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Morning Briefing for pub, restaurant and food wervice operators

Fri 6th Aug 2021 - Friday Opinion
Subjects: The need for friction, reflections from a lender on funding during a pandemic, discussions on pricing now will be key for this year and 2022, the consequences of not putting people at the forefront of your business
Authors: Glynn Davis, Steve Crosswell, Ann Elliott, Louise Gallant 

The need for friction by Glynn Davis

The resistance that one surface or object encounters when moving over another is one definition of friction as is conflict or animosity caused by a clash of wills, temperaments or opinions. Whichever way you look at it, this is something retailers and hospitality operators are keen to remove from their organisations. 

There has been much talk about making the experience for customers frictionless and covid-19 has certainly driven it up the agenda because it often relates to interactions between employees and customers. It’s about driving greater efficiency and has, invariably, involved introducing technology – whether it is for ordering from the table via an app or QR code or making payments without having to summon a member of the team and deal with card readers.

A recent survey from Ubamarket found 43% of people in Britain want their future shopping experiences to require as little human interaction as possible and this thinking, undoubtedly, correlates with the hospitality industry where an arms race has been taking place to introduce apps and other digitally based solutions.

Part of the desire for less friction is to speed up the process and the survey found 62% of people wanted to be able to complete their supermarket shop and be out of the store in less than 20 minutes. This is not quite the same scenario in foodservice but there is a growing urgency and impatience fuelled by the capabilities of technology that is now integral to so many activities in our daily lives.

There have been examples in the tech-rich environment of San Francisco where solo bar-goers have instructed the servers to give them another beer whenever their glass runs dry. Meanwhile, they stare at their phones during their whole visit. This kills all interactions after their initial instructions and while it certainly gives them a largely frictionless experience, it is also rather sad. 

This suggests friction can be good and bad. Not every process needs to be interaction-free and lightning fast or given over to technology. When buying certain things like a high-performance cycle or jewellery, I’d suggest most people don’t want the exercise to take a matter of minutes but instead want a more immersive, richer and also more relaxed experience. It’s the same with hospitality. Yes, there is an argument that suggests the higher the price points, the longer people are likely to want the interaction to last. While this might ring true in some instances, it is probably rather too simplistic.

I’ve become a bit of a sucker for choosing the wine pairing option on certain menus. This is not just because these drinks enhance the individual dishes but also because they give me an opportunity to engage with the sommelier at regular intervals. I’m intentionally adding friction.

The apogee of this for me (to date at least) was a meal at London’s Pied à Terre in 2016 when original chef Richard Neat returned for a celebratory 25th anniversary week to cook some of the dishes that helped make his name and gain two Michelin stars. The two different set menus, enjoyed by my wife and I, came with nine wines each. This involved me in a guess-the-wine game with the sommelier for the 18 wines served. This is not everyone’s cup of tea, and it requires an understanding partner, but it dramatically enhanced my experience.

A recent visit to The Roth Bar & Grill at the Hauser & Wirth gallery in Somerset highlighted another form of friction in the dining experience – art. Its dining room walls are filled with about 100 contemporary works that change throughout the year and provide another driver of interaction (as known as friction) between guests and the front-of-house team. Each member of the team is assigned five artworks that they are expected to know in sufficient detail in order to engage with guests when required and answer any questions – and maybe even help to sell one.

US-based urban activist Jane Jacobs wrote “The Death and Life of Great American Cities” in 1961, arguing the case against the rising “rationalist” movement that was making cities more efficient with fewer people in them and placing them within defined areas. As we, today, reassess our cities in light of covid-19, it is worth chewing over her point that isolating people does indeed reduce friction but it is this very dynamic that, ultimately, makes cities the places where people want to be. It’s surely the same with restaurants and bars.
Glynn Davis is director of Chase Consultancy and a leading industry commentator on alcohol and health

Reflections from a lender on funding during a pandemic by Steve Crosswell

I still find it hard to believe the pandemic started to seriously impact the UK more than 15 months ago. Time has certainly flown by and we are now looking forward to the industry fully opening up as restrictions are lifted. 

I also remember, quite vividly, the discussions I had last March with clients, advisers, professionals and colleagues as to how long we thought it would last and the impact it might have – unsurprisingly none of us were right.

Those discussions with clients were vital for us to understand both the likely impact of trading restrictions and the support required. We were speaking to clients almost daily as we uncovered more information that we believed would benefit them as they put together their survival plans.

From an operator’s perspective, the most urgent issues to address were the main outgoings: rent/rates, payroll, suppliers and loan repayments. Cynergy Bank is a secured lender so few of our clients had rent obligations but we felt it crucial to act quickly and provide much-needed breathing space by deferring loan repayments and suspending covenants. 

