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Morning Briefing for pub, restaurant and food wervice operators

Fri 20th Nov 2015 - Friday Opinion
Subjects: The London restaurant scene, the key to reviving a brand, and tax tips
Authors: Glynn Davis, Chris Edger and Tony Hughes, and Andrew Ball

The London restaurant scene by Glynn Davis

It is 15 years since I took my (now) wife to Oxo Tower restaurant for dinner on what could be described as our first date. This was the venue she wanted to visit above anywhere else in London and I was prepared to deliver whatever it took. The fact we can both still recall my wife’s main course of pigeon with lentils suggests that either we’re big-time food bores or we enjoyed a sufficiently memorable meal for the food not to be totally lost in our memories of what was (with the benefit of hindsight) a very big occasion.

I like to think we enjoyed the place while at its peak because for the past decade-and-a-half Oxo Tower has held – unchallenged – the rather poor title of the restaurant in the capital that has delivered the “Most Disappointing Cooking” according to the venerable Harden’s London Restaurant Guide that this month celebrates the launch of its 25th edition. It has finally been dislodged from its unwanted perch by the Chiltern Firehouse that has rode a wave of incredibly over-hyped publicity as it initially attracted a wave of A-list celebrities. In their wake came the inevitable Z-listers, hangers-on, increasingly erratic service, food that can never live up to the hype and fuss, and unjustifiably inflated prices.

It seems Londoners have wised up to over-paying for food that does not warrant the price tag. But they are fine with coughing up the big cash for food that justifies the high price-point. It’s definitely all about the quality of what is on the plate. As Harden’s notches up its 25th year it is interesting to use the guide as a lens through which to peer at how the capital’s food scene has quite rapidly evolved from being a joke around the world to a city that is now respected for the diversity and quality of its cuisine.

Failing to deliver on the now much higher expectations of customers in 2015 are Heston Blumenthal’s Dinner, Bruno Loubet’s Grain Store, Marcus Wareing at the Berkeley, and Jason Atherton’s Pollen Street Social that all charge a hefty wedge but have universally failed to push things on in the eyes of the 6,500 contributors to Harden’s guide book. In contrast, the very pricey Le Gavroche, The Araki, The Ledbury, Restaurant Story, Chez Bruce, and Fera at Claridge’s all feature highly in the report. They all are deemed to more than justify charging an arm and a leg for delivering exemplary cooking that continues to evolve and excite diners in the capital.

One eating out trend that has gained prominence in the guide over the years is the “local restaurant” – rather than being located in the West End. Chez Bruce, in London’s Wandsworth, blazed the trail and has just been voted the city’s favourite restaurant for the 11th year running. It has brought with it La Trompette and Hedone (both in Chiswick), Trinity (Clapham), and the Bull & Last (Gospel Oak) among others. The latter is an example of how the gastro-pub has become a mainstream part of the eating out scene and now features prominently in the guide. This has not been driven by a desire of chefs to cook food in a pub rather than a restaurant but is more based on the easier economics of financing a pub-based operation as opposed to a traditional restaurant as a result of the high number of pubs that constantly come on to the market.

With these more local venues (and more economically viable propositions) has undoubtedly come a more compact dining experience that has arguably replaced the gastro-domes that bestrode the late 1980s and early 1990s. Quaglino’s, Mezzo and the Atlantic Bar & Grill spring to mind from a previous era. But these cathedrals of food are clearly making a return in the form of Novikov and the newly opened German Gymnasium that packs in a monumental 447 covers.

What we haven’t seen before and what we are starting to see in London are the street food vendors that are turning their pop-up operations into permanent restaurants. The most prominent example to appear in the current Harden’s guide is Taiwanese restaurant Bao that has moved from a Hackney market stall to a Soho unit. It follows in the wake of pioneer Bone Daddies that went permanent and has gained respect in the guide.

