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Morning Briefing for pub, restaurant and food wervice operators

Fri 25th Mar 2022 - Friday Opinion
Subjects: Rishi’s alternative budget speech; collaboration no longer a ‘nice-to-have’; come back to what you know; what pubs can learn from FMCG
Authors: Paul Chase; Katy Moses; Sam Ulph; Elliott Goldstein 

Rishi’s alternative budget speech by Paul Chase

For those of us old enough to remember previous bouts of inflation, the excuses made for the current inflation seem eerily familiar. It is always explained in terms of cost-push pressures or government/Bank of England saying “it’s an international problem” – the implication being it wasn’t caused by us and there’s little we can do about it. People generally accept these explanations because of how inflation manifests itself – talk to any publican and he or she will tell you about the relentless cost-push pressures they are facing from energy price to food price increases and much else.

But this explanation of our economic plight – largely repeated by chancellor Rishi Sunak on Wednesday – suffers from the not inconsiderable disadvantage of being wrong. The current inflation was baked-in 18 months ago when the government instigated lockdown measures, and then a process of re-opening that severely restricted trading. To get the population and businesses to accept this it was necessary to support people and businesses through the furlough scheme and various grants to businesses. This cost the exchequer in excess of £400bn. The trouble is, the government didn’t have that amount of money, so the Bank of England initially monetised the debt and then sold it as gilts on the international market. The net result was a vast amount of liquidity was introduced into the economy at a time when production and consumption was artificially suppressed by lockdowns. 

There are two things that drive inflation – the quantity of money in the economy and the speed with which it moves around in exchange. Inflation is where more units of money are needed to complete the same number of transactions. Only the central bank – the Bank of England – can control the number of units of money in the economy. Inflation is not the result of the war in Ukraine, or of energy, or food price rises from abroad. Inflation in other countries doesn’t cause inflation here – it merely affects forex rates, but it does lead to a misallocation of resources. Inflation is caused by Bank of England mismanagement of the money supply. The reason why this vast expansion of broad money took 18 months to manifest itself as inflation is that lockdown suppressed consumption, and it is only since it was ended that people have gone out and spent a lot of that furlough cash – much of which they had squirreled away as savings during lockdown.

So, if the chancellor had given an honest account of the state of the economy in parliament on Wednesday, he would have said something like this: “I rise to give the spring statement today and I must start with a mea culpa – which I make on my own behalf and on behalf of the whole government. The government made the mistake of falling for the groupthink of many governments and public health officials around the world – that we could control an infectious new virus by shutting down social interactions and the economy by legal decree. We made this decision because, well, nearly everyone else did – and could they all be wrong? Also, we didn’t carry out any kind of cost-benefit analysis or try to understand the wider consequences of lockdowns for public health and the economy. We relied too much on the advice of a narrow group of public health officials and modellers, whose predictions have turned out to be spectacularly wrong.

“So, I saw my job as accepting the lockdown measures and supporting people with money created out of nothing in the meantime – knowing that while this solved the immediate problem in front of me, it would lead to undesirable knock-on effects further down the line – inflation and a cost-of-living crisis. I cannot go on pretending that this is all down to Ukraine or unpredictable commodity prices from abroad. It’s a lie, and in all conscience, I can’t go on telling it. All this ‘funny money’ must be paid for and inflation – the tax that dare not speak its name – is how it will be paid for.

“So, while I wish to indicate a direction of travel today – by announcing a 1p drop in the basic rate of income tax – I cannot disguise that overall, the tax burden is now at its highest level since 1949. Interest on our debt is now at £80bn a year – nearly twice what we spent on defence in 2021. So, there can be no tax cuts or overall increase in public spending until we get out of the inflationary mess the government and the Bank of England got us into – and that is unlikely to work its way through until the end of 2023 at least. Sorry about that, folks.”