Inspirational business responses
It was about this time, I started to see some amazing examples of businesses pivoting incredibly quickly to survive – providing products online, implementing delivery and collection, and opening hotels to key workers and essential business travellers – there were so many examples. It kept their teams active and engaged, remaining connected to their customers and playing important roles in the community by providing food packages to the vulnerable and key workers and supporting food banks. The industry really stood tall.

Businesses spent time during lockdown wisely. They reviewed their cost base, constantly communicated with their suppliers and other key stakeholders and quietly prepared for reopening.

Government support
By May, we were able to offer CBILS (Coronavirus Business Interruption Loan Scheme) facilities to clients, which, along with many other government support initiatives, provided much-needed time for businesses to prevail.

By July, pent-up demand and good weather followed by the Eat Out To Help Out scheme meant those with the ability to maximise trade through indoor and outdoor spaces did very well and, in hindsight, that July to October period probably provided the sector with a cash-flow lifeline for what was to follow in the winter.

During this period, we remained in constant dialogue with our clients and having ensured they were supported, we then opted to use CBILS as a business development tool to win new clients. We were able to do this through refinances and asset purchases as the banking market contracted. We were even able to support once-in-a-lifetime transactions for many borrowers. 

We expect to complete more than £320m of CBILS by the time the scheme ends this month (the scheme closed to new applicants on 31 March 2021) and we’re now working on supporting SMEs through the RLS (Recovery Loan Scheme) and recently completed deals for Stay Original and Prospect Pubs & Bars.

Surviving lockdowns
Winter was obviously difficult with a second lockdown, followed by a frustrating stop-start December, which effectively wiped out Christmas trade and, ultimately, led to a third lockdown. I can still remember a deal I was working on where 97% of the sites had closed between submitting the credit paper and presenting at committee.

What continued to amaze me during those incredibly challenging times was how operators adapted, supported their communities and reviewed their business models by removing cost and embracing technology to ensure they exited the pandemic leaner and more efficient. 

Supporting our customers
Funding hospitality businesses has obviously been tougher than many other sectors, however. With so many unknowns, we had to rely more on traditional lending fundamentals, such as: who are we backing? Do we hold them in high regard based on their history? Do we believe they can deliver their business plan?

Some of this was a leap of faith because our decisions were based on what the borrowers’ management team had done previously and that they could deliver their budgets in what were/are unprecedented trading conditions.

We’re fortunate that we have a very stable and successful portfolio of clients, mostly town, suburban or semi-rurally located rather than city centres, with whom we have a close working relationship. With suitable funding structures, coupled with the actions they have taken, they’re well prepared to benefit from the current buoyant trading, while we await the “new normal”.

To summarise, this is what I have learnt:

• Value your clients, communicate openly, honestly and regularly with them

• Keep them informed and make sure they do likewise with you

• Know their sector inside out so you can add value 

• Don’t be afraid to ask challenging questions of each other because, ultimately, the relationship will be stronger for it
Steve Crosswell is relationship director at Cynergy Bank

Discussions on pricing now will be key for this year and 2022 by Ann Elliott

There are a number of conversations being held by operators at the moment that will play a key role in their performance not only for the balance of this year but for 2022 as well. 

The first of these is discounts. No operator really wants to return the days of 30%, 40% or even 50% of covers being covered by discounts. No one. So everyone has to hold their nerve. This, though, is very unlikely to happen and, quite honestly, I haven’t seen it during my career in the sector. One brand usually breaks cover and then the floodgates open. Actually it’s rarely one brand, it’s a group of brands in the same situation. The moment covers slide behind budget marketers are then asked, usually with some urgency, to reinstall discounts even if the order comes with an instruction that it is “only for now”. It is rarely “just for now”. It just starts the whole drug-like, painful process all over again.

I have just had a quick look now and one operator I know is offering, at the time of writing, discounts through The Mail, The Telegraph, The Metro, NME, Vouchercloud, Tastecard and Tesco. Though that might sound like a lot of different discounts, it’s far fewer than I have known them to use in the past and they are being offered very tactically. It’s a real challenge and I know how difficult it is to break free but, from what I am hearing, many are absolutely intent on minimising their use of blanket discounts in the future. Tactical discounting rather than mass discounting has to be the way forward, surely?

The second discussion area is around spend per head and how long growth can last in this line. Depending on how discounts are treated, a lack of discount could be driving spend per head in some businesses. As could the increased percentage of sales going through delivery where spend per head is higher than in bricks and mortar sites. As could going cashless. Or it could be that consumers want to spend more post-covid. Or it could be a result of all of these happening at the same time. Operators are wary of course of spend per head flying high at the expense of covers but that doesn’t seem to be happening at the moment. They are watching it very closely though for any signs of this happening.

