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Morning Briefing Strap Line
Fri 13th Dec 2013 - Friday Opinion
Subjects: Business rates, food price inflation, good news on alcohol, concepts worth visiting
Authors: Kate Nicholls, David Read, Paul Chase, Ann Elliott

Rating our industry by Kate Nicholls

I was at the All Party Parliamentary Beer Group Christmas drinks on Wednesday evening, and while it was another occasion to celebrate (again) the 1p cut in beer duty, the MPs that I spoke to were much more keen to talk about the Chancellor’s Autumn Statement and the good news for the sector on business rates and NICs.

This, they rightly argued, was a far bigger boost for pubs – cutting the second biggest overhead, business rates, for thousands of outlets has an immediate effect on the bottom line and removing NICs for under 21s not only reduces the costs to employers but crucially puts more money in the pockets of our staff as customers. It improves the cost of living for all concerned.

But the Chancellor’s Autumn Statement was more significant for three key reasons: first, it made good on his promise in March that the beer duty cut was only the start of what he was prepared to do for pubs; second, it signals a real shift away from saving pubs to celebrating them, from a policy focused on rescuing the last, possibly unviable pub in the village to sustaining a vibrant and dynamic sector; and finally, it was significant in that it celebrated the role not only of traditional pubs but also of modern licensed hospitality on the high street, in the heart of our communities.

Choosing business rates as a vehicle to deliver meaningful support signals a growing understanding amongst politicians of what our sector is, does and contributes. It is a totemic issue which means it is an ideal vehicle for changing the dynamic of the debate around pubs, and it is the reason ALMR chose to focus on this issue as its core campaign for the second half of 2013.

Business rate policy – and levels – always changes in April. In 2014, we knew that the current system of small business and small pub rate relief was due to expire. This is an important lifeline for very small, traditional community pubs. The industry – BBPA, CAMRA, SIBA and ALMR – once again successfully came together to press the Chancellor to extend the relief.

But this relief only benefits a very small number of businesses and only a certain type  of business. The ALMR, representing the broad scope of licensed hospitality, was aware that this initiative alone would not bring meaningful help to the sector. So, in addition to this joint campaign, we also worked separately and with a broad coalition of retail interests to press for wider reform.

We know from our Annual Benchmarking Report, that property costs are the second biggest overhead outlets have to bear, and the single biggest headache. We are the most highly taxed property market in Europe, and for many that is becoming unsustainable.

This is another example of where the tax system creates a disparity between pubs and supermarkets. We pay a whopping 15p a pint in rates, disproportionately more than a supermarket, and this acts as a barrier to further growth. What we need is a fair and flexible market which does not penalise success and which incentivises investment in the high street, local communities and our staff and customers.

What was called for was a root and branch overhaul of the business rates regime to make it fair for everyone, not just offer rate relief to a few. And we are delighted that the Chancellor heeded that call and confirmed that wide-ranging review is ‘on the agenda’ ahead of the next rate revaluation in 20015/17.

Next, we wanted to tackle the fact that the current system of small business rate relief only applies to certain types of pubs in certain locations. And with the Pubs Minister, Brandon Lewis, taking over responsibility for high street policy, we were keen to suggest a high street rate relief, not just for pubs but also casual dining, bars, restaurants and shops.

And finally, we needed a quick intervention to prevent a whopping 3.7% increase in business rates bills in April 2014 – something we estimated would have sucked £58m out of the sector. That is cash that would otherwise have been spent on our offer and our people – a tax on property and business is a tax on jobs and investment. We are delighted that the Chancellor has responded so positively to all our proposals and we look forward to working with him on the root and branch reform of the regime ahead of the next revaluation in 2017.

The Chancellor’s package responded to all of ALMR’s asks – two new rate reliefs for high street businesses, halving business rates for those taking on empty properties and giving a £1,000 rebate to high street retailers, including retail hospitality, recognising the importance of investment by pubs and restaurants in the creation of a sustainable high street. He also capped all business rate increases in 2014 at 2%. Together it cuts rate bills by almost 5% for businesses with a rateable value of less than £50,000.

