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Morning Briefing Strap Line
Fri 22nd Jul 2022 - Friday Opinion
Subjects: Why team costs and wage percentages must be micro-managed, technology’s game-changing role in tackling supply chain fragility, can you feel socially included without alcohol, a window into the future 
Authors: Ann Elliott, Sebastien Sepierre, Katy Moses, Glynn Davis

Why team costs and wage percentages must be micro-managed by Ann Elliott

Martin Sorrell’s S4 Capital issued a profit warning this week which sent its share spiralling downwards. This is a four-year-old business generating £687m revenue a year. Net revenue for the first half of the year is still in line with the 25% growth rate expected by analysts, but its earnings are going to be weaker than predicted.
 
The business had increased hiring ahead of the rate of revenue growth, which had caused costs to inflate, particularly in its core content business, which it blamed for these results. Staff are the biggest cost for the business, equating to roughly 60% of net revenue, and S4 has implemented a freeze on hiring in an attempt to stop costs rising further.
 
This story really caught my eye because I suspect there are businesses in our sector in the same sort of predicament. Covers in many brands are in decline versus 2019 and show no signs of recovery, even coming into the peak summer trading period. In theory, team hours should have been reduced by the same percentage.
 
Yet concerns around being able to recruit enough people (particularly back of house) has potentially led to a reluctance to take action. If footfall does recover, then rehiring could be a nightmare. It has taken such hard work to find, recruit, train, induct and retain team members that reducing hours seems very counterintuitive
 
Indeed, there have been many stories in Propel this week concerning staff shortages. On Wednesday, it reported that West End operators were turning away one in five customers due to staff shortages. The Evening Standard said London-based hospitality companies had reported that, on average, 19% of jobs were unfilled. This had forced them to stay closed for part of the week or put a cap on the number of customers. The biggest reasons for the shortfall were a lack of applicants after Brexit and the pandemic, and London’s “brutal” cost of living – particularly housing.
 
There is, of course, a real mixed message in there. If footfall is in decline, then less staff hours are needed, and unfilled jobs aren’t really a problem. Yet operators feel they are turning away custom because they don’t have team members. Perhaps they just don’t have the right people working at the right time.
 
Something doesn’t feel right, and I suspect the reality of the situation is far more complex than this. There are operators who are performing exceptionally well – luxury hotels, for instance, on the one hand, and quick-service restaurants on the other. Others who are not are potentially in the mid-market between these two extremes. There are some town centres which would appear to be almost back to normal, and yet others where office occupancy is still well below 60%. There are some neighbourhood locations where brands are thriving, but far from all.
 
Consumer behaviour is more unpredictable than it has been for a long time, not helped by covid, strikes, the weather, petrol price increases, political unrest, utility cost inflation and food price rises. The underlying trend though, as I see it, is continued footfall reduction in the main, with guests generally reducing their overall spend on eating out. And being more demanding when they do go out, because every pound spent is going to become increasingly important to them
 
I don’t need to tell my grandmother how to suck eggs in this scenario. Operators are looking at each of their sites in detail now and trying to understand the specific performance in each. It has to be about micro management at local level and appreciating how customer behaviour around each site is going to be impacted in the coming months, and in turn, how that is going to impact footfall.
 
The result of this has to be a site-by-site realistic team hours plan which reflects the reality of the situation. It doesn’t matter if you are Sir Martin Sorrell or the manager of an independent Italian restaurant, if team costs can’t be controlled and wage percentage maintained, then earnings will suffer
Ann Elliott is a hospitality consultant
 

Technology’s game-changing role in tackling supply chain fragility by Sebastien Sepierre

When seafood restaurants are removing cod from menus and pub groups are dropping chicken because it is starting to be considered a luxury item, you can be sure something unprecedented is happening with the supply chain. 
 
We have seen this in recent months, with carefully considered business decisions taken by the likes of Rockpoint and Young’s, among others. In fact, the magnitude of the disruption is so serious that many pub and restaurant operators are telling us that they have never witnessed a situation anything like this before. 
 
A deep dive into Fourth data shows the extent of the challenges – dairy prices up 40% in three years, grains and meat up by 35% in the same period, fish up by 25% and fruit and veg by 15%. Some businesses are reporting overall food bill increases of 20% since May 2019, with the average around 13%. The situation with drinks appears slightly less drastic, but we are still talking about an 8% increase in prices in that three-year period.
 
And the impact is now being felt on hospitality businesses profits. In just the last 12 months, actual gross profits have fallen by four percentage points to 74%, according to our data. In the same period, the gap between actual gross profit and theoretical gross profit has grown wider. 

The reasons for these pressures on profits and prices are extensive and well documented: the surge in utility and fuel costs, UK inflation at a 40-year high, labour supply, limited availability of products due to a shortage of shipping and flights, the war in Ukraine and suppliers being unable to source goods and, in some cases, ceasing trading all together. It amounts to a critical combination of factors that have dramatically changed the way the supply chain works. 
 
