It’s no secret that the hospitality industry has been hit extremely hard by the ongoing energy crisis. If the fallout from the pandemic wasn’t bad enough, the sector has now had 18 months of soaring electricity and gas costs to contend with, rising by up to 400% at the peak, and this is threatening the viability of businesses in our sector.

Our latest member survey showed 30% of businesses were fearful of failure in the next 12 months and 94% of them linked this directly to energy prices. An issue compounding this is a lack of cash flow associated with debts resulting from covid, with many operators still repaying bounce back loans and borrowings through the Coronavirus Business Interruption Loan Scheme. And, of course, this is on top of a relentless onslaught of price rises in a number of other areas.

There is no doubt our sector is resilient, and operators and their teams are creative, flexible and determined to survive. However, it is against this backdrop that we read in the papers and hear on the news about the astronomical rise in profits being reported by the energy companies. This feels like somewhat of a kick in the teeth for businesses that have been forced to stump up significant security deposits and deal with ridiculous standing charges, or in some cases, been refused a contract at all. 

The situation is critical enough that Ofgem did undertake a review into the non-domestic energy market, which took our feedback seriously and singled out hospitality as the worst affected sector. It now embarks on a consultation on its recommendations. 

As a result of this, we launched our #FiveAsksForOfgem campaign. We’re asking businesses across the sector to come together to raise awareness of the issue by responding to the consultation. 

Doing so is, in our view, absolutely critical to getting meaningful change on this. So, I’d strongly urge everyone reading, if they haven’t already, to respond to this consultation. We’ve even made it super easy and simple for you, just click here to respond.

Too much time has been wasted already, and every week that goes by means more and more businesses – small, medium and large – are either closing or getting dangerously close to shutting their doors for the very last time. This won’t just be a loss for the business owners, but for those who will lose their livelihoods and the communities that will lose the venues that lie at the heart of them as well.

While we’ve been constantly lobbying Ofgem and government and agitating for change for some time now, it is only coming together as a sector and demonstrating our collective strength that will prompt the government to take action.

By responding to the consultation, you’ll be amplifying what we’ve already been telling it. Your responses will underline how mistreated the sector is, shine a light on the dark practices of suppliers who have refused to negotiate when prices fell and pointing out the downright disregard they have for hospitality. 

Ofgem’s review of the non-domestic energy market made several recommendations. We wholeheartedly support these and believe they can help drive real change in the energy market. 

Most importantly, they are encouraging suppliers to work with hospitality businesses to resolve the issues many are facing with fixed energy prices far above current market levels. This is something we support, but it must go beyond mere encouragement. Clearly, there needs to be a direct communication to suppliers from Ofgem to this effect – and that needs to happen immediately.

There is also a recommendation to prevent the blacklisting of entire sectors, like hospitality, and this is essential to create the truly competitive energy market that we need. All too often, we hear from hospitality businesses unable to obtain quotes from several suppliers and so are forced to continue with their current supplier, at eye-watering rates. 

Other critical areas of work they’ve suggested for action include delivering greater transparency for customers, widening access to the energy ombudsman and improving the regulation of energy brokers. 

We will, of course, be responding in the strongest terms to Ofgem that these recommendations need to be implemented swiftly, by both the regulator and the government, whichever is more appropriate. However, with your responses as well, our asks will be all the more powerful.

Time is of the essence. There’s less than a week to go until the consultation closes on Wednesday (6 September), and we need as many people as possible to respond, so please take a minute to join hundreds of your colleagues in hospitality and have your say too.

 

Like-for-like sales budgeting for operators next year might be tricky to say the least, but budgeting the conversion of sales into Ebitda isn't going to be any easier.

 Top-line sales budget considerations will include, among other things, the continuation of the cost-of-living crisis, the rise (or fall) in consumer confidence through the year and any action the government might take in preparation for the next election (which must be held by 28 January 2025). There is, of course, the continued impact of war.

A recent report from Consultancy UK stated the typical British household will be £2,300 worse off in real terms by the time the cost-of-living crisis comes to an end (predicted to be mid to end 2024). The Consumer Price Index rose by 7.9% in June but May 2023 wage growth was 7.3% – a real terms pay cut for the UK's average worker. Interest rate rises have placed pressure on many households who are having to borrow money to make ends meet.



As a result, with fewer and fewer options on the table, most UK consumers have continued to scale back their spending on all fronts. Grant Thornton has called this the “Cut Back Economy”, believing it presents a formidable challenge for retail, leisure and hospitality businesses. The Office for National Statistics has said more than two-thirds of adults in Great Britain, questioned in July/August this year, are now spending less on non-essentials due to the rise in the cost of living.



Katy Moses, managing director of KAM, has said that versus 12 months ago, 46% of people said they have less disposable income to spend on eating and drinking out at pubs, bars and restaurants each month versus 27% who said more. This is felt most considerably by Generation X (42-57), where 59% said they had less disposable income to spend on eating and drinking out.