But it is the sector as a whole that really benefits – from the Chancellor’s recognition of the importance of pubs and casual dining to the health and well-being of our communities and in particular the high street. A vital and vibrant hospitality offer is key to attracting shoppers back to our high streets, encouraging them to stay longer and spend more in local shops, and to creating sustainable town centres. We hope the local planners and licensing officers take note of the Chancellor’s championing of hard-working pub and restaurant operators.
Kate Nicholls is strategic affairs director at the Association of Licensed Multiple Retailers

Mitigating constant margin erosion through food inflation by David Read

This week we presented our annual Food Inflation report to the industry, revealing that in 2013, food inflation hit 4.2% , and increased at a faster rate than last year. In 2014, we expect food inflation to ease slightly to around 3.8%, though this still means that food prices will rise faster than the general rate of inflation. It seems that we must accept that the cost of food will rise faster than other costs and thus take preventative measures in order to ease its effect on our businesses.

The rise of food inflation is down to a number of factors, some of which are out of our control. Unavoidable macro factors include climate change, one of the top risks to food security, with more droughts, floods and hurricanes resulting in volatility in production and prices. In particular, the volatile weather conditions of the past year and the horsemeat scandal has resulted in a “perfect storm” that has pushed food inflation to its current height.

Population growth will continue to increase demand for food. However, increased production costs and commodity trading have led to unpredictable conditions for investment and volatile pricing, which in turn impacts food inflation rates. Water scarcity is also emerging as a critical factor in rising food prices. I cannot see any of these factors materially improving any time soon.

At Prestige Purchasing we advise our clients on the steps to take to mitigate the effects of food inflation, ensuring that customers continue to enjoy a high-quality dining experience. And it’s not all bad news, as there are ways in which operators are already combating the effects of food inflation, with careful menu planning and choice of SKUs. To stay competitive caterers must work “smart” on the whole value chain, and the devil is in the detail. Sweating the details of menu design, product range, make or buy, production methods, sourcing and distribution (of product to outlet) can all help offset the rising costs of food. The supermarkets have been doing this for years.

One such source of efficiency is to take a careful look at the volume of SKUs (products) in use within the kitchen. Lessons can be learnt from major fast-food businesses such as Burger King, McDonald’s and KFC, who spend a lot of time meticulously weighing up the value delivered by each and every SKU to the customer and to profits. A well-developed menu, with fewer items, particularly when this covers more than one site, can maximise sales and greatly reduce wastage. Operators like Pho give their customers huge choice, but still keep their SKUs to manageable levels. Fewer SKUs mean less stock, less wastage, less mise en place, and a tighter supply chain.

Operators might also want to pay greater consideration to the implications of their ingredient mix. Limiting amounts of protein and balancing this with larger portions of vegetables and carbohydrates can create a high-value, nutritious and high-quality meal. Great examples of this include Wagamama’s Bento Box, which offers a modest portion of protein, alongside rice, gyoza dumplings, edamame and salad, creating a value meal for both consumer and operator. Leon is another business that has a high-value ingredient mix, for example within its lunchbox selections.

We have all learned in the past few years that consumers are ruthless in their search for quality and value. You mess with these at your peril. Many operators are now creating different options for different budgets such as sharing platters or tapas-type dishes. This flexibility with portion format is a great way to mitigate food inflation. Many gastropubs offer different sharing platters; the London restaurant Polpo specialises in Italian tapas style dishes, whilst Club Gascon is a Michelin-starred restaurant in Spitalfields with small-plate options, showing that this trend also translates to the fine-dining market. It seems to me that the key to successful portion formats is to maintain the quality of the food, whilst allowing customers different ways to enjoy their meal.

And of course, let’s not forget that great sourcing and distribution (of product to site) can and does deliver real returns. Many of our clients, and others I talk to in the industry are experiencing food deflation currently because of the implementation of best in class sourcing/distribution practices. So, as always, there are big challenges – but everything to play for!
David Read is chief executive of Prestige Purchasing. Copies of Prestige Purchasing’s Food Inflation Report are available by request from micaela.moroney@prestige-purchasing.com

When good news is bad news by Paul Chase

If you’re an anti-alcohol health campaigner you rely on a relentless litany of bad news to keep the moral panic going. So good news is really bad news, because it threatens the efforts of self-righteous moral entrepreneurs to keep the show on the road.

