Subjects: Casual dining model just not viable at the moment, investing in the pub industry’s future, a new era of climate accountability for the sector
Authors: Ann Elliott, Glynn Davis, Dr Laura Kirwan
Casual dining model just not viable at the moment by Ann Elliott
I have been asked a number of times over the last few weeks how sustainable I think the current casual dining business model is. That’s because there are real concerns in the marketplace that the model is currently under extreme pressure, and it wouldn’t take very much to tip some businesses over the edge.
One operator said to me this week: “This situation isn’t hard, covid was hard. We could manage it though, act quickly and decisively, be creative, work up solutions and get stuff done. This situation is impossible, we are not in control. Our profits and losses are shot and there is virtually nothing we can do about it. We have run out of answers. It feels like it’s just a matter of time before it all collapses.”
They talked about this situation from a number of different angles
1. Footfall declines of up to 20% versus 2019 in some sites were hitting them hard. Competitors were now reintroducing discounts to encourage visits. Some were heavily promoting generous loyalty schemes to drive frequency. There was feverish marketing activity taking place to inspire bookings.
2. Conversely, spend-per-head was increasing by up to 20%, which was an equal cause of concern. They felt their customers had come to the point of saying: “No more. I am not going out. It’s just too expensive and not value for money.” They also had a definite sense of customers cutting back on eating out in order to save for their holidays.
3. Food costs were incredibly difficult to forecast. In fact, they had told their finance team to stop forecasting because it was, increasingly, a total waste of time. The choice was simple – hold margins or reduce margins – and each had its own pros and cons. They didn’t want to lower margins, but feared it would be a strong possibility if spend-per-head were not to spiral out of control and destroy footfall (look at what happened with Frankie and Benny’s).
4. Labour costs continued to be a challenge. New recruits were increasingly demanding and vocal about their expected hours, shift patterns and benefits. Chef recruitment was still a nightmare. Labour percentages were now dangerously close to hitting 35%, with each percentage point increase just nibbling away at their profitability.
5. Utility cost increases were likely to be horrendous. Their current contracts were due to expire in the next 12 months, and the impact of increased utility costs was literally keeping them awake at night. If the potential increases come through as predicted, they would materially and significantly impact their profitability, reducing it by a third.
6. Central overheads needed to be reduced. The business would simply have to operate with less team members.
7. Rent and rates appeared to be less of an issue, though they were not finding landlords as eager to do deals as they thought they would be post-covid.
8. Expansion had slowed considerably. Investment in new sites (or on buying other businesses) was too risky. Their focus had to be on their core estate performance and getting through this uncertainty with an in tact, profitable but probably smaller business with less central overhead.
9. Selling their business was really not going to be on the agenda in the foreseeable future, despite the wishes of their investors. Venture capital and private equity businesses were becoming increasingly concerned about the hospitality sector and were seeking investments in other markets rather than looking to start again in this one. This position had certainly changed the business dynamics – from one looking to exit and cash in to one that was more concerned with survival with current investors.
A stagnant sales line, footfall decline, increases in every cost on the profits and losses and a pessimistic view of investment led my friend to conclude that, in the short term, the casual dining model was not viable. A sad but probably realistic scenario for some at the moment.
Ann Elliott is a hospitality consultant
Investing in the pub industry’s future by Glynn Davis
There’s so much gloom and doom around right now, with the cost-of-living crisis creating an environment that has prompted many people to simply stay at home and crack open some cans of beer and cocktails rather than venturing outdoors for something more socially nourishing.
Against this backdrop, I’m so pleased to have made the journey across London recently for the reopening of The Black Lion pub in Kilburn after an impressive refurbishment under new owners, the independent operator London Village Inns. Any gloom within my orbit lifted immediately upon meeting the pub’s glorious interior as it shimmered from the sun streaming in through large windows running the full perimeter of the property.
Martin Harley, owner of London Village Inns, revealed he has committed a few hundred thousand pounds on what has been a major project. No corners have been cut, and the investment has not only brought a sparkle to the extensive wood paneling, bright gold-coloured murals and ornately decorated ceiling, but has also given an upgrade to a lot of the back of house functions that are invisible to the customer.
The four-month effort from Harley and his team of designers and builders has created the type of pub that really lifts the heart and more than justifies the effort to leave the house and spend your hard-earned money on drinks that cost somewhat more than those cans from the supermarket. It’s well worth it.
My visit to The Black Lion coincided with the release of a new batch of pub listings from Historic England that celebrates some of the finest pub interiors in the country – from the grandest of Victoriana right the way through to farmhouse basic – with each highlighting unique characteristics. It’s these elements that are thankfully being increasingly recognised and given some protection from developers.
In the list, I spotted the two highest awarded pubs, and I’m pleased to say I know them well and would highly recommend making serious detours to enjoy their impressive interiors. Whitelock’s Ale House in Leeds, which has moved from grade II to II*, was a key stop-off on my stag weekend many years ago. Every subsequent visit has been just as enjoyable as my first to this well preserved tucked-away gem. Also moving up a notch is The Prince Alfred in Maida Vale, west London, where Young’s has been a serious investor and custodian of this property that has unique wooden partitions separating the different elements of the pub.
