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Morning Briefing for pub, restaurant and food wervice operators

Fri 12th Apr 2024 - Friday Opinion
Subjects: The trouble with chicken, singing Suffolk’s praises, we are at a tipping point, breakfast is a growth opportunity in a challenging market 
Authors: David Read, Ann Elliott, Ben Thomas, Maria Vanifatova 

The trouble with chicken by David Read

Alongside burgers and pizza, chicken has been an engine of growth in casual dining and quick service restaurants for much of the past decade. Cheap, flexible and ubiquitous, it’s been a go-to animal protein for hospitality operators for about as long as I can remember. But I have a sense that in this post-covid era of changing consumer perceptions, unstable markets and unexpected inflation, we would be wise not to take anything for granted. 

There’s no doubt about it – we eat a staggering amount of chicken in the UK. Two of the top five restaurant brands (measured by site volume) major on this protein, and every single one of the top 20 serve it on their menus in some form. British farmers rear a billion broilers (chickens that are reared for meat) every year, and we are the third largest importer of chicken in the world (behind Japan and Mexico) to the tune of a further 400,000 birds. The US, by contrast, is almost completely self-sufficient in poultry. The average Brit consumes 35kg of broiler meat each year, and there are 33 billion chickens alive on the planet as you read this, compared with eight billion humans. 

In the 1950s, chicken was seen as a luxury and was relatively expensive. Just one million were produced in the UK each year. Then, intensive farming methods were imported from the US. In 1959, the first fast processing “poultry factory” was opened in Aldershot. By 1965, the price of poultry had fallen by nearly a third, causing demand to soar. By 1990, almost a quarter of the meat eaten in Britain was either chicken or turkey – in 2024, this number is now closing in on 50%.

Its rise to dominance has not been by chance as it has a number of inbuilt advantages. It can be brought to slaughter much more quickly than cows, pigs or sheep, so per kilo, it is lower cost compared with other animal proteins. Its more sustainable, and depending on how it is cooked, potentially healthier than its red meat competition. 

In spite of this, the clouds have been gathering over the poultry sector for some time. Many feel it has been headed in the wrong direction for years. The NFU's Poultry Intentions Survey polled members during November 2023 about their views on the market. It found that 15% of broiler producers were either unlikely or unsure if they would still be producing poultry beyond November 2025. The main reason cited for this was insufficient returns.

The survey also highlighted a number of other “major concerns” for the sector, which included the risk of avian influenza, a lack of fairness in the supply chain and being undercut by imports from nations with lower production standards. Despite the current low numbers of avian flu outbreaks across the UK (in comparison with 2023), the results of the NFU's latest survey shows that the threat of the disease still continues to impact the sector, with producers holding back on investing in their businesses. A third (31%) of broiler producers had no plans to invest in their business during the next two years.

In recent weeks, poultry supplier Avara Foods has been sued for allegedly damaging the River Wye – in Herefordshire and the Welsh borders – and the local economy. The legal claim, potentially worth hundreds of millions of pounds, has been launched by law firm Leigh Day in a bid to compensate thousands of people living in the Wye catchment likely to have been affected in recent years. Leigh Day alleges that the main change in the region, and the “clear primary source” of the recent pollution of the River Wye, is the expanded operations of Avara Foods – a subsidiary of US commodity behemoth Cargill – that supplies a host of leading supermarkets and restaurants, including Tesco and Nando’s (with barn-reared birds).

There is a very real risk that stories like this will cut through more deeply to consumers. Animal welfare campaigners say that current production systems are cruel. Chickens want to “feel the sun on their feathers, roll in dust and forage for seeds”. Cramped inside a computer-controlled shed, they become stressed and start injuring or even cannibalising one other. Food poisoning bugs such as E.coli or campylobacter, many of which are becoming resistant to antibiotics, can spread quickly through a large herd. Chickens grown for meat are often kept in cramped conditions, with up to 19 birds per square metre (roughly the same amount of space as an A4 piece of paper per bird). They are fed additive-filled, high protein food and the temperature and humidity is controlled so they can gain weight quickly. They are taken to be slaughtered when they are five to six weeks old.

Many hospitality businesses import broiler meat from two large European export nations, the Netherlands and Poland. This provides a cost edge that maintains margins, and for the large part, provides protection from the worst of the animal rights practices that can be seen elsewhere in the world. And many companies – including hospitality companies like KFC, Compass, Itsu and Pret A Manger – have signed up to the Chicken Commitment, which includes a maximum stocking density of 30kg/m2, using breeds that demonstrate higher welfare outcomes and meeting minimum environmental standards on light, space and air quality.

