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Morning Briefing for pub, restaurant and food wervice operators

Fri 24th Aug 2018 - Friday Opinion
Subjects: Eight key operational challenges, plastic straws, the role of marketers and thoughts on Tim Martin’s Brexit views
Authors: Martin Wolstencroft, Greg Sage, James Hacon and David Read

The 'eight Cs' challenge by Martin Wolstencroft

When I co-founded Arc Inspirations the best part of 20 years ago, pub retailing (and the wider world) was a lot less complex than it is today. While the fundamentals of a good food and drink offer, along with warm, welcoming service remain the same some two decades on, many of the challenges of running a successful bar business have evolved.

I’ve termed these our “eight Cs”. Essentially, these are the things that focus my mind and those of my senior team. Our business has just enjoyed a record year and has exciting growth plans – we’ve got four openings in the next two months with many more in the pipeline but we’re acutely aware that for us to execute our strategy, we must keep our eye on the ball when it comes to meeting these challenges. The eight are, in no particular order of importance (they are all vital):

Customers: Expectations are increasing with our customers becoming exceptionally demanding. I don’t necessarily mind that; if people choose to visit our bars and spend money with us then they should be demanding. It keeps us focused and if we don’t meet their expectations then they have every right to walk out the door and go elsewhere. The real challenge is keeping one step ahead, making sure we surprise and delight them. Our new Box bar in Leeds city centre majors on creating memorable experiences with a range of experiential activities, live music, tank beer, draught cocktails – those things that will drive loyalty.

Costs: The lack of government support for our sector is quite staggering. Escalating business costs have a very real impact on our profitability and the continued ability for us to invest. As a business, last year’s increases to the National Minimum and Living Wages took around £700,000 off our bottom line. Of course, we want to pay our team members a fair wage and are committed to developing them as individuals during their time with us, but these recurrent increases – along with hikes to business rates and other input costs – hamper growth and investment. The government must listen more closely to business.
Crew: For us this is incredibly important and something which underpins why we continue to perform so strongly as a business. We place a huge emphasis on the types of individuals we recruit to work for Arc, and on their ongoing training and development along with providing a great working environment. The majority of our GMs started as front-of-house-staff, as did our area managers and marketing manager. Ultimately, it’s all about giving customers the best service and ensuring everyone has the tools they need to progress in their job.

Consistency: This is the Holy Grail we all strive for as licensed retailers, ensuring we create a consistent brand experience for our guests. We take a zero-tolerance approach to poor customer service and product quality – it is a huge bugbear of mine. Like other operators, we conduct a rigorous programme of mystery visits, some of which are secretly filmed, along with regular inspections by the exec team. I want every interaction a customer has with our bars and our staff to embody our brand values in a clear and consistent way.

Competition: Competition is intense, more than I can ever recall in my many years in the sector. The markets we operate in are particularly competitive but again it pushes us forward as a business and means we strive to be the best in our chosen markets. We invest a significant amount of time and money each year in our sites to maintain their appearance, atmosphere, product offerings and enhance the overall customer experience. This means our bars remain fresh and appealing to consumers.

Care: It’s important that as we build our business we remain rooted in our communities and continue to demonstrate care for our teams, customers, the high-quality service we provide and our partners. Since opening our first bar in 2000 we’ve had a commitment to sourcing the best available produce and supporting businesses from the local community. We’re lucky that Yorkshire has no shortage of outstanding suppliers who we continue to strengthen relationships with. Over the years, Arc has also been passionate about helping good causes in the wider community and we’re constantly looking at ways and partnerships to continue being a good corporate citizen.

Culture: Growing businesses are faced with the challenge of maintaining their culture as they expand. I don’t want the spirit and values of the company lost as we hire more people and open in new locations. But it’s tough as inevitably the company will feel different as it grows. So, we don’t stop talking about our values and the importance of culture. We make sure people are a good fit before they join us and keep the lines of communication open so we gain valuable feedback from team members. Keeping company culture intact during a growth stage is doable, but you must make a conscious effort. It won’t happen by itself.

