Bassadone – A squeeze on margins of this scale is unprecedented in my thirty-five years’ experience in the hospitality industry: Andy Bassadone, chairman of Various Eateries, the Coppa Club operator, has said that the scale of the squeeze on margins the business is currently experiencing is unprecedented in his thirty-five years’ experience in the hospitality industry. Bassadone was speaking after the business saw its pre-tax loss in the 26-week period to 2 April 2023 widen to £4.3m (H1 2022: loss of £2.6m) and said that it its full-year Ebitda margins as a percentage of sales “will be significantly lower than previously expected”. For the 26-week period ending 2 April 2023, group revenue increased 16% on the comparable period in the prior year to £20.6m (H1 2022: £17.7m). It said that group like-for-like sales, excluding the benefit of the reduced rate of VAT for hospitality businesses in the prior year, were “marginally up”. The company said: “Management is pleased with the revenue performance, particularly given the challenging economic environment, disruptions from train strikes, and an unseasonably wet and dull spring. Trading highlights in the period included the improved revenue performance of our central London sites, which saw like-for-like sales grow by 10% on the same period last year, as the number of office workers and tourists increased.” The group said that its first Noci site in Islington, which opened in March 2022, continues to “outperform management expectations”. It said: “The brand has quickly established itself and, although it currently forms a small part of the group, management expects it to play an increasingly prominent role in the years to come. However, as previously reported, the group, alongside the rest of the hospitality industry, has been dealing with unprecedented cost pressure in the supply chain, energy costs and continuing pressure on wages and related costs. The same period last year benefited from £1.2m of VAT and covid relief which has had a direct impact when comparing gross profit. The combination of these factors has led to a decrease in gross profit to £0.6m (H1 2022: £1.5m) and a loss after tax of £4.3m (H1 2022: loss of £2.6m). The group’s balance sheet remains solid, with cash at bank of £3.1m as at 2 April 2023 (H1 2022: £14.5m).” Following the post-period openings of Coppa Club Guildford and Noci Battersea Power Station, the group now operates 17 venues. Coppa Club Guildford, the brand’s second townhouse offering, opened its doors in April 2023, and the business said it is pleased with how it has been received by the local community and its “strong start to trading bodes well for the future”. Opening in May 2023, the group’s second Noci site, located in Battersea Power Station, has “enjoyed a promising start”. Although early in its existence, the business said it was confident in its ability to replicate the success of the original. It has signed terms on a third Noci site in Old Street, central London. Located in Shoreditch, Noci Old Street is expected to open towards the end of the current financial year. Coppa Club Cardiff and Coppa Club Farnham will open in the next financial year. The company said: “Noting the uncertain economic backdrop however and as previously announced, a rise in the cost of fitting out new venues, management continues to pursue its expansion strategy cautiously and at a measured pace.” The company said that following a review of the trading figures for the first half of the year to end of March 2023 and for the additional two months to the end of May 2023, it wished to update investors in respect of full year market expectations. It said: “In the current economic climate, the board has prioritised sales, customer satisfaction and maintaining the group’s value proposition ahead of trying to maintain previously industry-normal levels of margin. Consequently, although considerable uncertainty remains around the important summer trading period, excluding the impact of postponing certain new openings as a result of the board’s cautious approach in the current environment, we expect full year sales to be broadly in line with market expectations. However, several ongoing factors are continuing to have more of a negative impact on bottom line performance than the board had previously anticipated: Despite sustained falls in underlying commodity prices, food costs are continuing to increase at high double-digit rates, as reported in recent official inflation data. While some of the rises have been mitigated by supply chain management and menu engineering, the company continues to believe that it is better for its long-term strategy not to pass on the full extent of the net price increases to its customers. Variable costs, in particular energy costs, also remain highly elevated and, although there are signs that they are abating in some areas, they continue to substantially impact profit margins. The labour market continues to be extremely difficult. As well as an increase in direct labour costs, this also results in very significant additional costs, notably recruitment and training of staff. Continuing train strikes have a major impact on the company’s larger city centre sites, with a direct impact on revenues and increased challenges for efficient staff rostering. Due to the above factors, the company anticipates that net Ebitda margins as a percentage of sales will be significantly lower than previously expected. Although, there remains considerable uncertainty in forecasting in current circumstances, based on current levels of cost inflation, we estimate that the total impact of increased food, labour and variable costs on site Ebitda margins for the full year to September 2023 as a percentage of sales will amount to approximately 5-7%. Further central cost pressures may amount to a further 1-3% of sales in terms of reduction in total group Ebitda margin. Obviously, the board is continuously reviewing costs and implementing measures to mitigate this shortfall. On a more optimistic note, excluding the effects of train strikes, sales across the group continue to hold up well, the performance of recent new openings has been encouraging, and the availability of sites in prime locations at significantly lower rents continue to increase.” Bassadone said: “A squeeze on margins of this scale is unprecedented in my thirty-five years’ experience in the hospitality industry. Even though we were anticipating a significant downturn, the actual rise in input costs has been much higher and far more sustained than the industry anticipated. In addition to the discipline we are exercising in relation to new openings referred to above, we continue to focus rigorously on the cost structure and operational efficiency and will adapt the way we operate in this environment. With established and desirable brands, a clear growth strategy, and a management team that has a proven track record of growing businesses in good and bad times, the group is well positioned. We will approach the second half in a similarly measured way to the first and remain confident in our ability to accelerate growth when conditions normalise.” Yishay Malkov, chief executive of Various Eateries, said: “I am proud of the way our teams continue to rise to the challenges of the current landscape while maintaining an unwavering focus on delivering exceptional experiences to everyone that comes through our doors. It is thanks to them that our brands have built such strong reputations and remain in such high demand. Looking ahead, while it’s difficult to say with any certainty when the pressures we, and others in our industry are under will subside, we will continue to monitor and respond to further changes in the landscape as necessary.”