The data forms part of our new report into supply chain fragility and how these challenges can be tackled head on. As part of this, we spoke with operators who are dealing with these issues on a day-to-day basis. It is new territory for many, and some believe the models that have functioned so effectively, and to a degree, almost unnoticed by those who are not close to them, could change forever. As one operator told us, the ‘just in time’ element of supply doesn’t really work anymore. 
 
Changes have to, and in many cases, are already being made. We are seeing operators streamline their supply base, reduce their reliance on global producers, pass on costs to consumers and adapt recipes and menus to help navigate these choppy waters. And as we saw with the pandemic itself, the role of technology is absolutely vital in getting through these troubled times. 
 
It was evident on the shop floor during and after lockdowns, with technology providing the communications platforms, booking systems and payment options needed to get hospitality going again. And it also has a major part to play now in helping to stabilise the supply chain challenges.  
 
Solutions such as the tools offered by Fourth enable you to analyse sales patterns across multiple sites and individual venues, so you can accurately forecast future requirements ­in real time. This is crucial when dealing with volatile demand patterns and goods that have a short lifecycle.
 
Tech can also help you build and monitor your supplier network into an automated chain, making it easy for venues to substitute products or use alternative suppliers when your first choice can’t provide what you need. Recipe management is made easier with online access to ingredients, preparation guidelines, nutritional content and imagery – allowing venues to control costs and drive consistency.
 
Add in mobile tracking, to show how sites are performing, and you begin to see the true potential of technology in this realm. The good news for operators facing these monumental supply chain challenges is that the technology needed to take on these problems is already there, it is just a question of unlocking its wider potential and reaping the full business benefits.
Sebastien Sepierre is managing director EMEA at Fourth, the leading global software provider for the hospitality, leisure and retail industries
 

Can you feel socially included without alcohol by Katy Moses

Personally, our extensive work at KAM in the low-and-no category has made me question some of my own motives for drinking alcohol. While alcohol consumption rose slightly (a LOT in my household) during the pandemic, our latest research, in partnership with Lucky Saint, found that the majority of consumers (58%) fell into the category of having an alcoholic drink, at most, three times a week, with 29% of the population currently drinking three days a week or more. And there is a growing middle ground of drinker, who are increasingly ordering soft drinks, tea and coffee or alcohol-free drinks while out. 

More than half of Brits say they actively want to cut down their alcohol consumption in the next 12 months. Better health, as well as saving money, was the largest driver behind moderation, while respondents identified taste as being the number one thing they care about when choosing an alcohol-free option.  

Some 55% of UK drinkers consume fewer than ten units of alcohol per week, according to the new research. This growing ‘moderate’ group of drinkers are, however, also the most likely type of drinker to visit a pub at least once per month (78%), highlighting a major shift in consumer behaviour. Drinkers are increasingly moderating their alcohol intake but still actively taking part in traditionally alcohol-led social occasions.  

Laura Willoughby, co-founder of mindful drinking movement Club Soda, talks of the importance of social inclusion for human beings. She said: “Alcohol is such a huge part of who we are and how we socialise in the UK – it’s how we celebrate, it’s how we relax, it’s built into the core of virtually every social occasion. If someone doesn’t want to drink, then they’re often left sipping a lukewarm tap water or cola as an afterthought”.

With an increasing proportion of people actively wanting to moderate their drinking, the growing number of decent tasting alcohol free alternatives means they can still enjoy these social occasions, whether at home or in pubs and restaurants. The research shows that the stigma of choosing alcohol-free is shrinking, especially across Generation Z.

The average UK drinker is now frequently moderating between alcoholic and non-alcoholic drinks, with nearly one in three pub visits (29%) and 37% of restaurant visits being completely alcohol-free. These occasions are most likely to be when dining with family, having lunch and work meetings. The challenge for the on-trade is that 22% of these customers will default to tap water, so the growing options in quality low-and-no alternatives should be welcomed here with open arms. Those that don’t will miss out on vital sales, and people will further shift their socialising into the home.

The report also established peoples’ reasons for moderating drinking. Aside from having to drive, the most popular included wanting to stay fresh for a big day the next day (31%); if others aren’t drinking within a social group (30%); or being able to attend another activity such as organised sports (25%) afterwards. 

Supermarkets were identified as the main market for the growth of alcohol-free choices from consumers in the UK, with more than twice as many consumers saying it’s their go-to source of discovery compared to pubs, bars, or restaurants. Supermarket aisles are where consumers are learning about these brands and trialling products for the first time. The challenge for retailers will be to really understand these alcohol-free occasions and the purchasing decision hierarchy which drives them, because the research suggests they differ immensely to the alcohol shopper.

Given the continued movement towards moderation, it’s no surprise that alcohol-free continues to grow in the UK, albeit from a small base. But the UK has been slow to adopt credible low-and-no alternatives. The likes of Spain, France and Germany all have at least five times the market share for low-and-no options compared to the UK. 