Change: The pace of change is relentless and it’s vital we don’t let any of the above slip and lose focus. We’re in a strong position and set for future growth but experience teaches you that the market can quickly shift. The battle for the leisure pound has never been greater. And that’s before you consider the impact of new technology on the consumer experience, shifts in the relationship between employer and employee and evolving demographic trends. It can certainly feel challenging at times when facing this new world order but we look forward to future with great excitement.
Martin Wolstencroft is founder of Arc Inspirations

Calling time on the plastic straw by Greg Sage

There have been countless campaigns on single-use plastic recently. It’s no surprise given the amount we use. Take the simple straw, something many consumers rarely think twice about picking up – it is estimated the UK uses about 8.5 billion of them every year, enough to go around the world 45 times.

So, I’m pleased to see the Treasury’s announcement last week that it received a record number of responses to its call for evidence on the use of plastics. More than 162,000 submissions were made and came from a diverse group of individuals, businesses and campaign groups. I also applaud the Evening Standard’s “Last Straw campaign”, which has helped highlight the impact of plastics on the environment, oceans and marine-life.

Pubs, bars and restaurants are showing encouraging signs of taking action – whether that’s through the use of paper straws or through biodegradable plastic alternatives. But the real challenge is what happens to those straws once they’ve been used.

This is a complex issue. Even innovative compostable straws can still take hundreds of years to decompose if they end up in landfill, due to lack of oxygen. So, while consumers believe they are enjoying a more environmentally-friendly drink, it is very possible their straw won’t be recycled and may go to general waste.

At Greene King we spoke to our customers who told us that, while they wanted to keep using straws, they also wanted us to be socially responsible. In February we removed our plastic straws from our bars, only providing them on request, and ensured those that are used are recycled. Within weeks we saw a 60% reduction in the straws we used, saving 18 million straws a year. Since then we have been working hard with our waste partners, SWRnewstar, to develop an even greener solution.

From this September, we are introducing compostable PLA straws, made from corn starch and sugar cane, across all of our 1,750 pubs. We have developed a unique closed-loop solution, which means our straws will be segregated at the pub, taken back through our supply chain and decomposed in an “in vessel composter” at a commercial composting facility.

This innovative process means we can ensure our straws are disposed of correctly and go on to naturally decompose in as little as 12 weeks. Consequently, customers using a straw will have the peace of mind knowing it will transform into nutrient-rich soil which can be used to fertilise plants and crops.

We’re proud to be pioneering this solution for our sector and hope others will follow suit. Before they can do so though, we need government’s help. If more hospitality businesses are to end the use of plastic straws, we need more commercial PLA compositing facilities to cope with increased demand. Government’s upcoming Waste and Resources Strategy offers the perfect opportunity to support this and we urge the environment secretary to take note. We must act now if we’re to avoid the environmental short straw.
Greg Sage is Greene King’s communications director

Rise of working together by James Hacon

Last week John Upton wrote of how it’s the time for the rise of the operator. He ended the article talking of how many operators will have a wry smile at his analysis and summation, I had a wry smile, but primarily because I sit with marketers in the sector day in and day out that would fundamentally agree with many of his points, but I don’t think the issue is the suggested supremacy of marketing. Frankly this has never been the case in our sector – in fact for the most part our biggest businesses are led by operators promoted to the most senior positions, bringing with them an operating mind set, that unleashing the shackles will somehow release the potential in the business. 

Most marketers in our sector will talk of being the puppets of operators, labelled as the colouring in department, told what to do in an often unstructured, ad-hoc way. Many believe this is to the detriment of the business, not best utilising limited resources, costing a fortune in design and printing fees, confusing customer with mixed messaging and sending a potentially brand-damaging barrage of discounts to customers that reduces engagement and switching people off. 

