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Morning Briefing for pub, restaurant and food wervice operators

Fri 8th Oct 2021 - Friday Opinion
Subjects: It’s time to say VATsEnough, I’ve missed anti-alcohol ‘wingnuttery’, rise of the robots
Authors: Kate Nicholls, Paul Chase, Glynn Davis, 

It’s time to say VATsEnough by Kate Nicholls

I make no apology for stating these stark sector numbers yet again: two thirds of normal revenue lost during the pandemic (a staggering £100bn); 10% of outlets permanently closed; headcount down by almost 30%.

Those businesses that have managed to struggle on have seen balance sheets ripped apart, reserves wiped out and a staggering £12bn of debt build up. Covid-19 has been devastating – but my sense is that the next 18 months could be just as tough to navigate.

That’s why we need further government support, and while there are many levers it might pull to help hospitality secure a more rapid recovery and rebuild resilience faster, the most effective of these would be retaining the current 12.5% VAT rate. 

And our new #VATsEnough campaign is calling for just that. We need the chancellor to make this commitment in his budget later this month to help hospitality return to what it does best – bringing life, light and heart back to our communities. 

There’s no question that the treasury’s landmark decision to lower VAT for hospitality last year helped many venues survive, but any sort of enduring recovery threatens to be derailed by a return to its pre-pandemic level come April. We’re operating in an environment where costs are rising across the board, and our ability to invest is being heavily curtailed.

We need the chancellor to lock in the 12.5% rate for our sector, because permanently retaining this lower rate will bolster businesses’ ability to boost the recovery. It will allow us to navigate the mounting challenges in the labour market and food supply chain; improve job creation; boost wages, productivity and investment; ensure price inflation is kept to a minimum and ensure the UK remains competitive in a global tourism market where all our competitors already have reduced rates.

This is where we need your support. We need all those who work in and enjoy hospitality to press their local MPs on the #VATsEnough campaign, so they can help to safeguard jobs, businesses and accelerate the UK’s post-pandemic economic recovery. If you visit our campaign website, we’ve made it easy to contact and lobby your MP in a matter of seconds. We’ve also got posters and stickers that you can share in your venues. Please get involved and ask your employees and customers to support as well.

Compelling argument
The economic case for maintaining a reduced rate of VAT at 12.5% is as compelling for the government as it is for the sector. Our thorough analysis of key economic metrics highlights the benefits of a permanent reduction, as opposed to a return to 20%. 

• It will create 125,00 full and part-time jobs – a full time equivalent of 85,000 jobs

• The policy is revenue positive – generating money for the government after just four years

• The net cost of the policy is minimal – at £213.4m per year in the early years.

We recognise that a lower VAT rate represents additional investment in the sector in the immediate term and comes off the back of unprecedented government support to help us through the crisis. However, the payback in jobs, growth and community well-being are significant. We should not forget the bigger picture – that our sector’s growth and prosperity is vital for the country’s wider economic and social recovery.

The economic model also calculates that the subsequent boost in demand as a result of lower prices and increased investment will have a positive cumulative impact over time, generating a greater economic return and sector growth in the long term.

Reverting VAT back to 20% in April 2022 would have serious consequences for businesses and their workforces. Our recent survey of more than 800 hospitality, tourism and leisure businesses, in conjunction with partner trade bodies, revealed that six in ten said the higher rate would lead to workforce cuts and curtail investment, while one in ten stated the move will potentially sink their business altogether.

However, if the reduced rate were to continue to apply beyond April 2022, the saved costs would be used for a series of productive purposes, with seven in ten able to invest further in their businesses. Encouragingly for sector growth and investment in communities and high streets, keeping the rate lower would stimulate greater turnover – the survey indicated that sector turnover would be approximately 9% higher, with investment 12% higher versus a 20% rate. 

Public support
The VAT cut has also proved popular with the public, who highly value the hospitality sector and its contribution to their local area. In a recent YouGov poll on behalf of UKHospitality, when asked what they thought should happen to the VAT rate, a majority of the public are in favour of extending the reduced rate of VAT beyond April 2022 – with more than four in ten wanting the reduced rate to be kept in the long term. An increase in VAT will inevitably lead to an increase in prices. This would be hugely damaging, as about half (49%) of respondents said they would be less likely to eat out – with a fifth saying they would be much less likely to do so.

Yes, it’s a big ask, but a permanent lower VAT rate for hospitality and tourism will help secure and fast-track hospitality’s contribution to key areas of partnership central to the government’s agenda around levelling-up, job creation and sustainability. We must fight hard to keep VAT at its current level because if it returns to 20%, it’ll be the devil’s own job to get it reduced a second time.

And make no mistake, the difference between the two rates is significant. The difference, indeed, between a business surviving or going to the wall. Worth fighting for, then. Please join the campaign and help us make the case – find out more here.
Kate Nicholls is chief executive of UKHospitality

I’ve missed anti-alcohol ‘wingnuttery’ by Paul Chase

Now that the covid crisis is receding we’re beginning to see a return of the kind of anti-alcohol wingnuttery that was so prevalent before March last year. I must say, I’ve missed it. I’m almost comforted by its return – it’s a kind of perverse signal that, at last, we’re returning to normal.

Which brings me to a gentleman named Colin Shevills. Mr Shevills was director of neo-temperance sock-puppet charity Balance Northeast, now known as just “Balance”. He was at the helm of this organisation for 12 years until his retirement in March 2021. Shevills has devoted much of his adult life to campaigning against alcohol and the alcohol industry, and his view of the devil drink can be summed up by a recent quote from him:

“As alcohol has got cheaper, the harm to individuals and communities has got worse. Alcohol is too affordable, too heavily advertised and too available, and it is a scandal that people can buy a week’s worth of alcohol for the price of a coffee.

