”, shaping the world for the future.

Stage three is what we call “reboot” – the transition back to the “new normal”. The end of lock-down will not be at the flick-of-a-switch, but a careful, gradual process that could last three, or six, months, or even longer. During this period, restaurants may start to reopen cautiously, adapting their operations to reduce human contact – delivery, click-and-collect, and socially-distant seated dining. Many, especially the vulnerable, will be reluctant to dine elbow-to-elbow with strangers for months, or even years, to come. Own-device ordering options will be preferred both for convenience and safety. For operators, this period will be a mixed bag. A proportion of the industry likely won’t make it this far, meaning gaps of opportunity left in the market. Those that are sensitive to the changed needs and expectations of the post-covid-19 customer may even find this to be a period of growth for their brand. 

Finally, one day, we will make it to stage four – the “new normal”. Quarantine will be a mere memory, and life will be as it once was – but, not. Unfortunately, it is unlikely to be a smooth ride for the restaurant industry. With the UK economy currently taking a severe beating, we should expect low economic growth for 2021-22. Margins will likely shrink even more and it will be essential to find ways to increase efficiencies and leverage technology to reduce overheads. With consumers on-boarded to digital ordering, the role of cashiers and waiters will evolve and, in some cases, may disappear. Staff will need to add real value as brand ambassadors, while operations are managed more and more by technology. Digitising processes and embracing automation will enable operators to both reduce costs and offer lower-contact dining experiences for as long as necessary. The concentration of demand is also likely to change, as remote working one to two days a week becomes the normal, reducing footfall in urban centres. This could mean a drop of 15% to 25% in sales for restaurants in transport hubs and office areas, while demand increases for delivery and click-and-collect in suburbs. 

The shifts towards digitisation that were starting in the industry have been hugely accelerated under the pressures of the past few weeks. There will be no return to the old “normal” – instead a new world with new challenges and new opportunities is emerging. It is the restaurant operators that are realistic about this – that are ready for that world – that will thrive in it. I am reminded of this quote: “There are decades where nothing happens; and there are weeks where decades happen.”
Nick Popovici is founder and chief executive of Vita Mojo

An opportunity to press the restart button by John Gater

The continued unwelcome news is running like a fast-paced movie production with the villain being code named covid-19 – hell bent on global carnage – and the good guys comprising the executive teams of many leisure businesses. As chief executives shout words of encouragement from their towering infernos and Boris Johnson throws much-needed and very welcome lifelines to businesses and beleaguered staff, the carnage just appears to roll on and on. Brands that have become legends in their own lifetimes are folding and casting a black cloud across the eating out sector. Pubs, cafes. bars, restaurants are not being spared. Covid-19 is not just claiming the lives of individuals, it’s also killing businesses.
However, one very welcome rainbow appeared on the horizon the other week and one of the businesses I’m connected with was absolutely delighted with the speed at which they were credited with the grants applied for simply a week before. They are hugely grateful and extremely impressed the generally slow wheels of any policy as large as Downing Street announced could be put into motion so quickly and effectively. But what does the future hold for so many skilled staff if there’s a big clear out of brands? Will this black cloud actually have a silver lining and bring some relief perhaps to the labour crisis that was affecting almost all of us? Maybe that expression “it’s an ill wind” is justified in this instance? Nobody wants to see any job losses in any walk of life but if after years spent searching out talented individuals, many of whom had become as rare as unicorns, a new wave of available resources emerges, we’ll all breathe a sigh of relief. The revised minimum wage has now come into force, which is a welcome step particularly in such chaotic and uncertain times, and while in the short term it ultimately increases central government debt through the furloughed process, it’s a very welcome piece of legislation.
Talking of government debt, our leaders must also be questioning if the country could be facing a re-run of the 2008 banking crisis? Common sense suggests if operators are unable to pay their rent and landlords therefore have reduced income to meet their own debt servicing obligations, could the hot potato land firmly in the lap of the banks? Lower rents will one assumes result in freehold values being downgraded, thus precipitating ultimate lending-based valuation consequences. Furthermore, lower rents support a strong case for lower business rates that would result in local authorities reaching out to government to plug the shortfall. After years of austerity in the logical pursuit of balancing the books, the government’s borrowing bill now looks stratospheric. However for the industry to eventually reach a period of reduced competition, sensible and affordable property costs, more availability of personnel and the ultimate prospect of a healthy Ebitda, could the horrendous turmoil we’re all witnessing ultimately be worth the pain? These are certainly turbulent times but who could argue the sector has, for quite a while, deserved a much-needed opportunity to hit the reset button. 
John Gater is an industry veteran and sector investor

