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Fri 17th Jul 2020 - Friday Opinion
Subjects: Open the offices, the real hospitality returns, and focus on the new commercial normal
Authors: Ann Elliott, Glynn Davis and David Read

Open the offices by Ann Elliott

I went into London this week for the first time since 10 March, unsure what I might experience. Would it be as apocalyptic as portrayed by the media or would I be pleasantly surprised at how busy the city was?

Milton Keynes station was deserted, the train was deserted and Euston station was deserted. It was awful to see. I walked along Tottenham Court Road, down Charing Cross Road, along The Mall, across St James’s Park and through Nova to Victoria. The only venues open were the odd coffee shop, Pret, Greggs and an occasional supermarket. Not many pubs were open.

The Wolsey at lunchtime felt almost back to normal at what I’d estimate was 60% capacity, with no-one (team or customers) wearing masks. It felt great to be part of it all again but then on to Covent Garden and through Leicester Square, where retail opened but closed again in response to zero footfall. There were people around but the atmosphere was flat. Most pubs, bars and restaurants were closed and many shuttered. It was desolate.

I saw builders and workmen but no tourists, some transport workers but no office workers. Everyone kept their distance and about half were wearing masks.

This must be the same scenario in every city and large town in the UK. Customers aren’t going to return quickly to this, frankly, unwelcoming scenario. VAT reduction – particularly if it’s not passed on – won’t encourage people to flock to the city, neither will cheaper food. There’s a much deeper issue and it revolves around workers returning to offices. In London, it’s also about motivating tourists to return – but that’s another subject.

I can’t help but think the government has got the wrong end of the stick here. If it wants to protect jobs in hospitality – crucially in city centres – it has to motivate businesses to reopen their offices. There’s no point encouraging operators to cut prices when there are no customers to reap the benefit. It has to do this now because the longer this goes on, the more hospitality businesses will close forever and, while rent is still a huge issue, it’s simply a sticking plaster compensating for lack of trade.

It’s likely, of course, that ways of working have changed forever and the office as we know it will never return. Why would anyone want to commute if they can avoid it? However, there’s something to recommend the sociability and camaraderie of being part of an office team that laughs, works and goes for a drink together. Even if workers return for only three days a week and operators have to find a way to make money on 60% of weekday trade, it has to be better than this awful vacuum.

The suburbs and villages seem to be ok and some pubs, bars and restaurants are even experiencing unexpected like-for-like growth. In the suburbs, furloughed team members, the self-employed, those working from home and perhaps even the recently redundant can drive or walk for a drink or meal. They aren’t going into offices.

Innovative operators have shifted their mindset significantly. Digital plans devised for implementation within two years have been significantly truncated and actioned in two months. “Think the unthinkable” and “nothing is off the table” have become new mantras. Supply chains have been refigured. Menus have been cut significantly and simplified. Trading hours have been shortened. Order and pay at table has been introduced.

If customers can’t go to them, operators have determined they will get their products directly to the customer and have developed new routes to market. Delivery from shops or dark kitchens has been prioritised. Deals with supermarkets have been considered. Home kits, for example Pizza Pilgrims, have been launched. Online ordering for whole meals or food items has been developed. Online shops have been opened – look at what Leon has achieved here.

Innovation in this sector has been amazing considering many have implemented radical change from home with a skeleton team. Many have carried this out while starting wonderful charity initiatives. A big shout out to Libby, at Pho, who has raised an incredible amount of money through a silent auction, and Feed Our Frontline, which delivered more than 300,000 meals to NHS team members.

Operators have been desperately trying to save their businesses and teams. They have been relentless, innovative, working to the point of exhaustion, and collaborative. They can’t do this on their own, though. The government is walking a tightrope – I understand that – but if it doesn’t inspire businesses to open their offices again in town and city centres, our sector won’t recover. It needs to be decisive and put an action plan in place – now.
Ann Elliott is a hospitality strategist, connector and adviser

The real hospitality returns by Glynn Davis

Like anyone who loves eating out, the first meal after lock-down was always going to be an informative and hopefully enjoyable experience. My family and I decamped to the Bull & Last in north London, where we enjoyed our previous visits ahead of its 18-month closure for serious building works that, in a separate blow to the operator, had just completed as covid-19 began.

It was great to get a paper menu in my hand. I’ve always preferred simple, printed A4 sheets to glossy, bound documents so I’m pleased they have effectively been foisted on the foodservice industry for hygiene reasons.

My young son chose a child’s portion of chargrilled onglet steak with triple-cooked chips and asked for it “well done”. When it arrived he thought it wasn’t as well cooked as he expected, to which my wife responded it was likely to be a result of the chef not wanting to cook steak well done. “The way it works is they cook things the way they want to cook them and the diner be damned,” she told my son.

This reminded me of a story years ago when the National Beef Association – or a similar group – hosted its annual dinner at a swanky London hotel. During the main course there was something of a stand-off between some of the farmers and the kitchen, which was unwilling to honour requests for “very well done” steaks. The farmers rightly felt aggrieved they couldn’t eat the meat they’d reared themselves in a format of their own choosing.

