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Morning Briefing Strap Line
Fri 5th Oct 2018 - Friday Opinion
Subjects: That’s entertainment, supping with the devil, time for a new apprenticeship deal and supplying the demand
Authors: Glynn Davis, Paul Chase, Jill Whittaker and Gareth Hutton

That’s entertainment by Glynn Davis

High-profile crowdfunding platforms Seedrs and Crowdcube have both been highlighting their successes recently. The former celebrated raising funds for 66 food and beverage businesses since 2012, which is its most successful sector, accounting for more than 11% of its completed deals, while the latter pointed to the fact 100-plus companies had raised more than £1m on its platform since 2011.

While looking at the number and value of deals is one way of determining success for the crowdfunding industry, I would argue a more valuable measure is the return generated for investors.

Beyond the sale of Camden Town Brewery to AB InBev in 2015, it has been slim pickings for investors who have put money into leisure and hospitality companies through crowdfunding. Crowdcube, for instance, lists only eight exits (across all sectors) on its website that have generated positive returns.
More meaningful numbers can be found when looking at the level of failures from companies that have crowdfunded. Research from startup database Beauhurst found that of 685 UK deals across 28 platforms, including Crowdcube and Seedrs, more than one-fifth (21%) had gone bust. Although it is a fact about half of all startups fail within three years, my issue with crowdfunding surrounds its lack of due diligence and the fact valuations of funding companies are way out of kilter with comparable businesses that have received money from professional investors.

What is particularly telling is Crowdcube and others like it don’t take funds from US investors. If they did they would have to follow the stricter Securities Law in the US that is designed to protect investors’ rights. The fact is, investor protection is lax in the UK when it comes to crowdfunding, highlighted by the frequent issue of “B investment shares”. These are different to those held by the founders and early investors in the businesses that are using crowdfunding.

Such B shares are offered to investors who want to put small sums into a business and, rather than including any protection of the investors’ rights, they come with various freebies such as access to exclusive launch parties and free products.

What these people are also buying into are overvalued businesses. Leisure sector investor Luke Johnson has said crowdfunding companies can be valued at up to five times the level they would fetch from a professional investor.

These valuations are a manifestation of a lack of financial knowledge of the companies themselves, which are simply plucking numbers out of thin air in many cases. But this is compounded by the lack of due diligence undertaken by the platforms, whose primary objective is arguably to ensure a constant deal flow rather than entangle their clients in red tape and place obstacles in front of them.

These share offers are then glossily marketed – along with the freebies – to unsophisticated investors. Although the defence of crowdfunding chiefly involves the argument these investors aren’t looking for any return on their money but simply want to help these businesses grow and to feel part of the “club”.

This is a fair point but I’d suggest many of these people will be disappointed when their clubs close and any returns from the remaining assets (if there are any) from these failed businesses flow through to the protected investors. They, in contrast, will lose all their money.
Crowdfunding is an animal that has grown fat in a low interest rate environment during which time people have been more than willing to put their money into a variety of schemes rather than into the bank, where returns have been non-existent. But as we move into an era of higher interest rates the days of the easy money for startups from crowdfunding will come to an end.
It has certainly been entertaining to watch the constant stream of food and drink businesses jump aboard the crowdfunding bandwagon. But that might be all it ultimately proves to be – entertainment and not a serious long-term route to raising funds.
Glynn Davis is a leading commentator on retail trends

Supping with the devil by Paul Chase

It’s an established dogma of the so-called public health movement that partnering with the alcohol industry to reduce harms is tantamount to supping with the devil. It’s not that they think you should use a long spoon, you shouldn’t even be at the meal. 

It was entirely predictable that when Public Health England (PHE) announced a partnership with Drinkaware to jointly campaign for “drink-free days” to reduce heavy drinking and promote moderate consumption, the usual anti-alcohol groups shrieked in horror.