He could perhaps have defended himself a bit by reference to the fact that a Labour government would have enforced lockdowns for longer and with even greater enthusiasm, and that John McDonnell as chancellor – guided by leading modern monetary theorist Richard Murphy – would have believed there was no end to how much money we could print. As so often in politics, we must choose the least bad option. What a time to be alive.
Paul Chase is director of Chase Consultancy and a leading industry commentator on alcohol and health

Collaboration no longer a ‘nice-to-have’  by Katy Moses

As we come (hopefully) out of the covid crisis, I’ve been poking my head up into the clouds to search for those fabled silver linings and, if you’re allowed to point out the positives of a global pandemic, I think I might have found a big one – collaboration. By which I mean REAL collaboration, not some z-list celebrity lending their name to a new oxygen alternative that’s then shared on socials by other z-listers because they’ve got the same management company. 

Real collaboration comes from a place where the aim is to make something better by combining efforts, and we’ve seen this throughout our industry over the last two years. Early on in one of the lockdowns, before “direct to consumer” was really a thing, I posted about loving something that a Thai restaurant was doing in Surrey. Within hours, a local brewery had offered to team up with them, and within days, they had combined their product and their logistics to provide meal and beer packs for takeaway or delivery – making lockdown better for consumers.

FMCG companies came together to provide food for the homeless, reward drinks for the NHS and support in general for those in the hospitality industry as they navigated the emotional rollercoaster of the pandemic. We saw some of the big guys linking up to make sure the vulnerable who were fully isolating were taken care of – Brakes and Bidfood with the Department for Environment, Food & Rural Affairs, for example. And, closer to home, we saw service suppliers to the industry come together to pool resources and knowledge to better serve the leisure industry and help operators and suppliers get through the pandemic. 

Personally, KAM started partnering with some of the best in the business, like HospoLive, pooling knowledge and insights from us, Feed it Back, Datahawks, Airship, Bums on Seats, Wireless Social, Fleet Street Communications and others to create The 100 day Playbook – a guide to reopening after covid compiled by the powerhouse that is Mark McCulloch. It was £100,000 worth of knowledge shared for free to support an industry we all want to see thrive.

All of this indicated to us here at KAM that the days of working in silo as hospitality suppliers is over, and I think that’s a damn good thing. There is enough business and budget to go round, and using the whole “two-heads-is-better-than-one” mentality, combining our skills, knowledge and contacts is the best way for our clients to get value from us all. There is no room anymore for anyone who isn’t willing to offer a collaborative approach in this industry.

Which leads me nicely onto another industry collaboration, Pedalling for Pubs. Three years ago, replicating something I had the pleasure to be part of in the grocery industry, I created the cycling challenge in a faraway land (Jordan) that would raise vital funds for Only a Pavement Away and the Licenced Trade Charity. The idea was to get 26 exec-level riders (including representatives from Punch, Greene King, Brakes, The BII, Yummy Pubs and more), force them to train for and complete a gruelling bike ride and pay for the privilege. After two false starts (because of you-know-what), we finally completed the challenge last week, and boy did it take some collaboration!

Only I could book a cycle challenge through the desert, only for it to snow, hail and rain on day one. But we supported each other and managed to get from the Dead Sea to the Red Sea in three-and-a-half days, spending six to eight hours a day in the saddle, and our current fundraising total lies just above quarter of a million pounds! All because we decided that, together, we could make a difference. Now I’m in the throes of organising Sri Lanka 2022 – do get in touch if you want to be involved in whatever capacity.