“If the government is serious about levelling up and reducing health inequalities, we need to tackle this to reduce harm to individuals, reduce pressure on our emergency services and raise much needed money to invest in our public services.

“As a priority, we need pricing policies which tackle the cheapest and strongest alcohol to bring an end to the rising burden of alcohol-harm and death.” 

But the good news is Shevills isn’t leaving the stage to go into dignified retirement – that’s not what cause-oriented people do. Instead, in an article published on the website of the Alcohol Health Alliance, he takes aim at the drinks industry’s “please drink responsibly” message, blaming it for the rise in alcohol harms during the pandemic:

“Could it be that calling for people to ‘drink responsibly’ is not the answer? That it is a meaningless phrase designed to suit the commercial interests of the alcohol industry rather than address the public health needs of the nation?

“All of us are familiar with the phrase. It is in everyday use and appears on virtually every alcohol product label and advertisement. And that’s the problem. The term ‘drinking responsibly’ is used by the alcohol industry as part of their corporate social responsibility programmes to frame alcohol use in a way which is helpful to their commercial aspirations.

“Think about it. The industry rarely, if ever, defines what it means by the term. We are left to make our own minds up. The problem is that many drinkers believe that as long as they don’t lose control or hurt others, they are drinking responsibly.”

So, let’s ignore the fact that alcohol consumption actually fell during the pandemic, and blame the rise in alcohol harms from irresponsible consumption at home on the industry’s responsible drinking message. Well, obviously. I wonder whether Shevills thinks it would have been better if the responsible drinking message was removed from product labels?

In any event, it’s evident that his main concern was expressed in the final paragraph of the quote above: “We are left to make our own minds up.” Well, perish the thought we should trust the public to make their own minds up about anything – I mean, why do that when there are experts around like Shevills who would prefer people just did what they were told. 

But Shevills isn’t finished with the responsible drinking message yet: “The alcohol industry could use the phrase alongside the low-risk drinking guidelines of no more than 14 units a week. They choose not to. In fact, in a report published by the AHA just over 12 months ago, 70% of alcohol product labels failed to include the government’s low risk drinking guidelines over three years after they were updated.”

If I may just gently point out, the revised low-risk drinking guidelines were gerrymandered because Public Health England paid academics to fiddle with their computer model to justify reducing the low-risk level for alcohol consumption. Just saying, Mr Shevills.
Paul Chase is director of Chase Consultancy and a leading industry commentator on alcohol and health

Rise of the robots by Glynn Davis

“You won't have to grease their palms, shorter hours longer arms, rise just watch them rise, the rise of the robots,” sang The Stranglers back in 1978, when robots looked like metallic-covered humans in films, and the prospect of them impacting our everyday lives was very much the world of sci-fi fantasy.

Fast forward to today and things look very different for The Stranglers, with only one original band member remaining as they embark on a European tour, and also for robots. Covid-19 and Brexit have combined to bring about seismic change in the labour market and supply chains, which are putting great pressure on operational efficiency and margins.

It is widely recognised that automation makes its greatest strides under just such conditions when organisations are forced to be more productive with fewer resources. It is the repetitive, impersonal tasks that are most likely to be addressed first and be replaced by robots – although they don’t typically have humanoid faces ala Hollywood – so let’s call them automated solutions.

In London’s Chinatown, a new tech-led restaurant has just opened featuring an automated robot in the restaurant’s window that makes freshly prepared noodles. Meanwhile, Ocado has introduced the foodservice robotics solution from Karakuri into its employee dining room to prepare and serve bespoke fresh meals – it can handle as many as 110 per hour.

This follows a plethora of recent activity in the US including Thai restaurant Sawatdee in Minnesota, which has introduced robots to make the run between the kitchen and dining room in order to ease the pressure on employees. Over at 800 Degrees Pizza they are employing the services of robotics company Piestro, whose fully automated standalone machines can make a pizza in three minutes and require no human intervention.

Recognising the value in automating processes is tech-forward US chain Sweetgreen, which bought robotic restaurant chain Spyce, whose proposition replaced chefs with robots. It will look to incorporate aspects of the technology into its own growing chain. This highlights how it is not all about replacing the whole shebang with robots, but more about automating the repetitive pressure points within a business.

This has been taken up by the retail sector which, among other things, regards the checkout and payment element as both labour intensive and a painful part of the customer journey. We are therefore seeing Amazon roll out its cashier-free stores in the UK and licensing its IP to other operators. Such a move is not simply the actions of a cash-rich tech firm playing around, because even the likes of Aldi are getting in on the action. It has developed its own checkout-free store model, with the first recently opening in Greenwich.

There are also myriad developments taking place, with robots undertaking stock-taking tasks in-store and within retail warehousing – where the need for speed, shortage of workers and repetitive tasks makes them prime territory for robots and automation. It is predicted that the market for retail robots will reach $55.8bn by 2028 compared with a level of $7.1bn in 2020, according to Coherent Market Insights.

Although much of this automaton and robotics in sectors like retail can still seem very much removed from the average foodservice business, it is all arguably part of the ongoing digital transformation that is impacting all sectors. Worryingly hospitality might not be taking it as seriously as it should be, according to research from Vita Mojo and Hospitality Mavericks with KAM Media. They found 63% of operators don’t believe they have invested enough in digitalization, and that 73% think hospitality is behind other industries in digital transformation.

The pressure on labour within the hospitality industry looks increasingly like it could go beyond being a mere short-term issue and translate into more of a fundamental structural change. When this is combined with the growing acceptance for technology to replace human touchpoints in an increasing number of scenarios, then foodservice companies have to do more than just watch the rise of the robots – they have to grease the palms of their makers.
Glynn Davis is a leading commentator on retail trends

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