A love letter to the sector by Luke Johnson
On official forms, where it asks my profession, I put rather pretentiously, “restaurateur”. I have been involved in starting and backing businesses in dozens of industries, but restaurants are more fun, and more satisfying than any other undertaking.
I have been involved in owning and managing restaurants of many different types for more than 30 years. These include fine dining establishments, casual dining outlets, pubs, nightclubs and cafes, among other retail outlets selling food and drink. I have operated restaurants in Britain, France, Germany, Spain and the US. In total I have been involved in opening perhaps 500 eating places over the decades, serving British, Italian, Vietnamese, Moroccan, Belgian, and Argentinian cuisine among the many sorts of food.
So what are all the restaurants for? Well in theory they are all businesses, designed to make a profit for the proprietors. But many are a great deal more than that. They are homes from home, where people go for sustenance and company. They are venues where you can taste new dishes, or exotic foreign cuisines. They are locations to celebrate everything from a birthday to a wedding anniversary, a new job or to hold a wake. They are outlets where talented cooks can experiment and invent original recipes and flavours.
Restaurants can simply provide food as fuel or they can be incredibly elaborate experiences for gourmands. They are rooms to discover the culture of other countries, and be reminded of wonderful holidays abroad. At heart, restaurants are sociable spots for guests to meet friends and family, fall in love, enjoy good conversation, laughter and a warm atmosphere. Breaking bread with other people is at the very heart of civilisation.
Restaurants are a way to deliver cooked meals from a professional kitchen so the customer does not have to buy and prepare the meal nor do the washing up. Experts devise delicious meals and serve them in a stylish way in novel surroundings. Having meals delivered to your home is not the same experience. It’s like comparing seeing Shakespeare’s Hamlet performed on stage with watching a soap opera at home on television. One is the real thing, the other a rather poor imitation.
Dining out is not the luxury it once was, and it is now an enormous business – encompassing several hundred thousand outlets, tens of billions of revenue, perhaps a million jobs, enormous amounts of tax payments and so forth. It underpins the viability of many town and city centres, and acts as major magnet to visitors, both British and from overseas. The jobs and taxes generated by the food and drink market are essential for the national finances and our economic well-being.
The restaurant business faces four challenges in the coming months – and perhaps for the foreseeable future. Firstly, most restaurant companies have accumulated exceptional liabilities since February because they’ve been shut and had no revenue. While most have furloughed staff and not had to pay many wages, and they’ve had a business rates holiday, they probably have arrears of rent and other bills such as insurance and unpaid suppliers left over from early in the year. Many have also taken advantage of “time to pay” schemes from the government to defer VAT and PAYE payments. Ultimately most or perhaps all of these liabilities will have to be paid from future cash flow, debt or an equity injection – or the operation goes bust and closes down.
Secondly, we are now in a serious recession, and this will impact discretionary spending by consumers on eating out. Unfortunately, cutting back on restaurant meals is a common way for people to economise if they have lost their job or are worried about paying the rent. The Bank of England suggests our economy will shrink by 14% this year – the worst downturn in 300 years. Let’s hope their fears are overdone – but even if they are, I suspect the slump will be severe, and it will hit the sector hard.
Thirdly, social (or physical) distancing will significantly reduce the capacity of all eating establishments and will severely constrain how many customers they can serve. Moreover, the separation of tables will impair the ambience of restaurants, and make the experience much less enjoyable – especially if combined with other off-putting paraphernalia such as masks and gloves. At heart, restaurants are about socialising and relaxing – these changes will undermine the whole purpose of eating out.
Finally, I am concerned this long enforced abstinence from the dining out market may lead to a change in behaviour. Customers will have noticed how much money they are saving by eating and drinking at home, and may decide to adapt their habits semi-permanently. This danger particularly applies to older consumers, who are the most at risk from covid-19, and generally the most frightened of being infected and getting ill. They may take some time to recover their confidence before that they become regular patrons of restaurants once more.
Not all is gloom and doom – although quite often at the moment it feels like it. Because some premises will never reopen, and many operations will need fewer employees, the acute staff shortages across the industry should ease. This is a cruel consequence of the shutdown, but it does mean it should be easier to find skilled team members, and also existing staff ought to be keener to retain their jobs.
Long term, the inequitable relationship between restaurants and property landlords will change, thanks to supply and demand. There will sadly be plenty of closed premises where the freeholders will be obliged to reduce the passing rent to secure a new tenancy. Going forwards, rents will certainly fall when leases expire. I expect there will be plenty of company voluntary arrangements and administrations by crippled businesses and the biggest losers will be landlords – either because they will have voids or rents will be cut. Either way this is unqualified good news for the hospitality sector – for too long we have been working to make landlords ever richer. They will be sharing the pain this time.
The other possible silver lining to all this chaos is if we are allowed to trade properly in July and August it may be the best summer ever. It seems very likely few Brits will be able to travel abroad for their summer holidays, since they face a quarantine of two weeks on their return – and quite probably one in the country to which they are travelling. I suspect most won’t bother. But they will still want some sort of vacation, since they’ve been cooped up at home for months, and Easter holidays didn’t happen. Therefore this will be the summer of staycationing in Britain. That should mean great business for Britain’s various eating establishments, since roughly 30 million extra holidays could be taken here rather than in Spain, Italy, France, Greece and so forth. There will be no foreign tourists, but their numbers are massively outweighed but the number of us who normally travel abroad for the summer – but will be here this year.
Ultimately I remain optimistic people will continue to enjoy going out to eat and drink. We humans are social creatures and need company – for centuries we have celebrated life by gathering with others for meals in taverns, clubs, hotels and later restaurants. Illnesses and even epidemics have come and gone, but over time our love of eating out has only grown stronger. In the long run I am sure this enjoyment of the table will remain a wonderful part of all our lives.
Luke Johnson is partner at Risk Capital and investor in Gail’s Bakery, Brighton Pier Group, All Star Lanes and other sector companies