While many supermarkets are now specifying reduced stocking densities, it is by no means certain that this commitment will become a reality under the intense commercial pressure felt by the hospitality sector, and perhaps more importantly, when they will become reality, as the deltas between, say, Thai or Brazilian imports and UK organic can only be described as enormous. 

There are many that argue that the commercial imperatives of “cheap chicken” will always prevail. After all, free range is around 3% of the market, and organic is even lower at around 1%. But in my view, this polarises our thinking and encourages the race to the bottom we have today. We should recognise that production standards and flavour of broiler meat are not determined solely by geography and price – if you look for it, you can find very expensive UK meat with very poor production standards, and cheap Brazilian meat with excellent standards. And when the customer profile warrants it, why not offer diners the choice to trade up to better chicken while still offering the current standard alongside?

So what does all this mean for hospitality operators? From a consumer perspective, I believe we can expect increasing levels of scrutiny from consumers and non-government organisations in the years ahead. And unlike the supermarkets, a considerable proportion of broiler meat used in UK hospitality is imported, so supply chains are longer and more difficult to control and validate. 

From a supply perspective, low levels of commercial returns and investment, a real and ever-present risk of a pandemic of Asian influenza, anger among producers about unfair practices by retailers, government policy that allows cheaper lower standard imports, producers being sued for environmental damage and consumer sensitivity to low standards of animal welfare are all making the value chain a much less attractive place to be. 

Hospitality will need to adapt to these changing circumstances – and once again, supply chain skills will need to be at the forefront of enabling that to happen in a profitable and sustainable manner.
David Read is the founder and chairman of Prestige Purchasing

Singing Suffolk’s praises by Ann Elliott

When the kids were much smaller and much less opinionated, we always used to head to Salcombe for our family holidays, or sometimes just for a short Easter break. It is the most glorious place, and we have so many happy memories of our time together there. I can't remember how they used to be entertained, or indeed entertain themselves, on the five hour-plus journey there, but we always managed to arrive without major trauma or massive family arguments. Harry Potter CDs seemed to play a pretty key role in that achievement, or maybe I have a very selective memory – or both!

Now that both “kids” are over 30, we have to inspire them (aka “bribe”) to come away with us for family holidays. The joys for them of spending an entire day damming up the stream and creating sandcastle empires on Mill Bay beach have been replaced by the joys of not having to pay for very much while they’re away. That upside is very much balanced by the downside of having to spend time with us, but for now, it seems to be in our favour.

Luckily, there are some things that none of us want nowadays, like a five-hour long journey to reach our holiday destination. So, our mind numbing journeys to Devon and Cornwall have been replaced by shorter journeys to Norfolk, Suffolk and Kent. We can certainly arrive at the seafront in less than three hours, which seems to equate to about two real holiday days. “Guess the intro” on the journey has replaced the trials and tribulations of Harry, Ron and Hermione.

What we all really love on holidays in the UK is the joy of discovering fantastic pubs, restaurants and cafes out of London. Our Easter break in Suffolk this year was spent in an incredible Airbnb called the Coach House in Mickfield, a village not far from the delights of Debenham. Here, the owner of the River Green Café could not do enough to accommodate us all for five full English breakfasts on Saturday morning, washed down by copious amounts of tea.

A less than thrilling visit to Sutton Hoo was more than outweighed by a few hours playing cards and drinking beer in The Anchor in Woodbridge – a delightful, packed, friendly, warm and atmospheric pub within short sight of the sea. It could not have been more perfect.

That evening, we had a table booked at the Unruly Pig in Woodbridge – winner of the Estrella Damm UK Top 50 Gastropubs Awards 2024 – having also won it in 2022. Honestly, the food was to die for. I had parsley soup with smoked eel followed by cod loin with a mussel and potato ragu, but suffered substantial food envy when two of us ordered a venison wellington each and the other two shared the Bistecca alla Fiorentina. Every single morsel of food was truly divine.

This pub, though renowned for its superb food, had one of the best front of house teams I have ever come across. They were absolutely stunning, with a natural flair for hospitality, which was neither formal nor fawning, in a way that might have been expected from the best gastropub in the UK. One of those service experiences that’s really difficult to describe but sensational to experience. Even better, we could take the dog.

The Suffolk sur Mer in Aldeburgh was our destination for Sunday lunch – a beautiful restaurant and hotel right on the high street. Again, the food was a delight, even if the service lacked a bit of the panache and professionalism of The Unruly Pig. The place was full of dogs, which is becoming increasingly common when we go out – perhaps except for National Trust tearooms, which is slightly ironic and very irritating.