This alarmist concern resulted in a letter sent to PHE by the Alcohol Health Alliance (AHA) signed by 50 anti-alcohol pressure groups and individuals. The concern arises from the fact Drinkaware is funded by the alcohol industry and therefore, in the view of the AHA, tainted by Big Alcohol. I defy anyone viewing the Drinkaware website to conclude it is an industry shill. The level of paranoia by these single-issue pressure groups verges on the pathological – “don’t fraternise with the enemy” is their credo!

Their view is that partnership working with the alcohol industry leads to the dilution of policies that really work and to the substitution of ineffective policies – such as education. So even though the PHE “low risk” drinking guidelines promote drinking no more than 14 units of alcohol a week interspersed by one or two alcohol-free days, and all these groups are signed up to that advice, if the alcohol industry supports it in conjunction with PHE it is tantamount to heresy. So much so professor Sir Ian Gilmore, chairman of the AHA and a key advisor to PHE, threatened to resign his post in protest. If you point a gun to your head and say: “Do as I say or I’ll shoot” you run the risk your bluff will be called, and it was. Professor Gilmore has resigned!

It seems to me if the AHA and its membership want to separate itself from the industry that produces the products they profess to be experts on, they will isolate themselves in an academic ivory tower and their policy prescriptions will lack any relevance to the real world in which they are enacted. This bone-headed, know-nothing approach does have one advantage, however, it enables them to make things up in their heads and ensure their own ideological purity by burying themselves deeply in the temperance rabbit hole. This immunises them from any kind of reasoned compromise with an industry they despise as comprised of capitalist bad guys engaged in a conspiracy against public health.

And, of course, the policies they describe as “best buys” for reducing alcohol-related harm are whole-population policies designed to reduce overall consumption through minimum unit pricing, tax rises and bans on advertising and promotions.

Contrast this with the pragmatic approach taken at Walsall NHS Trust. It recognised a disproportionate amount of time and NHS resources were being spent on a small number of “frequent flyers” – people with alcohol problems who turned up at A&E for treatment multiple times. They identified a cohort of just ten patients who were admitted 499 times between them in six months. On average, each patient was admitted twice a week.

Walsall NHS Trust identified 38 frequent flyers whose needs were complex and varied – alcoholism, mental health, family breakdown – and by taking a joined-up approach it was able to achieve a 54% drop in alcohol-related A&E admissions and a 68% reduction in bed days. Overall the trust saved more than £250,000.

Daniel Hodgkiss, patient safety manager at Walsall NHS Trust, said: “We identified a small number of hospital patients with complex needs that were discharged only to return multiple times, which accounted for a very disproportionate number of admissions.

“This was due to a lack of cohesion between social care, mental health services, police and a range of other services. By bringing these agencies together to co-ordinate patient care, we were able to substantially reduce admissions.”

This is the kind of pragmatic approach to alcohol-harm reduction we need to see. An approach that recognises the locus of alcohol-related harms lies with a minority of drinkers, the heaviest drinking 4%, who are people with complex needs and for whom drinking is a symptom as much as a cause of their problems. Why aren’t the AHA, Alcohol Concern and Alcohol Focus Scotland championing this approach instead of throwing their dummies out of the pram because PHE has, for once, adopted a sensible, partnership approach with the industry?
Paul Chase is director of CPL Training and a leading commentator on alcohol and health policy 

Time for a new apprenticeship deal by Jill Whittaker

For the past 18 months the spotlight has been firmly on Brexit, with conversations and headlines dominated by deal or no deal. During the same period the Apprenticeship Levy has been introduced for all businesses with an annual pay bill of more than £3m, reflecting arguably the biggest overhaul of the apprenticeship system in a generation. To say the impact of these two initiatives has been significant for the hospitality industry would be an understatement.

While the levy has brought a number of benefits such as a greater focus on apprenticeships in general and an increase in the uptake of higher-level management apprenticeships, some fundamental challenges need to be addressed.

