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Morning Briefing for pub, restaurant and food wervice operators

Thu 23rd Feb 2017 - CGA Peach 2017 Business Leaders’ Survey – confidence returning to sector despite mounting costs concerns
CGA Peach 2017 Business Leaders’ Survey – confidence returning to sector despite mounting costs concerns: Confidence in the out-of-home eating and drinking sector is returning despite mounting concerns about rates, other input costs and Brexit, the CGA Peach 2017 Business Leaders’ Survey has revealed. The poll of 250 senior executives found two-thirds are either very optimistic (10%) or fairly optimistic (57%) about their business’ prospects in the next 12 months. That is well down on levels at the start of 2016 (83%) but up on November 2016 (61%), when uncertainty reigned over the impact of Brexit on staffing and the economy. The confidence of leaders about their own company’s prospects is higher than it is for the market in general, about which less than half (48%) are optimistic for 2017. While Brexit fears have eased a little, alarm over mounting costs is clear – most evident in business rates. This topped the survey’s list of the most significant financial challenges operators face in 2017, with more than half (55%) of leaders very concerned by the issue and another quarter (24%) concerned. It follows a surge in rates valuations in many areas of the country, prompting urgent calls on the government to ease the burden on operators. Meanwhile, four in five leaders are either very concerned (41%) or concerned (39%) by rising food costs, led by lower availability and rises in the cost of items, including vegetables. Besides rates, operators have been stung by soaring rental prices in many of the country’s hot spots, especially in London. More than half of leaders are now either very concerned (31%) or concerned (23%) by property costs. The introduction of the National Living Wage has raised many operators’ wage bills and three in five are very concerned (24%) or concerned (35%) about it at the start of 2017. Other challenges identified by leaders include drinks supplier prices and the threat of saturation triggered by the over-supply of sites. On the operational side, the biggest challenges are around engaging and motivating staff, providing a high-quality customer experience and building loyalty. Some segments of the market are more confident about 2017 than others, the survey showed. For instance, well over half (57%) of businesses that are predominantly based within the M25 are optimistic about the market, much higher than the figure among businesses with a national spread (42%). It indicates the continued buoyancy of the London economy and the positive impact of tourism in the capital. Smaller and more nimble businesses in eating and drinking out, meanwhile, tend to be more confident than their larger counterparts. A quarter (25%) of businesses established for fewer than five years are very optimistic about their prospects for 2017 – way more than mature businesses that have been running for more than ten years (7%). As the Market Growth Monitor from CGA Peach and AlixPartners has made clear, these smaller businesses are behind many of the country’s new openings lately, and are less likely to feel threatened by rising property, food and people costs. Despite the crop of challenges operators face, leaders’ forecasts for 2017 are ambitious, with optimism on issues including openings, acquisitions and international expansion. A fifth (21%) of leaders plan to open at least ten sites in 2017, rising to three in five (60%) of those with more than 200 sites. Almost a third (29%) of operators are looking into the option of a business acquisition in the next 12 months, with a similar number (27%) possibly interested if an opportunity becomes available. More than a quarter (29%) of respondents said their business had grown internationally in the last year, with three-quarters of those forecasting more global expansion this year. There is also hope consumers might spend a little more when eating and drinking out in 2017. Two in five (40%) leaders think customer spend per visit will increase slightly in 2017, with another third (33%) predicting no change. However, access to funding remains challenging for some and could put the brakes on expansion, with perhaps the greatest cause for concern being that four in five (79%) leaders expect more business failures in 2017 than in 2016. CGA Peach vice-president Peter Martin said: “Our Business Leaders’ Survey reveals a sector facing a barrage of input costs in property, food and people, with rates the issue at the top of execs’ in-trays. But this is a positive industry that is very much on the front foot rather than in retreat, and that deserves government support to ease its burden of expenses. Operators will have to ride out some big challenges in 2017 but strong, differentiated operators that can deliver a compelling offer while keeping a tight rein on their costs are well placed to thrive – this year and well beyond.”

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