So, if you find yourself in need of a getaway that’s equal parts delicious and delightful, look no further than Suffolk – with impressive places to eat and drink, pretty postcard villages and amazing beaches. It’s definitely worth a visit, with or without offspring.
Ann Elliott (she/her) is a portfolio non-executive director and board advisor 

We are at a tipping point by Ben Thomas

While many in the industry have welcomed the new tipping legislation as a much needed levelling of the playing field for all, the truth for many is that the timing could not really be worse. Not only following some of the most challenging years in living memory (I won’t list what we’ve faced these past years because it’s frankly just too depressing), but now the 1 July deadline comes in the wake of the largest increase in minimum wage most of us can remember. 

Justifiable in the context of a cost-of-living crisis and lingering high inflation, but very, very hard to accommodate for already stretched hospitality businesses. Hospitality businesses have always been hard to run. Margins are tight, competition is intense and the rate of failure has never been higher.

So it shouldn’t surprise us that while most businesses publicly claim the service charges and tips they collect go to staff, the truth is most have been forced to adopt a policy of retaining some amount of tips and service charges historically. For most, the intention was to cover the substantial costs of getting this money to staff in a way that is “fair” (whatever that means in each circumstance) and recouping what they view as other legitimate costs for staff benefits.

Regrettably, over time, some pushed this further than the government could tolerate. Hence we’re now faced with a requirement that every penny of these funds is paid to staff, within a narrow time frame, and only to those staff (usually) who work in the place they were collected as their normal job.

Those that retained some portion of the funds to cover costs now face a hole in the P&L. Others who took the view that head office or non-site staff should get a share too (after all, they unquestionably contribute, so why shouldn’t they?) now face the government simply disagreeing with this practice, and big shortfall in head office salary budgets.

I’ve probably heard every story around treatment of tips and service charges. From 90% retained by the business (justified because it allows them to pay fair wages) through to head office team members whose salaries were up to 80% comprised of tronc (because they impact all the customers’ experience). 

But the time has come for all of us to let go of judgement about any of this. The “naming and shaming” and the blaming breaks my heart – because there is almost always a real, valid, struggling business at the centre fighting to grow, thrive and look after its people, its customers and investors. Equally, on the other side, the “virtue signalling” and judgement just doesn’t help. So, let’s stop and put the energy into working out together how we get to where we now need to be.

Over the past few months, we’ve seen businesses go through what feels like a classic change process. First, denial – a disbelief that the government would possibly stick to such a seismic change. Then anger and resistance, with real rage that even the card processing fee (money that we don’t even get) can be clawed back from the service charges or tips collected.

It’s totally understandable that some are moving to exploration and testing new approaches. We’ve seen businesses – in my view, bravely – try new things. Some have included an optional additional charge on the bill rated as a percentage of spend. Being up front, this is to help fund the overall experience. Unfortunately, the swift response from customers and the press was not good. We should be grateful to them, now we know.

Others have trialled fixed cover charges but have found it difficult to do this at a level that makes a difference. And again, customers are quick to challenge and less likely to then optionally tip or pay an optional service charge, and few have been able to maintain it.

Given this, there really are only three things to think about if you have been operating a service charge with a retention for the business: whether or not to maintain it and at what level, and how much to increase your revenue or reduce costs as a result.

Starting by understanding what level of service charge is needed to maintain what for your business is an acceptable level of tronc to competitively attract, retain and reward your on-site team is the first decision. This is where the service charge should be set because that is all we’re now allowed to do with it.

If that creates disparity, because you were sharing across sites (now not allowed), you’ll need to review remuneration policy. Perhaps there is a top up in lieu at delivery-heavy, low service charge sites. Unconventional, yes, but possibly necessary.

Then, this will leave a shortfall, based on the wage increases you’ve needed, any portion of the service charge that previously may have funded head office or off-site staff distributions, and any amount you used to retain. This can only be covered by increased revenue – price increases or, for the brave, targeting growth and getting more customers through the door – or reducing costs if you’re lucky enough to have scope to do so.

While this is an uncomfortable reality, as with so much, the winners will be those who are fastest to accept it and make these inevitably difficult decisions. Help is out there – in particular, The Tronc Advisor is offering Propel subscribers a first-come, first-served discounted fixed price review of any operators’ current position, and can provide fast and simple feedback on the decisions they may need to consider.

