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Morning Briefing for pub, restaurant and food wervice operators

Fri 5th Apr 2024 - Friday Opinion
Subjects: Pricing dynamics, lowest common denominator management, alcohol prices and political costs, making some dough
Authors: Glynn Davis, Alastair Scott, Phil Mellows, Sarah Travell

Pricing dynamics by Glynn Davis

On New Year’s Eve 2011, prices soared by as much as seven times the standard rates on Uber. This led to the term surge pricing entering the public consciousness for the first time and triggering the start of the backlash against companies adjusting prices during times of peak demand. One of the unfortunate results of this scenario is that surge pricing has become interchangeable with dynamic pricing for many people.

Among elements of the media and consumers there seems to be an inability or unwillingness to accept the difference between the two. They are not difficult concepts to grasp – surge pricing involves increasing prices while dynamic pricing means movement up and down. Clearly for the media there is much more of a juicy story in a tale of businesses ripping off customers and price gouging. There is also the much more prosaic reason that “surge” is a shorter word than “dynamic” to use in print headlines.

Poor old Wendy’s knows all about damaging surge pricing headlines when it recently released the good news that it was to invest $30m in the roll-out of digital menu boards across the US. Unfortunately, it also mentioned that it was to test features in these menu boards such as dynamic pricing and new offers along with artificial intelligence (AI)-enabled menu changes and suggestive selling.
 
The company fought against a barrage of criticism to explain that its plan involved the complete opposite of surge pricing as it had no intention of raising prices when demand was highest but instead to change menu offerings at different times of the day and offer discounts and value offers particularly during the slower times of the day. 

The backlash from some quarters to dynamic pricing is disappointing because I think the hospitality industry could be using it to better manage its inventory and labour through all dayparts to both optimise its operational efficiency and reduce waste. Meanwhile, there would be opportunities for consumers to benefit from lower prices at off-peak times and when there is a surfeit of perishable foodstuffs that need to be sold. 

Despite the negative perception of dynamic pricing, I feel there is an inevitability about its increased usage because it makes so much sense on numerous fronts. What is needed at this stage is a growing number of brave companies that are up for fending off the criticism. Cinema chain Vue last year put its head above the parapet when stating that it was accelerating the roll-out of flexible pricing across its outlets as it found growing demand from consumers.

Only last week, Merlin Entertainments announced it is to build a dynamic pricing model to introduce to its top 20 global attractions by the end of the year. Scott O’Neil, chief executive of Merlin Entertainments, says: “If [an attraction] is in the UK, it is August peak holiday season, sunny and a Saturday, you would expect to pay more than if it was a rainy Tuesday in March.”

The growth in dynamic pricing will also be fuelled by the ongoing impact of AI and the increased level of transactions that are undertaken digitally. It’s one thing to change prices on a menu board that is visible to all customers in a physical restaurant and a very different thing to be flexible with pricing on one-to-one basis with a customer via their mobile phone. These interactions can involve myriad personalised data points to determine pricing based on things like previous behaviour of the customer and their loyalty to that hospitality business. Whether you like it or not, surge, sorry dynamic, pricing is coming to hospitality businesses near you.
Glynn Davis is a leading commentator on retail trends

Lowest common denominator management by Alastair Scott

In our pub business we have recently been recruiting for a deputy general manager. During our interviewing, it has been fascinating to learn why so many staff want to leave the largest companies in the sector and come and join little old us. We should not really be able to compete with larger businesses, but we do, and I have been curious in finding out why. 

We lose on many things, particularly staff development and benefits, where bigger companies do a great job. But we win in two more key areas. Firstly, the team ethic of a smaller business, with directors being visible and involved, which also means we get the small things done much more quickly, particularly regarding repairs. But where we really win in comparison with the Goliaths, is in managing our labour. 

It should not come as a shock that as an industry, we really care about customer service. While there are many factors that contribute to the productivity levels of our teams, I think that staffing levels are perhaps one of the most significant. 
 
Some of the candidates we spoke to voiced frustration over the fact their employers chose to set cash targets as means of budgeting their labour over the Christmas period. The staff felt they would have done much more than the target, but as a result of it, were not given enough resource to do so. 

It is always a bit of a shock, and quite fascinating to me when I hear about bigger companies managing their labour costs with the bluntest of instruments. Of course, cost management is at the forefront of every operator’s mind, particularly with the national living wage increase. Simply setting a cut-throat budget to slash costs will also slash sales. We will not win over the customer if we deliver bad service, and more importantly, we will not win over our people if we are seen to act in not only an illogical way, but also in a way that impacts their job satisfaction levels. We have all seen what happens next: they either leave the company, or more worryingly, the industry.