Responding to coronavirus by Daniel Davies

The hospitality industry is uniquely impacted by novel coronavirus because its existence is predicated on the very opposite of social distancing. Consider this dictionary definition: Hospitality – noun: The friendly and generous reception and entertainment of guests, visitors, or strangers.

So when the lock-down is lifted and pubs, clubs, bars, restaurants, and hotels reopen it is important for government to recognise if restrictions are placed on their operation that negate that definition then they might as well stay closed. For example, if customers are required to stay two metres apart in these premises, or form an orderly queue so only one person at a time can get served at the bar, or operate on a ”seated customers only” basis it will be impossible for licensed premises to operate in a commercially viable way.

And then there is the tendency for some to find in this crisis a vindication of everything they have previously believed. For example, there has been a fall in alcohol-related crime and disorder since the night-time economy was closed. I expect there will be those from the temperance lobby, and perhaps from law enforcement, who will predict a crime and disorder tsunami once the night-time economy reopens and will call for the reintroduction of a much more restrictive licensing system. We should not allow the temporary restriction of our freedoms – which is entirely justified in an emergency – to become permanent, just to vindicate the prejudices of those who think a better future can be fashioned if we go back to the past.

Government is faced with a very difficult dilemma – how to manage a trade-off between public health and economic health that will command broad public support. But a trade-off must surely be found. If it is going to take at least a year for an effective vaccine to be tried, tested, manufactured and distributed across the whole population, we need to recognise the immutable economic fact – we can’t stay locked down with a third of the economy closed for a year.

Over the coming weeks, our government needs to draw lessons from how other countries are emerging from lock-down. A six-week programme that begins with opening shops and relaxing restrictions on freedom of movement could commence once the hospitalisation and mortality data show a persistent downward trend. Other parts of the economy can then begin to reopen – schools, offices and factories could be next. The government has already indicated hospitality venues such as pubs and bars will be the last to reopen. Our industry obviously wants to get back to serving its customers as quickly as possible. But only when it is safe enough to do so and when its reopening is sustainable. Hospitality operators need to know that once open they will not suddenly be closed again. That kind of start-stop approach would be a disaster for our industry. 

So government needs to develop a two-pronged strategy – a programme for reopening the economy once there is evidence that we’ve “flattened the curve”; and a communications strategy that explains to the public there may be a second, and hopefully smaller, wave of infections once we begin to loosen the lock-down, but not to do so will cost lives too. Mental ill-health, deaths of cancer patients, victims of a stroke and increases in suicide rates are all consequences of keeping people in lock-down for too long. So maintaining or lifting restrictions is not a zero-sum game.

Once the doors of the pub, bar or restaurant reopen we should not expect people to come flooding in and things instantly return to normal. People will make judgements – not about whether going out to socialise is safe, but whether it is safe enough for them. Probably young people will be the first to venture out. People with families to support and older people will make more cautious judgements and are less likely to return to our premises in the immediate aftermath of this crisis. 

As we emerge from lock-down the hospitality industry will need ongoing and tapered support from government. I support the efforts being made by trade bodies such as UKHospitality and the British Beer and Pub Association to provide further support when it comes to furloughed staff, claims for business interruption insurance, grants, rent relief and loans. We will also need to see an extended rent moratorium if we are to avoid serious damage to the sector when rents are next due. Government support needs to be carried over after the worst of this crisis has passed. If it is abruptly switched off, then a lot of the good work that has been done will be undone. 

Business support needs to be boosted to make sure every business that needs it can access it. Scrapping thresholds for grants and support with rents will keep businesses alive and people in jobs. This is an unprecedented crisis and government needs to ensure there isn’t a gap between its strategy of support for our industry and the delivery of that support.
Daniel Davies is group chief executive officer of Rockpoint Leisure and chairman of The Institute of Licensing 

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