This was highlighted recently by a number of announcements. The first was from Public Health England (PHE) that, in future, the number of alcohol-related hospital admissions would not be an estimate based on ‘alcohol-attributable fractions’ (AAFs) as at present. Regular readers of Propel might remember AAFs – it’s a method used to assemble statistics that attribute an alcohol-related fraction to every hospital admission regardless of whether the primary diagnosis that led to admission was alcohol-related or not. These fractions are then added together and on this basis the figure of 1.2 million alcohol-related hospital admissions a year is arrived at.
 
In future, PHE says, the indicator used to assemble these statistics should be based on counting admissions whereby the primary diagnoses is for an alcohol-related cause, and also to count a supplementary diagnosis that is wholly attributable to alcohol in other cases where the primary diagnosis is not alcohol-related. This new method of calculation will see the number of alcohol-related hospital admissions tumble from 1.2 million a year to around 300,000.
 
Connected to this is a Parliamentary question asked by Andrew Griffiths MP. This discovered that 26% of all alcohol-related hospital admissions are repeat admissions – ‘frequent flyers’ who have been admitted two, three or even four times in a year. In actual fact those 300,000 hospital admissions actually involve around 100,000 people – despite 30 million people drinking alcohol every week – 0.3% of all regular drinkers. So both the number of admissions and the number of people being admitted to hospital for alcohol-related causes is a lot less than we have been led to believe.
 
All this has led Lord Beecham, on behalf of the health lobby, to ask the government a question in the House of Lords as follows: “Whether they intend to continue measuring alcohol stealth admissions to hospitals in the new Public Health Outcomes Framework; and if not, why not?” Did you get that? ‘Stealth admissions’ is the health lobby’s new name for what the rest of us might call problem inflation. They don’t like the new counting methodology because their not-so-little wheeze has been rumbled!
 
But the water drinkers are fighting back! Health campaigners are ‘going local’. The Sheffield Alcohol Pricing Model – the ‘Sheffield Report’ as it is more popularly known – is one of the most notorious pieces of cod-statistics ever produced by Medical Temperance. It relies upon a mathematical model that attempts to demonstrate how alcohol-related harms would all tumble if we could reduce alcohol consumption across the whole population – by such measures as minimum pricing. It has been systematically exposed as a classic example of policy-based evidence where the scientists start with a conclusion and then work backwards. Well, now it is going local. Health campaigners intend to run dozens of mini Sheffield Reports to persuade local authorities that they should take action on minimum pricing now that Westminster has rejected it. Worse still they’re going to have to estimate local alcohol consumption figures because none actually exist. So not only will the harms be modelled, but alcohol consumption will be, too. In other words, if the facts don’t suit your argument invent a complete fiction that does. It’s sad really.
 
And then there is Scotland – in respect of which I have some news. Currently the legality of minimum pricing is being challenged in the Courts by the Scotch Whisky Association. I understand that once the Inner Court of Sessions in Scotland has pronounced, the matter will be fast-tracked to the European Court of Justice (ECJ) without going before the Supreme Court in London. The Scottish Government has to convince the ECJ that minimum pricing is a necessary and proportionate measure to protect public health if they are to overcome unfair competition objections. Well, alcohol sales in Scotland have fallen by 8% over the past three years and alcohol-related deaths and other health harms are also falling. In fact, the numbers dying from alcohol-related causes, estimated now to be around 1,000 a year, represents a fall of 13% and is at its lowest level since the 1990s. But the Scottish Government fears that this is down to the recession and it will all get worse again once the economy picks up. They really are experts at turning a good news story into a bad news one.
 
I’ll finish with another piece of good news that Medical Temperance hasn’t got around to rubbishing yet: in England and Wales the number of children and young people aged 0-17 years old who have been admitted to hospital for an alcohol-related cause has fallen by 22% over the past five years. Raise a glass to that over Christmas!
Paul Chase is a director of CPL Training and a leading commentator on alcohol and heath policy

Concepts worth visiting by Ann Elliott

I know I sometimes cover the venues that have truly impressed me when I write blogs for Propel’s Friday Opinion but in the past couple of months I’ve been to some great places to eat and drink and I wanted to share them with you.