The key challenge I have to John’s article is that marketing is about push-messaging. It isn’t. This is a fundamental misconception of the role of marketing regularly made in our sector, but not so much in others. The role of marketing is not just promotions, it is one of seven aspects; promotion, price, proposition, place, people, physical evidence and processes. In short it is about designing and optimising every human touch point with the business, best described by legendary management guru Peter Drucker as to “create, keep and satisfy the customer”.

As marketers we should be supporting the creation of experiences that have an unbelievable pull effect – I wholeheartedly believe that the best brands have to do very little promotion to drive successful business outcomes.

The basis of this comes from understanding customers, their behaviour, motivations and decision-making journey. We have many ways of gaining this information now, from guest feedback to dedicated insight projects. This should be the basis on which we can start to ensure that our proposition, branding, service and overall experience is as sharp as it can be.

We shouldn’t get too hung-up on social media. It is there and provides a great additional resource, but it is only a listening and communication tool, alongside many other tactics and tools available to us. Social media has been about for almost 20 years now.

Operators absolutely need to be all over their feedback to understand their business and ideally acting on it to improve what they are doing at their site or in their region. Alongside the hundreds of other daily tasks expected of a GM, it takes an experienced, talented and willing individual to think beyond the day-to-day. And as competition continues to rage in our sector for great staff, I am hearing from business leaders that there are simply fewer of these people available and people are working harder to train from within. Where marketing comes in here is to analyse the vast amounts of data, filter it and find the trends to form insight. This insight should be gold dust for operations leaders to provide the right level of support to their team. Along the way, they should also be looking for the bigger more strategic challenges and respective opportunities to improve proposition, recognise new product opportunities and enhance the customer journey as a whole. It is this part where the real value comes.

One successful way bigger businesses divide the role of marketing is in three distinct areas; customer, commercial and brand. Even if you are not big enough to have separate teams or individuals, the thinking is strong and could help guide responsibilities. The customer remit looks after the guest journey, taking responsibility for feedback, insight, innovations fun enhancement projects, loyalty – and often central reservations are combined under this umbrella also. The commercial remit becomes responsible for new product development, promotion, pricing and local marketing. Lastly, the brand function is about brand development, editorial, visual identity, brand-building campaigns and the long term future of the brand. 

The other key factor at play in our business is our people, the team. As well as understanding our customer, you must try to understand team motivations too. Your brand should be delivering for them also, or if you follow Danny Meyer’s enlightened hospitality theory, first. I advocate a lot more closeness between the marketing and people teams as, ultimately, it is people that are delivering our brand daily; they should be central when developing proposition, product or campaigns. If a proposed new product or proposition will build resentment among the team delivering it, it’s probably a no-go. Although, when something is vital to the customer journey enhancement you should, of course, consider whether it’s your process that has resulted in this resentment and whether better change management could result in a different outcome. Similarly, when developing customer campaigns, always ask yourself: why should our team care about this? How can we build an internal campaign that gets people engaged and excited about this at the same time?

To summarise, you mustn’t see marketing as a threat, you should see it as a function and mindset that adds value to your business. With the right marketing leader, with the right thinking, empowered to make real difference to the way guests see and interact with your business, you will see and feel the benefits. I agree with John that operators and marketers need to be working side-by-side, also closely with the people team. The focus should be on delivering a great experience to our customers everyday, that’ll be achieved through a well-designed customer journey, executed by a motivated, empowered and happy team at restaurant level. 
James Hacon is managing director of Think Hospitality, which advises multi-site brands on growth, brand and development strategy, as well as investing in early-stage concepts with a bright future

Tim Martin makes some good points, but it’s not the full story by David Read

On Tuesday, Tim Martin wrote an opinion piece for Propel. In summary, he argued that the leadership of the big four supermarket groups are part of a “Remainer elite” pedalling fictional scare stories about food price rises post-Brexit – seemingly more bent on maintaining close ties to the EU, rather than fighting for lower prices for their customers.

He went on to make the point that “provided the government takes the sensible decision to opt for free trade, there would be no extra taxes/tariffs on EU imports. And by deciding not to impose taxes on the EU, there would be no taxes either on non-EU imports – World Trade Organisation (WTO) rules require all countries are treated in the same way, in the absence of a deal”.