This influx of newcomers has helped the 2015 guide record net new openings of 123 that easily beats the 101 of last year and suggests we are in one of the most buoyant periods of dining out since Harden’s started out in 1991. Today my wife would certainly have a lot more quality places from which to pick a dinner out than she had 15 years ago. I can’t wait for our next anniversary.
Glynn Davis is a leading commentator on retail trends

The key to reviving a brand by Chris Edger and Tony Hughes

The brand reviver must refresh a brand proposition that has a diminishing customer base. Remaining customers will be delighted the brand has tightened up its operational execution but do they truly need or love this brand? How does it benefit them in comparison to other foodservice options? In truth, the brand reviver can reinstil a sense of operational dynamism and optimistic momentum in the enterprise through his/her energy and passion but their efforts will founder unless they restore the brand’s distinctiveness. They must turn their attention to ensuring that their brand has a compelling culinary proposition with distinctive functional and emotional benefits that satisfy employee and customer needs, feelings and aspirations (resulting in attraction, loyalty and advocacy).

Of course – unlike the brand originator – they are not starting from scratch. They have inherited a brand that had a differentiated position in the market place with a vibrant personality and strong reputation. This has waned in the face of a fierce competitive onslaught and/or changing consumer behaviours. So what do they do now? The brand reviver needs to go back to first principles with the brand, testing its salience and relevance, before instituting changes that – without compromising the brand’s central essence – propels back into category leading status. But what actions must the brand reviver take to achieve this objective?

Commentators who study, observe and write about company turnarounds are usually pretty prescriptive about what “turnaround” leaders should do when reviving a moribund organisation. They generally advocate a sequential process of transformation involving; analyse (conduct a management review using activity based costing, SWOT analysis and root failure causes analysis), plan (create a restructure and long-term strategic plan), do (seamlessly implement) and review (make incremental changes as necessary). They also point to the fact there are various stages in turnarounds (acute needs, evaluation/assessment, restructuring, stabilisation, revitalisation and retrenchment) during which turnaround managers can deploy various strategies (selective shrinking, repositioning, replacement and/or renewal). Our view is that – whilst these perspectives are extremely instructive and useful – there are four things that revivers must do in order to refresh a brand’s proposition:

Research trends and relevance: The first thing that brand revivers should do is conduct exhaustive quantitative and qualitative analysis into macro and micro culinary trends. Whilst doing so they should ask the following questions with regards to both “imitating” and “shaping”; what are the “happening” brands in our segment doing that we’re not? What can we imitate or “bastardise” immediately without compromising the integrity of our positioning? How can we shape the segment going forwards? How do we leverage developing consumer preferences and tastes to our own advantage? How can we restore our reputation for category leadership and innovation?

Recapture ‘true north’: Successful foodservice brands start their lives with a focused position that either exploits or shapes consumer demand. Often it is the case that – far from needing dramatic repositioning – brands that have drifted off course from their original “heroic mission” need to be put “back on point”. It is not the original purpose of the brand has ceased to have any consumer franchise – the brand has, for a number of reasons, mislaid or forgotten what its “true north” was! Ad hoc, opportunistic behaviour has diluted the brand proposition, confusing both brand members and customers. What the brand reviver must do is return the brand back to its “founding vision” of what it stood for and sought to achieve. This is not to say that the brand reviver takes the brand “back in time”, remodelling the brand in the image of its original stores. No, what the brand reviver must do is take the brand back to first principles; getting everyone in the organisation to understand its founding vision and spirit. From this vantage point the organisation can successfully start to address how it improves both its marketing mix and distinctive employee/customer benefits.

Reinvigorate ‘benefits’: Having looked at nascent trends and re-established what the enterprise stands for the brand reviver now “cheerleads” functional and emotional enhancements to the brand. Suffice to say, certain employee and customer needs, feelings and aspirations have changed since the brand was founded. Bearing in mind the extant market insight, the brand reviver must address the following questions; what enhancements to the brand can we (quickly) make now that will be of high perceived value to employees and customers (but low cost to us!)? Is the brand’s value proposition (ie price, product quality, service and environment) imbalanced, if so what elements need fixing now? What changes can we make that – in accordance with the core purpose of this brand – will make our employees and customers love us again? What changes can we make to the marketing mix that will make us stand out from the crowd once again?