Managerial behaviour in a devolved, people-intensive industry can be really difficult to get right. It is a bit of a truism to say that we have some great managers, some okay managers, and some poor managers. We need to find the best way to let our best managers manage, and to train our worst managers to be better at their job. In truth, it is likely this means taking different approaches for different people. There is something I refer to as “lowest common denominator management” – which means adopting management practices that cater to your least experienced people, as opposed to just your best or average people. 

Our most trusted and experienced managers can be encouraged to perform even better; others, who perhaps have less experience in the business, may require a more hands-on approach until they get there. 

Labour is the sharp end of our industry. If you demand a 75% food gross profit, the team will accept that your economic model is such that it is the right thing to do. Staff might baulk a bit more at pricing when they are the ones that get the grief from the customer, but they will also accept that dealing with price increases are part and parcel of the job. However, when it comes to labour, they can see when they are understaffed.

Even if our teams believe they need more staff than what is required, it is our responsibility to spend time explaining why the way we have planned our teams is right, and how they can be more productive in their role to achieve the same goals. 

This is what companies are potentially failing to do. We work in an industry where people want to understand more, and where, when explained, they are more motivated and accepting of the requirement. 

We need to explain when a two on shift is better than a three on shift; why we do not need a pot wash at quieter times; why certain tasks are to be thought of as slack tasks and not as fixed tasks. Sometimes, in our rush for a result we forget these basic processes.

I have no doubt that we will need to train and explain to our new team how we work, what we care about, and how we deliver in our own way.
Alastair Scott is chief executive of S4labour and owner of Malvern Inns

Alcohol prices and political costs by Phil Mellows

We’re coming up to the sixth anniversary of Minimum Unit Pricing (MUP) in Scotland and the conclusion of the first phase of this controversial experiment. It looks as though, subject to a vote in Scottish parliament, it will continue at a higher rate from September, a generous inflation hike from 50p per unit to 65p.

This still won’t directly affect licensed hospitality businesses, of course, but as retailers of alcohol they should take an interest. Indeed, campaigners for the policy have claimed that MUP can benefit pubs by closing the price differential with the off-trade – though it doesn’t necessarily work like that in the real world. The extra squeeze on drinkers’ incomes could, instead, mean they go out less. Life is complicated.

But what about MUP’s main goal, to reduce harm from drinking? Licensed hospitality should be interested in that, too, since it could influence broader alcohol policy. And it would be an all-round good thing.

Evaluating the first six years was going to be a challenge even before we had the little matter of a pandemic falling right in the middle. There’s no doubt that the months of lockdown changed people’s drinking behaviour, and not in any simple way. For some it was an excuse to reduce their consumption, others drank more to cope with the stress. 

And those who already had a problem with alcohol found it more difficult to access services. Whatever the precise reasons, we’ve seen a spike in drink-related deaths that MUP has failed to have any noticeable impact on.

That didn’t stop Public Health Scotland from publishing a report last summer that boldly claimed the measure had reduced the number of deaths directly attributable to alcohol by 13.4%. If true, that’s worth having. But the estimate, based on a comparison with what had happened in England, was widely questioned. Not least because, in absolute terms, deaths are rising.

For the Scottish government, the possibility that MUP might be a failure is not something it wants to hear. It’s become more about political cost than human cost. And I say that as someone who is not, in principle, opposed to removing cheap alcohol from the shelves. 

I like alcohol. I want it to be high quality. I want it to be properly appreciated. I want it to be valued accordingly. And that might, in the very long term, have a positive effect on drinking behaviours. But there’s a problem. 

There are a small number of people who, even while knowing it’s killing them, will continue to drink heavily. They will buy the cheapest alcohol, even it’s a little more expensive than it used to be. They will find a way. I’ve had friends who’ve done that. And now they’re dead.

MUP evaluations do consider the impact on them, and the Public Health Scotland report says that “there is limited evidence to suggest that MUP was effective in reducing consumption for those with alcohol dependence”. 

Instead, these drinkers deployed “coping strategies”, including borrowing money and theft, where that was already in their repertoire, and there were increased reports of shoplifting. Not, perhaps, on a huge scale but we get an insight into the practical ways in which the policy can affect individuals.

Also last summer, the Welsh government produced a report two years into its own experiment with MUP. It found some heavy drinkers were switching away from white cider to spirits, others shifted their budgets around, perhaps away from healthier pursuits, to make sure they could afford alcohol.

Where they had reduced consumption, the overall cost of living was most likely to be the cause – understandable as that other unexpected variable, inflation, has soared.

Supporters of the policy will argue that these issues are outweighed by benefits among the wider population. But is this what most people were expecting from it? 

When MUP was first raised as a solution I remember being told that it wasn’t aimed at dependent drinkers. Then, as concern grew that it would unfairly punish moderate drinkers, research was pulled out to show that heavier drinkers were, indeed, the target – obvious, in a way, since people who buy more drink are more likely to notice it. But there was little mention of the very heaviest, dependent drinkers. The ones who were dying.