SME apprenticeships fall off a cliff
Before the Apprenticeship Levy was introduced, SMEs employed the majority of apprentices in England. However, since the levy came into play SME apprentice numbers have fallen off a cliff because they can’t afford the 10% contribution they have to pay towards training (apprenticeships for small businesses used to be fully funded by the government).

This has had a huge effect on SME hospitality providers in particular, which have historically relied on apprentices to form a large part of their workforce, increase staff retention and improve skills across their business. When you consider the government is sitting on £1.28bn of unspent levy and the number of new apprenticeships in the UK fell 28% to 341,700 in the year to June, it’s clear to see vital changes to the system are required.

Transferrable funds and skills
Levy-paying employers can currently transfer 10% of their levy pot to SMEs or charities in their supply chain or sector. However, this is something that is relatively unknown and a largely underutilised opportunity. Furthermore, 10% doesn’t go far enough.

With this in mind, Philip Hammond’s proposed plans to increase the transferrable amount to 25% were welcomed this week. This can only be seen as a positive move. Not only has it put the transfer of funds firmly on the radar but raising the value will help improve work-based training, provide increased career opportunities and build transferrable skills that will ultimately help the wider UK economy.

Currently the cost of apprenticeships is proving prohibitive for SMEs and, as a result, hospitality operators are being forced to limit their training investment to focus on the skills required in their business today rather than considering what is needed now and in the future. This outlook could dramatically affect the future of the sector as a whole as employees won’t have the skills to work for other businesses or to innovate and adapt to the changing market. Ultimately, this will see employees lose their enthusiasm – and the industry. For the hospitality sector, which is tackling a chronic skills shortage, the situation is only going to get worse once the UK leaves the EU. It is therefore essential that businesses which aren’t using their levy or are unable to, transfer it to those in the sector who can.

Attracting the next generation
A report by KPMG predicted almost half (49%) of all vacancies in the hospitality industry in the coming years will be in entry-level positions – where there is already the greatest concentration of casual workers and high staff turnover. Since the introduction of the Apprenticeship Levy, the number of Level 2 apprenticeships in these positions has fallen greatly, causing a barrier to social mobility.

If we take chefs, for example, projections by People 1st suggest the industry will need an additional 11,000 chefs in the next five years. However, businesses are still struggling to fill vacancies even though there were 28,390 student chefs in 2015/16 alone. This raises a number of questions, where are these students going and why aren’t they continuing their learning and development in the sector?

The value of apprenticeships
Latest research by government department Ofqual reveals 91% of employers value vocational and technical qualifications such as apprenticeships, yet only 8% of Apprenticeship Levy funds have been used. Furthermore, the survey showed 80% of employers think qualifications such as apprenticeships equip learners with relevant skills and 78% consider them essential when recruiting for skilled and supervisory roles. It strikes me that if we’re all agreed vocational training is vital, we need to make sure this dedicated funding is unlocked, maximised and shared to help protect our vibrant sector now and in the future by creating positions for the younger generation.

People 1st forecasts the hospitality and tourism sector will require a further 1.3 million employees by 2024, with only 25% for the projected growth and the rest to cover staff turnover. While apprenticeships aren’t the only solution to filling this widening hole in the workforce, they are one of the most effective resolutions available. If we know there is a funding pot available in the sector that can only be used to train and upskill employees, we would be foolish not to use this and to use it well.

The hospitality sector is known and admired for the camaraderie and support among businesses of all shapes and sizes. As we enter a period of even more economic and political uncertainly, let’s keep this spirit of togetherness and use resources we have available to build prospective and attractive career opportunities in the hospitality industry. After all, it’s the UK’s fourth-largest employer.
Jill Whittaker is managing director of HIT Training

Supplying the demand by Gareth Hatton

British consumers are becoming increasingly demanding and the hospitality industry is confronted by this trend more than most. Gone are the days of making do with a limited selection of ale and a bag of nuts. I would have been satisfied with this back in the day but leisure operators now have to up the ante and use creative methods to retain customers.

