Mon 15th May 2017 - Steve Richards – sector faces ‘unprecedented’ increase in costs that will affect margins 25% by 2020 Steve Richards – sector faces ‘unprecedented’ increase in costs that will affect margins 25% by 2020: Casual Dining Group (CDG) chief executive Steve Richards has said the sector faces “unprecedented” increases in costs that will affect margins by 25% by 2020. Richards told the Propel Finance and Investment Conference the rises would lead to a change in the business model of foodservice companies in the UK, with a focus on automation and technology to reduce labour costs. He said: “With business rates, National Living Wage, apprentice tax – all of those things are estimated to affect margins by 25% by 2020. It’s such a huge structural thing we think it will change the model here. We think the big change to come in the UK will be following the hotel model where you have operators who own the brand and the intellectual property, like ISG does, might be controlled through a digital platform and the freehold is owned by somebody else and the operations company by somebody else. That sort of structural change is something that will certainly happen in the UK and it’s a new phenomena so the days of big companies owning thousands of equity sites will change because the costs are so different. It’s a well-trodden path with hotels – it’s not a new model – so I don’t see why it would not work.” Richards said CDG was already working to mitigate cost pressures, including a trial in about eight sites where diners ordered their food via an iPad. He added: “The customers quite like them because they are used to the automated away of doing things. We have seen the spend per head has gone up about 10% with them. If you’re running a full-service restaurant you usually have one waiter to 18 tables, this allows you to stretch that to one for 25. In our business that’s worth millions of pounds. I employ an average of seven people in a kitchen so we are trialling lots of different equipment to see if we can automate more but of course we are terrified about losing quality, particularly on freshness. But there are some very smart bits of kit coming in from Asia and the States that give you fantastic product that mean you don’t have to have a grill and a cook line with a £40,000 chef. We’ve got to make those sorts of calls. So there’s automation in the kitchen, there’s smarter technology to do with kitchen management systems where you can eek out a bit more efficiency and then there’s labour rotas. Then there’s pricing – there’s got to be a whole new way of thinking.” Richards also said he was not “that excited’ about delivery companies, even though CDG uses Deliveroo at about 200 of its sites. He said: “It’s a service for our customers and it’s expected. We’ve invested heavily in our digital so we currently take about £45m through the digital channel we own, which is via bookings we generate through our own website. That’s much more interesting to me – it’s high margin, it’s something we control, it’s CRM databases we can use to talk to our customers – it’s not just a discount line, it’s something we own. When we give it to Deliveroo, Uber or whoever, it’s low margin and I don’t get good information about my customers.”