We often say that every business decision we make in hospitality should revolve around the customer experience, but I’d like to add that the employee experience is also a critical measurement. After all, they’re the ones at the coalface, and if they aren’t happy, you can bet your bottom dollar they won’t be providing a good guest experience. So, the more we collaborate as an industry, the better we can serve both customers and our teams. Let’s make “collaboration” the buzz word for 2022. So much better than “furlough” or “pandemic”, don’t you think?
Katy Moses is managing director of KAM Media

Come back to what you know by Sam Ulph

“The world is littered with concepts that haven’t worked as well as the founders hoped, even when you’ve got quite a lot of experience on the team.” So said Hugh Osmond, founder of Various Eateries, this month in Propel. And there don’t come many more experienced than the man who helped build Punch Taverns and Pizza Express, and is now looking to do the same with his Coppa Club, Tavolino and Noci concepts.  While the past two years have provided opportunities for businesses of all shapes, sizes and ages to expand, the latest round of site openings and upcoming launches in the most recent Propel New Openings Database show that those with experience see the current market as a good chance to build both new ventures and market share for existing concepts.

The latest database, which is proudly sponsored by StarStock and reveals the details of nearly 300 newly-announced site openings and launches, finds former Prezzo chief executive Jonathan Kaye returning to the acquisition trail with a new Italian concept. No stranger to the competitiveness of the Italian casual dining category, Kaye is looking to build a new challenger concept in Storia, which launched last year in Tring and Radlett. A third opening is understood to have been earmarked to open in Maidenhead later this year, as Kaye uses his knowledge of the market town-based property to his advantage. 

Speaking of those with an encyclopaedic knowledge of the property market, David Page, chair of Fulham Shore – the Franco Manca and Real Greek operator – continues to find key high street locations for both brands. The group is building a pipeline of sites that are a mixture of ex-branded restaurant sites and retail units. Fulham Shore currently operates 57 Franco Manca outlets and 21 Real Greeks in the UK, and said in December it had another 21 potential sites in solicitors’ hands for both. This month, it will open in Bishop’s Stortford (ex-Bill’s) and Cheltenham (ex-Café Rouge), while later openings will be in an ex-White Stuff unit in Windsor and a former Sussex Stationers site in the East Sussex town of Lewes.
For James Shapland, co-founder of Coffee#1, it is a case of returning to fertile ground for his fledgling coffee concept Coffi Lab. Shapland co-founded Coffee#1 in 2000 and went on to grow it to 15 sites across Wales and the south west, with an annual turnover of £5m a year, before selling it for an undisclosed sum to Welsh brewer and retailer SA Brain in 2011. It was subsequently acquired by Caffe Nero and now operates circa 100 sites. Launched last year in Monmouth, Coffi Lab has quickly grown to five sites, with the latest recently opening in the Whitchurch area of Cardiff. Last September, Shapland told Propel that Coffi Lab was planning to open 50 sites over the next five years.

It is not uncommon in the pub sector for successful operators to “go again”. The teams behind Real Pubs and Redcomb Pubs, are currently looking to repeat their initial successful businesses with Urban Pubs & Bars and Prospect Pubs & Bars respectively, and are continuing to add to their existing estates. At the same time, the likes of Portobello Brewery and Brasserie Bar Co have secured new funding and are on the expansion trail, with Portobello acquiring five pubs from City Pub Co earlier this week.

Their peer, James Horler, has gone down the joint venture route to expand his pub venture. Working in partnership with Mitchells & Butlers (M&B), his company, Sixty Restaurants, recently exchanged on its second Welsh site as part of its joint venture with the national pub operator. The company has secured the Groes Wen Inn in Penhow, and the pub, which is run under M&B’s Vintage Inns brand, is set to reopen as an Ego site this month. The company has also exchanged on its 26th site as part of this joint venture, taking the Stanney Oaks in Chester, which operates under M&B’s Harvester brand. The site is set to relaunch as an Ego restaurant in May after undergoing a refurbishment. 