Technology has advanced so much in the past 30 years and is the main focus of a new generation – the xennials, those born between 1975 and 1985. Xennials are old enough to have lived a childhood free of the internet but young enough to have spent their working lives online. With an app for almost anything and rocket-speed internet, it would appear consumer patience is becoming ever shorter. 

How then can pubs and restaurants entertain and retain customers who are easily lured to a competitor down the road? Operators in city centres may have to bite the bullet as the benefits of high footfall and disadvantages of competition go hand in hand. But in the UK’s more rural locations and market towns, what techniques are operators using to retain custom? The consensus has generally been diversity of offer and quality of service.

East Anglian-based pub company The Chestnut Group operates seven sites across Suffolk and Cambridgeshire. Managing director Philip Turner has worked meticulously during the past six years to craft its pubs and says the trend of an all-day offering is pivotal to retaining custom. He said: “At The Rupert Brooke we recently launched a breakfast offering to run alongside our afternoon tea, with the aim to provide an all-day dining option. This has proved really popular at the weekends and is starting to resonate with local businesses, which are using the pub for morning meetings.

“At The Northgate we are about to introduce mid-morning and mid-afternoon cooking tutorials. We are targeting groups and individuals looking for the ‘kitchen experience’, involving the preparation, cooking and enjoyment of eating what they create. We are also about to launch a sculpture exhibition in the garden to encourage people to visit the pub outside normal service hours and help drive morning coffee and afternoon tea sales.”

David and Roxane Marjoram, of Gusto Pronto Group, oversee four pubs and a brewery. They take a different tack and prioritise quality of service. Roxane Marjoram said: “Our logic is if someone receives a friendly welcome, a comfortable seat and pleasant surroundings they may stay a little longer than planned and hopefully visit us again. We opened ten years ago and have always offered lounge service. If our customers don’t have to get up from their sofa to order their next gin and tonic or bottle of wine, they are more likely to spend longer with us rather than moving on to another venue.”

Looking at single-site operators, Paul Gort, managing director and head chef of The Bull Inn in Woolpit, Suffolk, described what he has done to diversify his offering and retain customers. He said: “We have kept all the original spaces to facilitate the groups and clubs in the village that used them as well as others who have joined us. We don’t charge to use these spaces and this encourages people to stay afterwards and catch up with friends while having a drink and food, increasing the average spend. They then come to us for nights out with family and friends. It helps to make the place seem full and creates atmosphere for other potential patrons. 

“Premiumisation and a touch of luxury also helps. Customer service should never be underestimated and training doesn’t cost you much and makes your staff as passionate about your product as you are.”

Premiumisation is once again attracting investors to the UK’s pub market. The British Beer & Pub Association chief executive Brigid Simmonds said: “It is always good to see investment in UK pubs and an acknowledgement of the important part they play for communities and investors. In 2016, £2bn was invested in the UK brewing and pub industry, which is vital to achieve the quality customers expect and increase productivity.”

According to a Deloitte quarterly survey of more than 3,000 UK adults, 2017 ended positively for the leisure sector, with consumer spending increasing in seven out of 11 leisure categories compared with the previous year. 

The report stated: “In an indication consumers are continuing to spend on experience-led activities, short-break holidays have seen a two percentage point rise in spending compared with the fourth quarter of 2016. In addition, going to the gym, drinking in pubs and bars, and attending live sporting events also saw spending rise year-on-year, each by one percentage point.

“Looking to the year ahead, consumers expect their spending on many habitual leisure activities such as drinking in pubs and eating out to remain unchanged. In a sign of improved confidence, big-ticket leisure items such as holidays and theatre trips are likely to see an increase in spending compared with this time last year.”

Consumer demand is pressing operators to constantly reinvent the wheel, perhaps proving the old adage the customer is always right!
Gareth Hutton works for property agent Fleurets

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