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Morning Briefing Strap Line
Fri 7th Jul 2017 - Friday Opinion
Subjects: The impact of supermarkets on the craft beer scene, why the 'gig economy' is bad for hospitality and how marketing is evolving 
Authors: Glynn Davis, Mikhil Raja and Ann Elliott

The impact of supermarkets on the craft beer scene by Glynn Davis

“Asda set to become UK’s biggest craft beer retailer”, “Sainsbury’s adds 70 craft beer & ciders”, “Morrison’s trades in mainstream brands for more craft booze”, “Iceland goes premium with alcohol overhaul”, and “Lidl revamps its BWS with major focus on wine and craft beers” are just some of the media headlines I’ve come across recently.
There is no doubt about it the big retailers of alcohol are going crazy for craft beer. But before the country’s brewers get too excited about this I’d like to point out we’ve been here before. Some years back I was a judge in various bottled beer competitions for Tesco, Sainsbury’s and Asda that awarded small brewers the prize of being listed in their stores.
Back then their love affair with craft beer was chiefly to gain a point of differentiation with their ranges as they each battled to encourage consumers to drink at home rather than go down the pub. Their mission has largely been accomplished because only last year sales of booze in the off-trade took a greater share of total alcohol sales than the on-trade for the first time in history.
Today the rationale for this return to a craft love-in is still down to differentiation but there are some other vital factors also at play this time around. The fact is the big beer brands are losing ground and showing zero or negative growth as customers lose interest. Sales of brands such as Heineken, Carlsberg, and Foster’s have not exactly been helped by being delisted by the major grocers, which has in some cases decimated their turnovers.
Carlsberg has lost almost 25% of its value since it was delisted by Tesco in 2015, according to IRI for the year to 25 March. Others such as Foster’s have lost 5.9% and other Heineken-owned brands are set to be hit as Tesco further rationalises its ranges in a move that is being replicated by the other grocers including Asda, Sainsbury’s and Morrison’s.
Part of the rationale for the removal of the big brands is they’ve been fighting a battle around price, which ultimately delivers little margin to the major supermarkets. In contrast, craft beer has fired the public’s imagination and is delivering growth as well as higher average price points.
The shift to premium craft products has helped push up the average price of lager by 2.5%, ale and stout up by 2.9% and cider up by 1.9% over the past year, based on IRI figures. Clearly the supermarkets hope these higher prices deliver them a healthier margin.
Beers such as Flying Dog, Oskar Blues, Lagunitas, Sierra Nevada, Vocation, Wild Beer, Erdinger, and Brooklyn Lager are now finding their way on to the shelves of the supermarkets, including even the discounters and lower priced end, including Aldi, Iceland and Lidl. This does pose an interesting question of how much of these brands’ premium craft positioning is being damaged by their placement in supermarkets at prices significantly less than they can be even bought by the specialist craft beer shops and beer-focused pubs.
Certain specialist beer shops such as The Bottle Shop and Hop Burns & Black make the point of dropping these beers when they become ubiquitous by their appearance in the supermarkets and therefore no longer have the kudos and exclusivity they once held. And they are also sold uncompetitively cheaply of course. These brewers are all clearly in the market to sell more booze but being listed in any old supermarket can be ultimately problematic.
I’m sure we can all remember the Stella Artois “Reassuringly Expensive” campaign, which worked for a period of time as drinkers paid top dollar for it in pubs, but as the product became reassuringly cheap in the supermarkets the game was up in the UK and its sales have been in decline for some years. It has subsequently flown to other shores to play the same premium game.
The craft brewers have to work out where exactly they want to sit in the market place because the shuffling of the craft beer listings pack by the major supermarkets will have far reaching consequences on their futures. While the opportunity for shelf space in the national chains might mean plenty of jam today, it could prove dangerous in the long term if brand value and credibility are irreparably damaged. Once the low-priced ubiquity route is taken there might well be no way back. The craft beer bars and specialist retailers that once took your products will no longer be your friends should the supermarkets again lose interest in craft beer.
Glynn Davis is a leading commentator on retail trends 

Why the 'gig economy' is bad for hospitality by Mikhil Raja

Hospitality in the UK is changing fast – Michelin-starred restaurants, bars with live entertainment, shops with hand-made items from around the world, pop-up stalls, farm-to-fork initiatives, and the dramatic rise in takeaways with companies such as Just Eat, Deliveroo and, most recently, UberEats.
It’s not just what we are choosing to eat, drink and buy that is changing. It’s the way we are consuming, the choice we have, and the value we are demanding from each purchase. That means individual businesses need to be at the top of their game to stay relevant in this hyper-aggressive market. Meanwhile, costs continue to rise. The minimum wage is now £7.50 and is set to reach £8.80 by 2020. In addition, pension costs are going up, ingredient prices are rising, and business rates remain high. The possible impact of Brexit on customer demand remains unclear.
The key to succeeding in this challenging landscape is people. Good people will serve more customers with better service, and thus bring in more revenue. Moreover, as people build their careers with businesses, they will in turn be the leaders of the future hospitality and retail sectors. However, while businesses understand this in concept, poor hiring decisions and staff turnover as high as 100% annually, undermine the time, effort and focus needed to hire – and retain – the best people. Thus for many the apparent default option is the drive towards recruitment agencies and the American-style “gig economy”. 
For me (and I know that fortunately I’m not alone in this view) while employees get increased flexibility, the move towards poorer job security and career progression, and the erosion of the bond between employee and employer, especially when faced with the increased pressures on the sectors, can only have a negative impact on recruitment and retention, and thus on longer term profitability. It will erode the quality of service customers receive and further reduce profit margins because employers are constantly spending money and time on recruiting staff to fill the inevitable job vacancies. 