And added “in fact, the only way in which prices for EU imports can rise post-Brexit is if the UK government itself decides to impose taxes, also known as tariffs, on them”.

Brexit is the most important constitutional change of recent times, and the public debate has all too often been focused on media sound-bites like “Brexit means Brexit” and “We send the EU £350m a week”. This is a shame because the issues are much more complex and deserve more understanding. Price being, after all, just one factor of value.

So here are some further thoughts on Tuesday’s piece that you may like to consider:

“In fact, the only way in which prices for EU imports can rise post-Brexit is if the UK government itself decides to impose taxes, also known as tariffs, on them.”

This of course is not a fact. Prices for imports are affected by many factors, not just the presence or absence of tariffs. For example, in June 2016 the vote to leave the EU triggered a fall in Sterling of circa 20% on a basket of major currencies. At the time, Prestige Purchasing forecast that food and drink inflation in foodservice would increase to about 8% by the following year, and by August 2017 the CGA Prestige Foodservice Price Index was running at just under 10%. We are now a year further on and those higher 2017 prices have risen by a further 3%. This is likely to be more than any tariff movement from WTO to free trade. The same City of London advisors that foresaw the 2016 exchange rate correction are now predicting a further major correction in the event of a no deal Brexit.

Prestige models future inflation using more than a dozen variables (of which exchange rates and tariffs are just two), so to suggest that the only way prices for EU imports can rise post-Brexit is through the imposition of tariffs is (to put it mildly) a misleading statement.

“Provided the government takes the sensible decision to opt for free trade, there would be no extra taxes/tariffs on EU imports. And by deciding not to impose taxes on the EU, there would be no taxes either on non-EU imports – WTO rules require all countries are treated in the same way, in the absence of a deal.”

The idea that we should take advantage of Brexit by removing our import tariffs is one that I would certainly expect HMG to be considering, and to an extent I agree with. 

Trading under WTO rules would be the default position with the EU if we fail to agree a deal, but within those rules we have flexibility in how we apply our tariffs. Actual tariffs can be set at lower rates, right down to zero, on a unilateral basis. The champion of free trade has been Professor Patrick Minford, an economist who was highly influential upon Thatcher’s policies during the 1980s. Under a free trade policy, we would remove import tariffs, with UK exporters paying any tariffs required within countries where they sell their products. Professor Minford argues that this will result in a 10% fall in the cost of imported goods, through a mixture of tariff and non-tariff trade barriers.

Within food and drink there are quite a few areas where the EU applies particularly high tariffs on imports to protect specific producers such as oranges, wine, and sugar, so we could selectively reduce or remove tariffs on these products to give consumers access to cheaper product. 

However, we do need to be very careful what we wish for regarding our trade policy. Free trade policies have a good track record in reducing prices and maximising consumption but can have a pretty negative impact if one’s objective is maximising employment. You can see this at work right now in the US, where Trump’s tax cuts and import tariff strategy is at the very heart of this argument.

A free trade policy for UK food and drink will require import standards in place to ensure a fair competitive environment for our farmers. If these were not put in place we might end up looking like New Zealand, which is one of the nations that Tim cited in his article. As an example of where a free trade policy has been commercially successful New Zealand is a good one. After 30-plus years of transition, farming is competing effectively there, even though import tariffs and government subsidies have been removed. But because of high stock densities and mass production practices the price paid in terms of product standards, soil degradation, and lowering of animal welfare standards has been borderline disastrous.

My view is that our consumers deserve better than that. Brexit presents us with the opportunity to take back control of our food and farming system, to deliver local food that’s high provenance, sustainable, healthy, nutritious, and highly affordable. Our trade policy should focus on a broad set of outcomes like these. Free trade might have a part to play, but history tells us that when we focus on price we get just that – cheap food.
David Read is founder and chairman of Prestige Purchasing

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