Review and roll-out: Inevitably, brand revivers cannot take a scattergun approach to changing consumer facing elements of the brand. Changes need to be rigorously piloted, trialled and measured in “control” environments prior to roll-out. That is not to say that this process should be conducted in a slow, formulaic manner. We strongly urge brand revivers to throw caution to the wind and “go big” remodelling the marketing mix of a few key sites, albeit with slight iterations in each location. This will enable them to clarify what works – checking validity and replicability with employees and customers through the open-ended “start, stop, continue” question.
Professor Chris Edger teaches multi-site management at Birmingham City University. This article is extracted from a forthcoming book on brands’ life cycles he is co-authoring with Tony Hughes, the former managing director of restaurants at Mitchells & Butlers and currently a non-executive director at The Restaurant Group

Tax tips by Andrew Ball

With the Chancellor set to give his Autumn Statement on Wednesday, Andrew Ball, from accountancy firm haysmacintyre, gives his current thinking on the top tax tips for companies, groups and owners in the hospitality industry.

Capital allowances: It is well known companies receive corporation tax relief for capital projects by way of capital allowances, rather than the accountancy equivalent, depreciation. The rules governing capital allowances are becoming increasingly complex and the definition of spend that qualifies can be even more difficult to follow. For example a door may not qualify for capital allowance but a door handle may do so.
Tip 1: Get the professionals in at the start of capital projects. For minor projects/refurbishments your tax advisors will be able to assist you. However for major projects (and I say this as a partner is a medium-sized firm of accountants) it is unlikely that your tax advisors have the appropriate skills to maximise your capital allowance claim. As such I suggest that you consider the use of capital allowances experts to ensure that you are getting the full deduction

Annual investment allowances: In the 2015 Summer Budget, the Chancellor announced the Annual Investment Allowance (AIA) is being cut from £500,000 to £200,000 from 1 January 2016. This is the amount of qualifying spend, spread across all sites, that receives 100% relief in the year of spend. Without the use of AIA this relief will be spread across the next eight to 15 years.
Tip 2: Companies should consider bringing capital spend forward to maximise the use of the higher level of AIA

Staff incentives: Staff incentives, particularly troncs, are hot topics. Troncs have been done to death a little in the press at the moment, so I am not looking to spend a lot of news on them, but I do have two quick tips.
Tip 3: Troncs, strictly from a tax point of view, are still a no brainer
Tip 4: Troncs will come under increasing pressure in the coming months. Ensure that you are fully compliant, particularly that you have the Troncmaster registered with HMRC

EMI scheme:
Moving onto incentivising higher end employees, Enterprise Management Incentive (EMI) option schemes are still generally the most tax efficient option scheme available. The conditions regarding qualification for EMI are complex but the most basic conditions are the scheme is available for companies with less than 250 employees and £30m of gross assets. The company must also have a qualifying trade; restaurants, bars and pubs should be fine but beware that accommodation must make up no more than 20% of the trade. Further the employees must spend at least 75% of the working time employed by the company.

As long as the option is issued with an exercise price equivalent to market value, which can be agreed by HMRC in advance, there is no tax on grant, vesting or exercise. When sold the employee will pay capital gains tax and for options issued after 6 April 2012, they should qualify for the Entrepreneurs’ Relief rate of 10%.
Tip 5: Strongly consider advance clearance for the EMI share valuation
Employee shareholder status: Where EMI is not available there are a number of new ways to incentivise your employee, one of which is employee shareholder status. In principle, the employees are given shares worth between £2,000 and £50,000 on which they will get assessed for income tax with the first £2,000 being tax-free. However, when they come to sell the shares there is no Capital Gains Tax. Through the use of alphabet shares with different classes and rights, it is possible for some larger companies to meet the £50,000 limit.

There are disadvantages for both the employees, who have to sacrifice several of their employment rights, not least the right to claim unfair dismissal, and the employers, who now have a minority shareholder. However, shareholders agreements can be written to ensure that the employee has to sell the shares back to the company if they leave employment.

Growth shares: Growth shares are another relatively new concept and work well for larger companies/groups where it would be tax inefficient to give employees full shares in the business. Instead these shares give value for growth from today’s date; as such they are valueless when given and hence tax-free.
Tip 6: Consider different incentive methods if EMI is appropriate

It will be interesting to see what the Chancellor has to say on Wednesday and how that affects the hospitality industry, particularly to see if he makes any comments regarding the current furore over troncs.
haysmacintyre is a 30-partner firm of chartered accountants and tax advisors. Its specialist hospitality sector, led by Andrew Ball, provides compliance, advisory and transactional support services to over 100 companies and groups in the sector
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