Working in the hospitality industry is a great privilege, a world full of wonderful people, incredible innovative businesses and real passion for creating amazing life-enriching experiences for our guests. While the changes we’re facing are very challenging, I believe our sector is rich in the tenacity, creativity and drive to overcome them – if we can work together with honesty, positivity and the considerable force of our collective will.
Ben Thomas is chief executive at cashless tipping platform Tipjar 

Breakfast is a growth opportunity in a challenging market by Maria Vanifatova

February saw consumer traffic decline for the seventh consecutive month, year on year. The challenging conditions witnessed in recent years by the UK foodservice market persist, with a combination of high inflation, spiralling costs and shrinking incomes having a significant negative impact upon the purchasing power of consumers. However, despite this rather gloomy outlook for operators, Meaningful Vision’s research reveals emerging opportunities to both grow traffic and encourage customer loyalty, notably in the breakfast-on-the-go segment.
 
The most popular breakfast in the UK’s major cities consists of a coffee and a sandwich or pastry, reflecting the pace of life in the business districts where most customers favour a quick and convenient option, preferring takeaway to dine-in. Across the market, breakfast offerings range from a take-out yoghurt or piece of fruit to a dine-in Full English breakfast. Claiming origins as far back as the 17th century, the traditional “fry-up” served at a café or “greasy spoon” was the staple breakfast of Brits for many decades. But in recent years, fast-food operators have come to dominate the morning period, with dedicated breakfast menus and a growing range of products catering to a more diverse palette, including vegetarian and vegan options.
 
Today, more than 70% of the breakfast market is served by the top five brands in the UK. McDonald's leads the pack, having focused on this daypart for many decades and serving breakfast from the early hours. Greggs holds second position, showing the highest growth rates and closing the gap with the leader. Costa, Starbucks and Pret A Manger make up the go-to places for morning diners, with Pret's breakfast share showing rapid growth. Bakeries and coffee shops form a majority of the list, and for these operators, breakfast makes up around one third of their daily traffic, underlining its importance as a key daypart. Total morning traffic now accounts for a quarter of total daily traffic across the foodservice industry, and this grew by 3% year-on-year during the 12 months ending February 2024.
 
Nationwide, London, Manchester, Birmingham and Leeds demonstrated the highest growth rate in breakfast traffic over the last 12 months. City centre locations contributed around 70% of the total growth in breakfast traffic seen in 2023, correlating with a return by many people to the office commute after several years of working from home. Dictated by convenience, getting a bite to eat, or grabbing something to drink, is a driven by what works best with their commute, either walking or driving to the office.
 
The breakfast market represents both a potential additional revenue stream and a way to attract new customers during off-peak hours, making it an alluring proposition for many operators. With relatively low food costs, the venture can be a profitable one and benefits operators by helping spread costs over a larger period of the day. Some brands have already announced their intentions and ambitions for their breakfast menus in 2024. Meaningful Vision’s analysis anticipates competition in the breakfast market will intensify in the year ahead. The stagnation in the wider economy continues to cause concern, with little sign of abating in the short to medium term, and consequently, more companies will be joining the search for new growth opportunities. 
 
The typical breakfast menu offers a reasonably limited selection of food items, around 10% of the total menu throughout the day, much lower compared with the importance of breakfast’s share in daily traffic. This can be explained in part by very traditional tastes. A bacon and egg sarnie and a cup of tea or coffee, for example, are still capable of satisfying the appetites of many customers. Pret A Manger and McDonald’s, being food-oriented, offer a wider menu (20 or 30 products) than most of their competitors, with frequent new products, while brands like Starbucks and Costa cater to drink-only occasions. Coffee is a singularly important part of the breakfast menu, unrivalled in popularity in the UK, with potential to bring breakfast traffic to anyone offering a quality product at a competitive price. Meaningful Vision expects to see more food, beverage and breakfast menu innovations in the future as competition and interest in the sector builds. 
 
Prices for items on the breakfast menu vary significantly. For example, Starbucks’ porridge is twice the price of McDonald’s, and a breakfast sandwich in Pret A Manger (without a subscription) is double the price of the Greggs equivalent. Similar price variations for coffee also exist but are less pronounced. With the cost-of-living crisis, affordable breakfast offers and meal deals have the potential to capture a significant portion of consumer traffic. Key to the success of both Greggs and McDonald’s is their insistence on affordable price offers, supported with frequent additional promotions. 
 
Developing an in-demand morning menu holds potential for many operators as breakfast grows in popularity with consumers. However, this strategy may not be relevant to all cities, all locations, and all businesses or companies. Meaningful Vision’s data analysis can help to highlight and pinpoint opportunities with precision. As this market becomes increasingly competitive, data-driven decisions will be crucial to successful outcomes. 
Maria Vanifatova is founder and chief executive of Meaningful Vision, provider of pricing, promotion, location and traffic data to the UK foodservice industry. She is a former vice-president and head of European foodservice practice at The NPD Group.

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