Bill’s: OK, so no one individual restaurant quite matches up to the original in Lewes but Bill’s has got it just right across every daypart occasion. It has a fantastic balance of professionalism and informality, the team are incredibly friendly and Andy Bassadone seems to have instilled a sense of ‘owning a table’ in his team there.

Social Eating House: Quite simply, the Social Eating House in Soho offers fabulous food which is nothing short of stunning. What sets its food apart is an amazing balance of tastes combined with outstanding plate presentation. The atmosphere is relaxed and informal, the front-of-house team know their stuff and it’s a joy to be there. Strongly recommended.

Premium Country Dining Group: This chain has had its ups and downs but based on recent experiences it’s back on great form. In a visit to one of their sites in Yorkshire, the Sunday roast was to-die-for whilst the waiter was friendly and professional (not a combination every waiter can carry off). They over-delivered against all our expectations and have done so again on subsequent visits. Chains have to be consistent and PCDG is just that. 

LEIF Tearooms and Piano Bar (Leamington Spa): Quite possibly, the weirdest offer mix ever. It’s a unique combination of plant shop, flower stall, coffee shop, restaurant and piano bar which, when I went, had a mass of Halloween point-of-sale material around the place. So expectations of great food were at rock bottom but the service was really attentive and the food was fresh, tasty, plentiful and great value. Worth a visit.

Parcel Yard: Elliotts held its 12th Birthday Party at the Fuller’s venue in King’s Cross, in early October and the team there did a great job, helping to make the night a stupendously memorable occasion.

Grain Store: I do love this place, though I know not everyone does. The design is fabulous, the tables are generously sized and the open kitchen is one of the best in London. The food is adventurous and beautifully presented. All of this in front of a glittering outside fountain area. 

PizzaExpress: PizzaExpress is often the restaurant of least resistance among my groups of friends so I am never over-excited at the thought of eating there. On this visit though, I had the Leggera Superfood Salad, which was truly delightful. We asked to be speeded through and the team were fantastic at making sure we were out in time and didn’t miss our film.

Betty’s: Oh I do love Bettys! In the past I have queued for over an hour in Ilkley just for a coffee and a fat rascal. This brand has never ever let me down. Betty’s in Harlow Carr Gardens, though, was a real disappointment a few weekends ago. The sandwich kiosk ran out of sandwiches at 2pm. The operational system in the café was totally chaotic and customers had no idea where to queue or where to go. There were more covers free than there were people queuing at the door – extremely irritating. Betty’s is fabulous but just not here.

The Muddy Duck: This is local to me and I believe it’s owned by the MD of Fresh Direct. Myth has it that he has spent £2m on converting a dull village pub into a centre of gastronomic excellence in North Bucks. It’s a fantastic local pub and a tremendous gastro eating experience. They may have thrown money at the development but they have also thrown it at labour and training so the whole experience comes together. Super times.

Whyte & Brown: The menu might be all about chicken and eggs but if you are in the mood for either of those two, then this is great. It’s a bit of a hidden gem, off Regent Street in Central London. 

Grillshack: At the moment the first five customers having breakfast there eat for free – so get there early. Freshly cooked scrambled eggs and bacon first thing in the morning over a breakfast meeting – best start to the day. The brand has introduced a new way of ordering food, which is pushing the boundaries, so it will be interesting to see how that works.

Foxcroft & Ginger: This is a lovely little coffee shop in Soho serving fabulous fresh-cooked food. Their lemon, honey and fresh ginger infusion is sublime. Friendly staff and a great place to escape, sit and work.

New Beefeater: The new Beefeater in Burton is brilliant in terms of design, feel, ambiance and service. I asked for poached eggs and bacon half expecting them to say they couldn’t do them but they did. Beautifully presented too. Another great breakfast discovery.

Le Bistrot Pierre: Cote is a real favourite but Le Bistrot Pierre is a very close second. Fresh food, well-presented, a nice atmosphere and friendly service. And if you make a comment to the chief executive he personally answers your email. That passion for a brand is invaluable and shows in every piece of brand delivery.

A good three months of visiting fabulous places. Even on holiday in Vietnam recently I longed for British food done brilliantly: there is nothing better.
Ann Elliott is chief executive of Elliotts – www.elliottsagency.com

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