There is clearly a massive opportunity to emulate the European market for low-and-no. Consumers want taste and quality, but historically, there’s not been a product that fits the bill. In a sector that only knows people as drinkers and non-drinkers, there isn’t much understanding of how to cater to the majority of UK pub-goers currently. We need to rethink what we understand as a non-drinker in the UK. 

Consumers are looking for ways to drink less alcohol but don't want to miss out on all the occasions where alcohol is normally present – going to the pub with friends, celebrating a birthday at home, enjoying a beer while watching sport – and the increasing number of alcohol-free options available is being welcomed by UK drinkers. The growth in popularity of the alcohol-free category isn’t primarily driven by those who never drink alcohol, but rather the huge number of Brits who want to moderate their intake. This isn’t about a growing teetotal population, but accepting that our relationship with alcohol is shifting and consumers are demanding an alternative. 

We now see a modern consumer more aware of the risks of alcohol, where their leisure time is not so focused around drinking culture and who are in tune with their consumption, and therefore more likely to take action to ensure that they are drinking at what they consider to be responsible levels. The pandemic may have bought a temporary return to ‘Booze Britain’ for some, but the growing trend of drinking in moderation will dominate. Hospitality will need to seriously shift its focus so that it doesn’t lose out on this growing occasion.
Katy Moses is managing director of research company KAM

A window into the future by Glynn Davis

Cycling into the City from my home in north London recently, it suddenly struck me how many foodservice businesses seem to have installed hatches and counters for takeaway orders and for serving customers seated outdoors. From French Crepes and Forks & Green on West Green Road to Mira Food Store and De Beauvoir Deli Co on Southgate Road, I passed a growing number of food businesses using such a servicing method.
 
Many companies adopted such practices, either by installing new hatches or merely serving from existing windows and doorways with makeshift counters, during covid-19, when takeaway only service was enforced. While many companies, especially pubs, have jettisoned these practices, there are many others that appear to have adopted them for the long-term.
 
Such hatches are nothing new, and pubs frequently used them to serve takeaway beer in sealed containers to children who would dutifully carry them home to their thirsty parents. Pre-dating this practice by some years were the wine windows – buchette del vino – of Tuscany. In a recent episode of the excellent TV series Searching for Italy, the actor Stanley Tucci enjoyed a bar crawl around the city of Florence that included the use of these so-called “little doors of paradise”, which involved dispensing glasses of wine through small hatches built into the ancient brickwork.
 
There are around 250 such windows scattered around the region, including 149 in the historic centre of Florence, dating back to Renaissance times, when the aristocratic families of the time sold off wines from their vineyards to passers-by. These windows proved very useful in the 17th century, when the bubonic plague struck, but they then lay dormant until the enterprising owners of the Vivoli ice cream parlor used them to serve gelato and coffee during covid-19. Nearby wine bars followed suit, and a number of these venues continue to use their wine windows post-pandemic including Babae, where Tucci enjoyed his drop of vino.
 
Yes, this all makes for good television, and no doubt adds a bit of theatre to these establishments for tourists. But as foodservice businesses the world over find themselves with chronic staff shortages and wobbly economics, then maybe such hatches make financial sense. While some businesses here in the UK run them alongside their indoor service offerings, others close down their interiors at quieter times and can operate from a hatch with a single member of staff.
 
The rise of online ordering and home delivery is also fueling interest in the hatch, as a growing number of operators recognise that adding venues with no indoor seating – and instead having the equivalent of a hatch for service and collection of orders – works incredibly efficiently for time-strapped customers and employee-strapped businesses. Starbucks was on the case before covid-19 struck, with its first pick-up only outlet opening in New York City in 2019, and since then, many further branches have been opened at a cracking rate around the US.
 
Chipotle has also factored the walk-up window into its strategy and uses them as a complimentary element to its indoor service offer. A number of its new units have included these windows, which work especially well in urban locations where the company cannot incorporate a drive thru Chipotlane. Similarly for its existing estate, the service windows have been added where a drive thru is not possible. The strategy has proven to be margin enhancing and is helping drive throughput, according to Tabassum Zalotrawala, chief development officer at Chipotle, who says: “Those units in an urban environment are spaces that are physically smaller, longer, or with narrower storefronts, and so we thought what if we added walk-up windows, like a human lane, if you will. So, if you were a customer that used the app and ordered ahead, you had no reason to go inside the restaurant, particularly those smaller footprints where you might find some congestion.”
 
The strategic rationale for embracing hatches seems pretty broad, and it certainly looks like they are worth investigating by businesses of all types, because they appear to be an economic solution for a variety of pressures that currently afflict the industry. Anything that proved itself during the bubonic plague and covid-19 must have sufficiently robust merits to warrant some consideration.
Glynn Davis is a leading commentator on retail trends

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