Operators will be thinking through the impact of this and other influences on their business – north versus south, suburbs versus city centres, youth/older population versus family, affluent versus poor ­– when they put together their budgets. Like-for-like footfall is likely to stay pretty static for many in 2024.



While cover growth may be illusory, spend per head growth is likely to continue, driven by the need to increase prices to cover cost of goods increases or simply the requirement to find top-line growth from somewhere. Customers are also spending more when they do go out ­– just going out less.



In terms of converting top-line sales into bottom-line profit, there is much to consider for 2024. David Read, founder and chairman of Prestige Purchasing, says food and drink inflation is currently in excess of 20% in hospitality. He is, though, predicting sharp falls in this level during the rest of the year and an exit from 2023 at around 12%.

Prices will, of course, still be rising, just at a slower rate. Even by December 2024, he still expects the Foodservice Price Index (FPI) to be increasing at around 4% on prior year. By this time, the compound increase in the Index from January 2021 to January 2025 may well exceed 40%.



Of course, larger hospitality groups are often delivering lower numbers than those above because of their scale and more sophisticated buying, but he believes it will be 2025 before we see the full FPI actually in deflation. 

In terms of utilities, he makes the point that the unprecedented peaks seen between early 2021 and late 2022 have subsided, but today's prices remain well above 2020 levels and look unlikely to fall materially unless circumstances change (such as the Ukraine war ending).



Operators also need to consider the impact on their 2024 Ebitda forecasts of The Employment (Allocation of Tips) Act 2023, which received royal assent on 2 May 2023 and will come into effect, potentially, from next spring. The act stipulates that employers will be legally obliged to ensure their workers are allocated 100% of any tips or service charges (less tax and national insurance), to attribute gratuities paid at a single venue to that venue alone and to allocate them fairly. They cannot deduct any administration costs from tips due to their employees.



James Brown, co-founder of Tipjar, believes the profit and loss impact for many hospitality businesses could be seismic, saying “budgeting for next year has to consider income or margin lost, food and drink pricing may have to be considered and robust plans are needed for to implement the new act”.



Budgeting for cost of goods increases in 2024 is somewhat easier than it has been for several years. Budgeting for top-line sales growth, however, is probably difficult and is predicated on consumer confidence for the year ahead.

 

When I expressed my sadness at the announced January closure of Le Gavroche, my wife seemed surprised and suggested it was no big deal as it’s only a restaurant. I’m certainly not alone in regarding it as something much more than just a restaurant. Since its opening in 1967, it paved the way for a revolution in dining out in the UK and contributed to a new found appreciation of food in this country.

 

My first visit to the Roux family-owned Le Gavroche came after it had become the first UK restaurant to be awarded three Michelin stars, and it was a place I visited with my mother for lunch on a very modest number of special occasions. What I can recall from that period is it was pretty easy to book a table as long as you arranged it with a bit of advance notice. In recent years, we had not been able to return to the venue because we found it impossible to secure a table for the dates we required. 

 

The popularity of its legendary set lunch – for many years sub-£50 for three courses including half a bottle of wine – contributed to it being an increasingly tough place to bag a table, even in London, with its historically vibrant restaurant scene where great choices abound. However, it wasn’t just this deal that made Le Gavroche such a draw, it was also impacted by the underlying increase in the level of dining out that has taken place in the UK over recent years. 

 

Le Gavroche has clearly been playing at the top end of the market, but the frequency of dining out has been on an upward trajectory across all parts of the hospitality industry for many years. Eating out has become a regular feature of most people’s lives and has arguably been commoditised to some extent. In the UK, we now dine out 1.5 times per week, according to OpenTable, which involves typically spending up to £53 per meal.

 

Suggesting to my children that going out to a restaurant or a pub for a meal used to be regarded as a bit of a luxury – or at least something of a treat that was done relatively infrequently by most of the population – was met with puzzled expressions. 

 

Maybe we are going to return to this yesteryear scenario, because 81% of people now perceive eating out to be a luxury compared with 71% (seems rather high to me) 18 months ago, according to research from finance consultancy Oxera. As food prices have increased along with rents, wages and everything else involved in the running of a restaurant, this might notch-up even further.

 

Nobody can have missed the fact that the numbers on the bill at the end of a meal have risen dramatically. My family used to play a game of “guess the final bill” but we stopped because we were underestimating by far too much. There were invariably expressions of “how much?” that took the fun out of dining out, so I curtailed that increasingly annoying little game.

 

This bump-up in prices was noted in the Hardens London Restaurants 2023 guide that found 154 entries were listed with a £100-plus cost per head (three courses plus half a bottle of house wine and coffee) including 37 at more than £150, whereas in 2017 only 37 entries were at the £100-plus level and only one restaurant was priced at more than £150 per head. The present guide has six above the £250 level that I reckon would have been an unpalatable amount a mere few years ago.

 

Yes, this is clearly all at the highfalutin end of the market, but the increased costs of operating restaurants has cascaded down to all levels of the industry. What is telling about this situation is that we might not be returning to the good old days of eating out oblivious of the bill because there are forecasts from the Bank of England that the UK’s era of cheap food could well be over and might never return. It has stated: “The bad news is that even though food inflation is expected to moderate, food prices will remain high and not decrease.” 