The third discussion area is around cost increases. These are coming through from every single part of the supply chain, including building materials (wood, steel, plasterboard), disposables, crockery, packaging, distribution and food (anything imported). The issues regarding lack of labour, especially back of house, are forcing GMs to offer ever-increasing hourly rates, to head chefs and sous chefs in particular, only to see them “stolen” by headhunting competitors for 50p more per hour before they even start. While product availability is a real issue, and is significantly impacting many businesses, many I know have been working hard with their suppliers and menu development teams to mitigate its impact. The same sort of work is happening now in terms of helping them cope with price increases across the board.

The fourth discussion area is around food and menu pricing. If food inflation is really likely to rise to 7% or above during 2022, prices need to be increased in the September/October 2021 menu but how far to take these increases is a real point of debate. Of course, VAT will return to normal levels in September but can menu prices stay as they are now when that happens or do they need to change to reflect this impact?

Just as in the discount scenario, some operators are going to see what their competitors are doing first before they move to ensure they aren’t at a competitive pricing disadvantage early on. Having flexibility on menu printing now versus pre-pandemic is proving a godsend.

So, while sales are looking positive, like-for-like growth versus 2019 is strong and cash flow is improving, operators are facing some real challenges from September onwards and no one I have spoken to is resting on their laurels at all.
Ann Elliott is a hospitality strategist, connector and adviser

The consequences of not putting people at the forefront of your business by Louise Gallant

There’s been recent debate about whether staff meals should be advertised as a benefit or not. Some luxury hotels take a proportion of staff wages to cover their meals while some operators include staff meals without a question (nor a proportion of pay). It doesn’t sound right to me that cutting pay to feed staff is putting people at the forefront of your business. But you could argue that those coming fresh into hospitality would know no difference and, let’s face it, this is the way it’s always been done.

So when we talk about putting people at the forefront of our businesses, what does this actually mean?

Things need to change, that’s for sure. Not a shift in behaviour/surface change – it’s got to be a change in behaviour. If this doesn’t happen, we’re likely to have a staffing crisis for much longer than we would ever care to imagine. And the impact of that on hospitality? I’m sure there are people reading this now who know too well what the impact is and will be.

Let’s break this down and start with hotels. We know there’s a strong tradition in hotels, especially luxury hotels, which attracts revenue to drive sales and build reputation by giving impeccable service and offering the guests the most comforting and luxurious experiences. I would not argue that must change, but let’s think about the staff areas that sit behind the velvet-tufted benches and gilded architecture. They’re usually pretty drab, right? I know guests won’t necessarily see these areas but think about how that reflects on how you value staff. Then pay them minimum wage, expect them to work long hours, without a break, and then cut their pay to feed them. Again, the way it’s always been done, but does that make it right in this current climate?

How many people say that people are at the forefront of their business and actually mean it? 

I was pretty much born into hospitality so I know the importance of people as an asset to any business. For years, I watched my mum run her pub businesses with a solid team of staff whom she would give meals to without question and treat as her own family. I don’t know how she would have coped without her solid pool of talent, both on a permanent and flexible basis. A reliable force; look after them, they’ll look after your customer experiences in return, and then the profits will follow – naturally.

Then there’s restaurants. I’ve seen many inspirational, fresh-faced restaurants emerge over the years only to be destroyed by huge investments, bulldozing through the country by opening sites exponentially, cutting costs, compromising quality, introducing meaningless “steps of service” and guess what? When you prioritise profits, people get left behind. They became a commodity. I experienced it myself: very little value of people, although surely they are the backbone of any business? Why do leaders not see this? It’s because they are only concerned with profits and short-term gains. Is it any surprise that we’ve seen so many company voluntary arrangements (CVA) during the past 18 months? There were no foundations holding these businesses up – just debt and panic.

Imagine building a house with no foundations. It would last for a while but probably not that long. It would crumble in places, with cracks down the walls and might flood now and again. It could be lived in but quite uncomfortable. This is the same when your leadership team fails to build strong foundations of people by nurturing them and developing them. Yes, this costs money but a CVA will cost your business more.

So imagine a business where people are top of the agenda in every board meeting. Not because of a pandemic but because they are valued and investment is made into their development, well-being and the automation of tasks giving people back valuable time and flexibility. Time taken to give people autonomy, trusting them to make decisions and run their units. A business that really values mentorships and coaching, that truly understands leaders and supports them to support their people. 

There are some businesses that stand out today. They stand strong as survivors of the pandemic and are not facing CVAs. You’ll generally find that it’s the people who are the centre of everything these businesses do and will stay loyal for years, providing that foundation for growth and profit. 

If you’re planning on starting a business in hospitality, or thinking about your current strategy, build it from the people up. Don’t compromise on culture, and look after them. Long-term planning is key to success otherwise you’ll be chasing your tail until it falls off.
Louise Gallant is community and events director at Harri

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