Finally, Hostmore, the Robert Cook-led group, is looking at a three-pronged expansion strategy, underpinned by its iconic Fridays brand. The company is looking to organically grow by circa seven sites annually, with openings spread out across its core Fridays brand, its new 63rd+1st brand and its recently launched “Fridays and Go” grab-and-go concept. Launched this month in Dundee, the company has spoken about expanding the smaller format to up to 30 sites across the UK if the debut site is successful. At the same time, the business believes there is scope for ten-plus sites to open under the 63rd+1st concept by the end of 2023.
The above businesses are competing with many more operators who fall into the “been there and done that” category, leaning on years of experience to find hidden gems across the country and utilising long-built relationships with landlords to forge beneficial deals. With the rent moratorium ending in one week, they will be looking to make inroads into new markets and again take the opportunity to build pipelines and market share. 
Sam Ulph is chief executive and founder of StarStock, sponsor of the New Openings Database. The database is one of the benefits Premium subscribers receive. It focuses on newly announced openings and upcoming launches in the sector and is updated every month. Companies can have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to upgrade your subscription.

What pubs can learn from FMCG by Elliott Goldstein 

In many ways, not much has changed in the core pub proposition in the last few decades. The combination of a welcoming environment and good choice of drinks, often accompanied by a decent food menu, has been winning over customers for generations. This is, after all, what we love about the pub.

But as the market evolves, consumer habits change and the cost of living soars, smart operators are considering ways to develop a competitive edge. Today, there is an exciting opportunity to pay closer attention to the shifting external consumer landscape. In particular, I feel that there are valuable lessons to be learnt from the adjacent consumer goods sector, where consumer insight sits front and centre (and where even a small company invests millions of pounds a year in customer insight). 

Studying consumer goods trends, applying them in a pub setting and adapting offerings accordingly could provide a critical point of difference at this unique time for the pub sector. Take low and no alcohol, for example. The category is booming, with research from IWSR finding that the market for low-and-no products grew by a third in 2020 and continued on a similar growth trajectory through 2021. Major global players like Heineken and Asahi have diversified into low-and-no, as well as smaller challenger brands disrupting the market. We know that demand is there – almost one in three UK drinkers now semi-regularly consume low-and-no products – so should pub operators be prioritising this as a major sales category? 

In most pubs, it still feels rare to find alcohol-free beer options on tap, or to be able to choose from a sufficiently broad range of 0% ABV spirits. As more consumers reassess their drinking habits, pubs should possibly internalise these insights and treat low-and-no products with the same importance as alcoholic drinks. After all, according to discovery app Better Without, 53% of people say they would visit a venue more often if better alcohol-free options were available.

The same can be said of hard seltzers. A year or so ago, few of us had heard of these products – flavoured sparkling water with added alcohol. But now, ready-to-drink cans line the shelves of supermarkets, and the UK industry is set to be worth £75m by 2027. White Claw, the market leader in the US, launched into the UK in 2020, and more and more drinks businesses are placing bets on the category, hoping to capitalise on increased demand for low-calorie alcohol alternatives. Molson Coors has unveiled its new hard seltzer brand, Three Fold, and companies including BrewDog, Koppaberg, Heineken, Smirnoff and Coca-Cola have all developed their own take on the category. Against this backdrop, it feels surprising that hard seltzers aren’t more widely available in pubs around the country. 

In food, pubs have recognised and catered to the growing demand for vegetarian and vegan meals, but options are still limited, with the adjacent casual dining sector being significantly more advanced in this area. Sustainability is also high on the agenda for consumers, who will likely begin to seek more seasonal produce in their pub meals. Moreover, the pandemic has given customers a new-found appreciation of their local area – which, despite the supply chain challenges, represents an exciting opportunity to offer menus which feature ingredients sourced from local and independent suppliers.

Despite the emergence of digital ordering during covid, pubs still have markedly less data on their customer base than other consumer-facing sectors. By tracking buying habits, category demand and product success stories in FMCG, pub operators can make better informed adjustments to their own offering.

Now, as the hospitality industry recovers from the impact of covid-19 and businesses take a more proactive approach to growth, leadership priorities will inevitably change. In pubs, there is an exciting opportunity to invest in insight capabilities and pivot offerings accordingly. Hospitality is moving fast, and pub operators who do not keep an ear to the ground run the risk of being left behind.  
Elliott Goldstein is managing partner at The MBS Group

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