 

Throw in other factors like the long-term impact of increased mortgage levels on disposable incomes and this will drive a further polarising of the marketplace. Top-end eateries will continue to sail on largely insulated from economic realities, while the value-end operators and brands service an increasing percentage of the country’s cash-strapped, but still committed, diners.

 

The Roux family’s Mayfair restaurant was never cheap, but it did used to be accessible. If we are entering a period when dining out is becoming more of a luxury to a greater number of people, then maybe the ability to bag a table at some of London’s best dining venues for a special occasion will become a tad easier. Sadly, it is already too late for me to take my mother for one last visit to the dining room of Le Gavroche.

There’s been an evolution in the franchise space across the UK’s hospitality sector over the last 12 months or so. Never before has the category had such a wide pool of brand talent as it currently has, and that is only going to expand as up-and-coming brands enter the franchise space earlier than ever and further international concepts see the UK as a gateway to European expansion opportunities.

 

But is there enough space and demand in the UK market to satisfy that new supply, and who will be the long-term winners? The Propel Premium database of multi-site companies has now grown to include 2,943 companies, which operate 69,493 sites. An additional 62 companies, which operate 323 sites between them, were added during August 2023. Many of these highlight the healthy state of the franchise market, and the opportunities it presents. 

 

Good examples of this include Yorkshire better burger concept Chickanos. Founded in 2011 by Mohammed Laher and Suhel Lunat, the company opened its debut site in Batley, followed by branches in Dewsbury, Huddersfield, Bradford and Leeds. It then turned to franchising and opened franchise stores in Blackburn and Leicester, and recently opened a new site in King’s Heath, Birmingham. Likewise, Indian street food concept Chai Green, which was founded in 2020 by Hasnain Siddiqui, opened its debut site later that year. This was followed by a second flagship Birmingham site in October 2022, and a first franchise site, in Cardiff, in December 2022. The company also recently returned to Birmingham to open its fourth site, in Coleshill Road.

 

Flavoured tea franchise Boba Shack, which is co-owned by Steve Smith and Philip Price, operates sites in Chesterfield, Doncaster and Sheffield’s Crystal Peaks Shopping Centre. It recently opened in Mansfield’s Four Seasons shopping centre, selling a range of flavoured drinks from fruit tea to milkshakes. Meanwhile, rolled ice cream concept Pan-n-Ice was founded by Henry Milroy in 2015, when Milroy went travelling in Thailand and discovered the concept. The company operates five sites – two in Manchester (Trafford Centre and Arndale) and three in London (Westfield White City, Stratford, and Argyll Street). The Argyll Street site, which has recently opened, is not only its first franchise location but also its first not based in a shopping centre.

 

Established franchisees continue to explore ways to add to their existing brand portfolios too. KK Foods SW is a franchisee for Slim Chickens in the south west. The company, which is an established franchise operator with a track record of rolling out hospitality brands including Pizza Hut Delivery and Costa Coffee, has so far opened three sites under the Slim Chickens brand, in Bristol, Exeter and Plymouth. The business has also signed a multi-unit deal to expand leading Asian quick service restaurant brand Chopstix in the region, with its first site opening in Plymouth’s New George Street.

 

Earlier this month, Itsu, the healthy Asian food chain founded by Julian Metcalfe, added to its portfolio of franchise partners by signing a partnership agreement with Scoffs Group, the largest Costa Coffee franchisee in the UK, with the first site under the new deal set to open in Exeter. Itsu currently has four franchise partners in the UK and is looking to add more, as it looks to double its existing circa 80-strong estate. It expects the majority of its new restaurants outside of central London to be created with franchise partners.

 

At the same time, Scoffs, which is also a franchisee of Miss Millie’s Fried Chicken, has partnered with Burger King UK. It is understood Burger King has a few sites in the pipeline already with Scoffs, with the first site under the new partnership set to open in Taunton. Over the last couple of years, Burger King UK has signed up a number of new franchisees, including the Motor Fuel Group, which has so far opened three restaurants this year, with another set to open before year end.

 

And more operators are set to enter the space. Thunderbird Fried Chicken, the wings and fried chicken concept backed by TriSpan, has begun talking to prospective franchisees as it looks at growing outside London. The Paul Gilchrist-led company currently operates seven sites in London, with several more in the pipeline, and five franchised locations with Parkdean. It is now seeking experienced multi-unit franchisees to grow across the UK, and internationally, with markets of interest including Ireland, mainland Europe and the Middle East. 

 

More and more concepts are also being built entirely for the franchise market. Operators are starting to realise the UK has a large number of franchise aggregators who hold multiple master franchise relationships, and they are all on the lookout for the next big thing. You don’t need huge amounts of capital to begin that growth journey. Attractive and scalable franchise propositions continue to take up the expansion slack while the majority of the rest of the sector put their own roll out plans on hold.