Perhaps that’s my real problem with MUP. It’s been hyped so much, so much ink has been spilt on it, that it’s distracted from a deepening problem on the front-line of alcohol services. Public Health Scotland itself argues that we can’t rely on pricing alone. Alcohol policy must address the roots of dependence. And that’s a big, expensive, task.
Phil Mellows is a freelance journalist

Making some dough by Sarah Travell

This month will see two of the country’s largest eating-out brands launch their first lunch meal deals. Domino’s £4 lunch deal will include 600-calorie pizzas, 450-calorie wraps, chicken and cookies. At the same time, KFC has launched its first lunchtime meal deal. Priced at £5.49, customers are able to choose between a Kentucky Mayo Twister Wrap or a Fillet Burger, a packet of Walkers MAX crisps or a milk chocolate chip cookie, and then either a carbonated drink or bottle of water. Both have a dessert of choice, the humble cookie. However, judging by the latest round of openings in the Propel Premium Club Multi-Site Database, which has now grown to include 3,075 companies, which operate 72,186 sites, the cookie is having a bit of a moment.

An additional 16 companies, which operate 492 sites between them, were added to the Propel Premium Club Multi-Site Database during March 2024, including the new brigade focused on elevating the cookie experience and those brands further down their journey. One of the latter is Ben’s Cookies, which has been trading for 40 years and is named after the son of the founder Helge Rubinstein. Beginning as a small shop in the Oxford Covered Market in 1984, it has since spread to seven London sites as well as locations in Bath, Bristol, Cambridge, Edinburgh and Reading. It also has more than 50 overseas locations. Last month, Ben’s Cookies opened its first site in the north of England for its 14th UK location overall. The business opened at the city’s Trafford Centre, offering cookies where each batch of dough is mixed by hand in its kitchen just outside of Oxford.

Scottish stuffed cookie concept Chulo’s is owned by Jordan Rankin and partner Rebecca Paterson, who launched the business in Glasgow’s Finnieston in 2021 before adding a second bakery, in Edinburgh’s Stockbridge in 2023. Last month, they began testing the shopping centre market with a pop-up in the Bonnie & Wild food hall within Edinburgh’s St James Quarter. Leeds bakery kiosk business Batch’d, which champions small-batch bakeries in the north, is closing in on 30 sites as it expands across Scotland. It has just opened its third store in the country, at Buchanan Galleries in Glasgow, which will be followed by several more north of the border in the coming months. Founded by Dave Richmond in 2021, the first Batch’d kiosk opened in 2022 and has since experienced rapid expansion, growing to 23 sites. Its new kiosk is located outside the Lego store in the centre, serving a “huge selection of baked goods” including artisan brownies and cookies. Harry Clavane, managing director at Batch’d, said: “We are very excited about opening site number three in Scotland at Buchanan Galleries, which falls perfectly with the launch of the Easter product range. With more Scotland sites opening in the next few months and these recent additions, our network will span 28 locations across the UK.”

More recent entrants include Floozie Cookies, the all-vegan stuffed cookie brand founded by Kimberly Lin in 2020, which recently opened its first UK franchise site. The concept, which is backed by Game Changers Investments and launched in London’s Covent Garden in December 2020, revealed plans in November 2022 to expand internationally and in the UK under a franchise model. It has now opened a food truck at Bicester Village through its first franchisee, HSD Capitol, which is led by Harnek Dharar, a young entrepreneur who comes from a family with years of experience in operating franchise stores. It is also the first UK site outside of London for the brand, which has opened international sites in Expo City Dubai and Riyadh’s Al Mamlaka dining hall.

Perhaps the biggest entrant of them all in time will be Insomnia Cookies, the Krispy Kreme-owned late-night bakery brand that made its UK debut with a double opening in Manchester last year. The brand, which has circa 230 sites across the US and was acquired by Krispy Kreme in 2018, launched in Manchester’s Royal Exchange in Cross Street, which was followed by a site at the city’s University Green, and more recently in Fallowfield. Last August, Ben Lacey, UK managing director of Insomnia Cookies, told Propel that the brand’s ambition is to have a “national presence across the UK including every major city and town, as well as London”. 

The sector has already experienced the better burger, better pizza and better doughnut, and while it is currently seeing the rise of the better salad concept – see Farmer J, Atis and The Salad Project – perhaps the better cookie is next on the list. 
Sarah Travell is the founder and chief executive of Virgate, sponsor of the Propel Premium Club Multi-Site Database. The comprehensive database is updated monthly and provides company names, the people in charge, how many sites each firm operates, its trading name and its registered name at Companies House if different. The database has been redesigned so Premium Club members are able to search the data segmented into key industry sectors. Companies can now have an unlimited number of people receive access to Premium Club for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email kai.kirkman@propelinfo.com to sign up.

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