Our own research suggests in a typical London restaurant with 30 staff, which has an average staff turnover of 80%, that means a spend on recruitment of £14,400 a year. That’s before you add in costs such as losses due to poor service, losses due to understaffing, and the additional costs of training each new staff member. All of this will ultimately take hospitality and retail backwards, and continue their reputation as sectors that offer poor long-term job prospects and therefore fail to attract the best people. This spiral has to be broken.
One of the best places to start is right at the beginning with recruitment itself. Instead of merely getting in CVs from agencies, employers need to be able to get a better idea of which candidates are best suited to the vacancies available. Many forward-thinking employers are not looking at CVs at all, but finding ways to judge the personalities of their potential employees. This is crucial, as all our data and research points to the fact that personality is more important than experience or education in determining the “best fit”.
Technology now allows employers to replace gut-feel with models, which score would-be employees across a range of relevant human characteristics such as customer care, teamwork, reliability, and performance under pressure. The process is thus simplified for both employer and employee. There is more chance the best candidate will be matched to the best role for them, which in turn will increase the chances of them being retained longer term and therefore drive down both the initial recruitment cost and the longer term cost to the employer.
Those in the hospitality and retail sectors who are looking ahead already recognise this model offers a new and better way to build both their businesses and successful careers for their brightest employees. This in turn attracts better people to the sector. Equally, technology also enables employees to give feedback on employers. This already happens informally through social media, but most recruiters are yet to embrace it formally.
The pressures for change are real, but the “low-cost” option of the gig economy is never going to offer a long-term solution for the hospitality and retail sectors. Its apparent “flexibility” is an illusion and the potent mix of rising costs and poorer service will expose this – even more so should some of the predictions around the impact of Brexit on the freedom of movement turn out to be true.
The plain fact is employers need to pay well, give staff regular hours and provide training and viable long-term career progression. Get these right and better-motivated employees will lead directly to higher customer satisfaction levels, which in turn will see a rise in profitability. The good news is the technology to start this revolution is here right now. The time is also right for the sector to embrace it. The alternative, given the new pressures hospitality and retail face, is really not a viable option. The gig economy may appear to be here to stay, but for hospitality and retail it’s a false dawn, and one that in the long run could cost the industry far more in terms of finance and reputation. 
Mikhil Raja is chief executive and co-founder of Sonicjobs

How marketing is evolving by Ann Elliott

This email, sent out by JD Wetherspoon in June, has been highly debated among the marketing community in the sector: “Dear customer. I’m writing to inform you that we will no longer be sending our monthly customer newsletters by email. Many companies use email to promote themselves, but we don’t want to take this approach, which many consider intrusive. Our database of customers’ email addresses, including yours, will be securely deleted. In future, rather than emailing our newsletters, we will continue to release news stories on our website You can also keep up to date by following our Facebook and Twitter pages, using the links below. Thank you for your custom – and we hope to see you soon in a Wetherspoon pub.”
Of course, everyone has been asking why Wetherspoon has decided to go down this route at all – and why now? Reasons mooted have included the increasing cost and resource of building and managing a large database, the need to increasingly bespoke and personalise communication, perhaps (potentially) the decline in customer engagement in their email campaigns and the need to move marketing effort (and funds) into social. Their rationale might become clearer in months to come.
It’s a really interesting decision that has caused some thinking and debate on the progress our clients are taking on their digital and social journey. At one end, some clients have only just begun to think seriously about collecting customer email addresses whether via their websites, app (not for many) and/or comment cards etc. They are not segmenting these databases nor therefore sending out anything but generic messages. They haven’t started A/B testing. They aren’t trialling different offers, varying call to actions or promoting dayparts. They know they don’t understand their own customers as well as they should and they have a very limited understanding of their lapsed or potential customers but they want to get there. On the whole, we find these clients are very enthusiastic, keen to learn and want to try things.
In the middle of this continuum are clients that have reasonably large databases (more than 10,000 email addresses per site are not unusual), who are using single customer view databases, are segmenting these databases and then sending out very sophisticated messages to these customers. They have their content plan and routes to market well sorted. They understand their customers (and know who they need to attract) and are using that knowledge to influence their social media strategy. They combine digital, PR and social in a comprehensive plan to drive covers and they almost always have developed an app and some form of loyalty scheme.
At the other end are clients, such as Wetherspoon, who have moved beyond email. This is rarely down to cost or resource constraints it seems. More often these clients feel or know their (certainly) younger customers are not responding as well to email campaigns as they need them to. Social activity on the other hand, particularly Facebook, allows them to bespoke messages almost on a one-to-one basis. Plus, that specific route to market allows more use of video, which is a critically important marketing tool. They use experiential marketing more readily and they target their PR to the nth degree. 
These clients tend to use inbound (pull) versus outbound (push) marketing. They ensure their content and stories are relevant and engaging and then they think about routes to market – they don’t do it the other way around. It is fascinating to see marketing evolving and doing so very quickly. Wetherspoon is not the first company to eschew email marketing and it certainly will not be the last.
Ann Elliott is chief executive of Elliotts, the leading integrated marketing agency in the hospitality and leisure sector – 

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