But it’s not all about these listed gems, and the work of Harley and others in preserving historical interiors that need applauding. So too do all those operators that are putting money in different parts of the pub sector during these very difficult times. Some of them don’t really ever get much thanks for their efforts.
This week, JD Wetherspoon announced it is investing £2.4m in a new pub at Birmingham New Street station. The company gets constant stick for myriad reasons, but there is no questioning its commitment to creating new pubs that often involves resurrecting old buildings which nobody else will take on, and that are frequently eyesores on the high street.
Whitbread is also unlikely to be frequently held up for its efforts with its pubs and its Brewers Fayre brand, but it has just announced it is to open its first new site in five years. The sizeable 357-cover Willen Dragon in Milton Keynes will open in early July with a contemporary look and a strong family focus that will no doubt be a very welcome addition to that part of the country, and that highlights Whitbread’s continued commitment to pubs.
There is always a pub that suits every person’s specific preference, and it is thanks to progressive operators and their willingness to continue to invest serious money in the sector that enables things to evolve, and for venues to be presented that really do demand you put down those cans, get out of the house and celebrate the pub in all its glorious variations.
Glynn Davis is a leading commentator on retail trends
A new era of climate accountability for the sector by Dr Laura Kirwan
Climate change: we know about it, we’re worried about it, but what is being done to combat it? Research suggests that in order to preserve a liveable planet, global temperatures need to remain 1.5°c above pre-industrial levels. With this increase predicted in little over a decade, drastic action is now critical. With food systems responsible for more than a third of global emissions, what action is the hospitality and food service (HaFS) sector taking?
The Waste and Resources Action Programme (WRAP) took action by setting up the Courtauld Commitment in 2015, which has enabled collaborative action across the UK food chain in relation to food waste, greenhouse gas (GHG) emissions and water stress. This has seen significant success, with a 55% reduction in food waste achieved five years ahead of schedule, while work on emissions and water stress is ongoing.
Voluntary initiatives such as the Zero Carbon Forum and the United Nations Global Compact have gained traction in recent years, enabling companies to take a transparent approach to setting targets and reporting progress. Despite these initiatives, it is reported that 74% of companies are still not tracking their food waste emissions, and more than 60% are not reporting their emissions along the food supply chain – so how strategic can climate action in this sector really be?
The reporting of food waste and emissions in the HaFS is a controversial topic. Recent protocols and guidelines such as the WRAP Scope3 GHG Measurement and Reporting Protocols for Food and Drink indicate a need for standardised emission reporting. This is also reflected in the recent UK Government Food Strategy, which saw the launch of the Food Data Transparency Partnership. It was indicated that consultations will be undertaken on implementing mandatory public reporting against health metrics, with a similar approach to sustainability.
The UK Department of Environment, Food & Rural Affairs is consulting on improved reporting of food waste by large food businesses in England up to September 2022, so food waste reporting is another area likely to be introduced. A consultation for the European Framework for Sustainable Food Systems is also due to close in July 2022, with an aim of “making the transition to sustainable food systems easier”. With legislation under review and the future uncertain, one thing is certain — the HaFS sector cannot continue with business as usual.
A non-binding guidance was released earlier this year in the UK to advise on mandatory climate-related financial disclosures, and it will be interesting to see if this stretches over to non-financial disclosures in the near future. At a European level, the Corporate Sustainability Reporting Directive is set to become an EU directive at the end of 2022, with companies required to expand the scope of their environmental reporting from 2023. While this is positive for climate action, companies’ ability to report their emissions has been questioned.
The most challenging aspect of reporting emissions in the HaFS sector relates to scope 3 emissions. These are emissions that a company indirectly consumes, making them difficult to measure accurately. What’s concerning is that these types of emissions account for up to 90% of all emissions in the food and drink industry, yet are not being measured in a standardised manner. It is therefore no surprise that only 39% of all companies are reporting their scope 1, 2 and 3 emissions, and only 41% are disclosing their GHG emission targets.
Customers are now grasping the gravity of the situation. Globally, 85% of people have shifted their purchasing behaviour towards sustainable options in the past five years. Along with large organisations, customers see themselves as the primary catalysts for change – they are playing their part and expect companies to follow suit.
Stakeholders are also putting the pressure on, with a UK investor coalition (which manages £6 trillion) calling for mandatory health and sustainability standards for food companies. This shift in attitude suggests that organisations which don’t respond will lose market share. These challenges can be addressed through the use of technology. Reliable, end-to-end digital tracking improves processes, inventories and deliveries, and reduces carbon emissions. The value of technology and digitally tracking supply chains within the HaFS sector cannot be overestimated. Informed, strategic and evidence-based action is drastically required across the HaFS, and technology should be seen as an essential tool in achieving this.
Disrupted supply chains, legislative changes and investor and customer demands are, therefore, driving expectations for sustainability, and will continue to do so. To ensure long-term viability as well as human and planetary health, companies must invest, innovate and transform the way they do business. It is an interesting and exciting time, and we should look forward to a new era of climate accountability.
Dr Laura Kirwan is sustainability lead at Nutritics