This is definitely not the style of the Bull & Last and, on closer inspection, the onglet was very well done in my opinion. It has always been about pleasing the customer for such local restaurants – they live or die by that rule and repeat customers are their lifeblood.

I was told support from locals since the pub reopened had been overwhelming. On my visit, the pub was suffering from only being able to accommodate half the usual covers on the ground floor, although the imminent opening of a second dining room – part of the building works – on the first floor should make a major difference.

Right now, it’s vital for restaurants and eating places to look after their customers more than ever before. The days of prima donna celebrity chefs seeking to embolden their own standing rather than serving customers what they want to eat are surely over? Their days were numbered anyway but covid-19 will have been the death knell for a certain style of venue and dining.

The combination of restaurants having to rework their models under social distancing, the lack of appeal of overtly fine dining environments, the growing weariness with tasting menus, the desire for greater value for money under tougher economic times, and the need for restaurants to drive repeat visits will all contribute to a more accessible and welcoming form of dining.

As with covid-19, this is a global phenomenon. In the UK we recently saw Claude Bosi announce his initial focus would be on his more affordable Oyster Bar, where he intends to drive greater numbers. In September, he’ll open his fine dining Bibendum flagship but with fewer courses and a cut in ingredient costs. In New York City, chef Daniel Humm, of Eleven Madison Park, is rethinking his approach at what has been voted the world’s best restaurant and, in the thick of covid-19, has been operating as a soup kitchen for the community.

In Copenhagen, the equally lauded Noma has been functioning as a burger and wine bar from its garden while founder René Redzepi considers the venue’s future format. My guess is my son will have no problem requesting a burger well done or any other way he likes it because hospitality is returning to the hospitality industry – and it’s great to have it back. 
Glynn Davis is a leading commentator on retail trends

Focus on the new commercial normal by David Read

I get strange looks from restaurateurs when I suggest there are many similarities between the dining sector and manufacturing. Everyone understands manufacturing, right? You build a factory, buy some machinery and raw materials, make stuff, put it in boxes, and sell it, usually on eBay or Amazon.

Hospitality does the same thing but, because diners come to our factory door, we sell them a great experience as well as the (plated) stuff we’ve manufactured.

Over the years I’ve spent a great deal of time in the company of manufacturers, particularly in the food sector. I’m struck by their huge obsession with gross margin. Perhaps it’s the absence of the need to provide an experience for their consumer but there seems to be a laser-like focus on volume and price management, optimising supply chain, and production and labour costs so they can squeeze every ounce of cash margin out of the process. You can see why. Apply the same focus to a dining business with, say, £10m revenues and £600,000 Ebitda (6%), and you can improve profit 50% by simply delivering a 3% improvement in gross margin. To match the new cash margin while remaining at 6% would require a highly stretching 50% increase in sales. This, by the way, is the reason why operators should carefully model their decisions on how to share gains from the recent VAT cut.

The removal of government restrictions on 4 July has given us a glimpse of how long the road back to profitability will be. Rightly, attention in the first couple of weeks has focused on operational matters and I’ve heard from many operators about the additional costs caused by managing social distancing and delivering deeper cleaning regimes – more margin-sapping activity. 

With volumes running at such low levels it’s challenging to do anything really efficiently – particularly staffing and supply chain. Yet maximum efficiency is a “must have” for survival, as it is for suppliers in our sector. If you’re running at 50% of capacity but leave your previous full ingredient range and delivery profiles in place, you’ll double the cost of distribution for your supplier and make your account uneconomic or erode your supplier’s margin significantly. Either way, you’re heading in one direction – price rises.

After more than 40 years in the hospitality sector this is my fourth major recession – and it looks like I’ve saved the biggest one for last. This recession will not only shake out the inefficient operators but mark a period of supplier consolidation that will leave us with larger and stronger suppliers and a cut in the level of diversity of supply, at least for a while. The cost delta between “standard” products and “specialist ingredients” with an unusual provenance or specification will widen, which will mean operators will need to think hard about the value of their differentiation. Credit insurance markets will tighten and payment terms will become the means by which stronger suppliers gain concessions from weaker operators.

By way of response, operators would do well to leave no stone unturned regarding the way they have an impact on a supplier’s costs. Complex ingredient ranges, constantly changing ingredients and specifications, awkward or overly frequent delivery requirements, slow payment, high cost to serve – all have a place in our world but all come at a price. Caterers that insist on complexity without the ability to pass the premium on to their customers will pay a heavy cost in lost margin.

The new commercial normal will inevitably be one where gross margin becomes the winning language, as it has done for decades in manufacturing. From a supply chain perspective this will require greatly improved operational rigour, fully optimised ingredient prices and closer supplier collaboration.

Unless you’re the smallest of operators the cost of raw ingredients isn’t the price in a catalogue, it’s the sum total of the internal decisions you make about complexity combined with how well you manage your supply markets. You should focus on the new commercial normal, it might just save your business.
David Read is founder and chairman of Prestige Purchasing
Prestige Purchasing is a Propel BeatTheVirus campaign member

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