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Morning Briefing for pub, restaurant and food wervice operators

Fri 8th Sep 2023 - Friday Opinion
Subjects: The impact of CBILS, older guests calling the shots in hospitality now, beer lists, why employee engagement starts with the payroll team
Authors: David Roberts, Glynn Davis, Phil Mellows, Scott Read

The impact of CBILS by David Roberts

When covid-19 struck in 2020, the market started to see some large restaurant groups, some of whom had for some time been struggling with debt and partial non-performing property portfolios, put in place restructuring-based strategies to help them cope.
Multiple restaurant groups took the opportunity to implement a company voluntary arrangement (CVA) to help them deal with large property estates with a long tail of over-rented/non-performing sites. Examples of covid CVAs included PizzaExpress, YO!, Pizza Hut, Wahaca, Frankie & Benny’s, Leon and Gusto, all of whom took the opportunity to use this Insolvency Act procedure to restructure their leasehold estates and deliver a breathing period for their businesses, to help recover from lockdowns and the loss of custom that resulted.
For other groups, however, property was not the only problem. Others had additional issues including too much debt, strategic disputes with lenders/shareholders, tired offerings and failing businesses models. And thus a host of well-known companies had to resort to appointing administrators to step in – again under the Insolvency Act – to protect the business, staff and stakeholders; to see if they could ultimately restructure the business and sell it out the other side via what is known as a pre-packaged administration sale.
Others bypassed CVAs and administration and went straight into liquidation, and others were not capable of being rescued. Again, the Insolvency Act offered the boards and shareholders of these businesses various options to try to protect and save their businesses, which is consistent with the aim of the legislation, which is designed to promote a protect and rescue culture where possible.
Businesses that managed to trade out of covid and trade successfully out of their CVAs were entitled to think they had dodged a bullet in 2021 and 2022, only to find the trading challenges brought about by Russia’s invasion of Ukraine, the cost of utilities and food cost inflation hitting a 40-year high and present what can only be described as existential crises for their businesses.
As Kate Nichols told Sky News in July 2023: “Half the sector is still trapped in a very high energy contract taken out at the peak of the market in the second half of last year. Energy costs for small restaurants have gone from being 4% of turnover to 14% of turnover. That has often happened overnight, and it just means they can no longer make a profit. So, you have got a third of the sector trading at or below break-even.”
In order to deal with these challenges, the sector has improvised by not only passing prices on to the customer where possible, but via a range of techniques including menu re-engineering, supply chain rationalisation, use of central kitchens, smarter rostering, use of new technology and entering into utility hedging contracts.
On top of this, however, many reading this article will know that the one of the last (perhaps only) sources of funding to keep businesses afloat during covid was the government’s Coronavirus Business Interruption Loan Scheme (CBILS), which offered loans for up to £5m for businesses with a turnover of up to £45m. 
Those who took these loans out know that they have now become repayable, and with interest rates 400% higher than they were at the time when the loans were made, the monthly cost of repaying these CBILS has skyrocketed.
As we know, interest rates have been rising since December 2021 as part of the Bank of England’s effort to quell inflation. So, while the government is trying to fix the problem of inflation by increasing interest rates to suck money out of the economy and quell demand, the knock-on effect on businesses is becoming catastrophic. 
Sky News reported that according to the Bank of England, “the share of medium-sized companies facing interest payments of more than 40% of their annual revenue is expected to hit 70%”.
There is just not enough turnover, or margin left, in any business in the hospitality sector to play with to cope with such a cost. This means that unless things change rapidly, my belief is we will see a huge increase in administrations and liquidations as businesses collapse under the weight of the interest that banks are now charging their CBILS borrowers.
There is a deep irony in this. Given that these loans were government guaranteed in order to save bars and restaurants from going under during the enforced lockdowns that they suffered, it is these very same loans that are now gauging all spare cash out of already challenged profits and losses to repay the banks.
So what do you need to do?
The advice I give to clients is to monitor cash flows and liabilities carefully. You should put together a 12 to18-month cash flow forecast showing your projected cash inflows and outgoings and see if there is a hole coming, and if so, when is that hole coming and how deep is it?
Directors need to put in place plans to deal with such a hole, including growing the bottom line where possible, but also, defensively, by managing creditors prudently (payment plans, deferrals etc). They should also seek to shore up finances by saving costs, deferring projects, surrendering or transferring non-performing leases, clipping marketing budgets, selling or shutting down non-core assets or businesses and potentially approaching shareholders to raise additional capital to help the company though the process.
We are seeing plenty of companies raising capital quickly via Advance Assurance Agreements or rights issues to existing shareholders at attractive discounts to the last valuation at which funds were raised, to ensure that the business has access to the cash it will need. 
However, if the cash flow projections look so bleak and your business is not responsive to the changes you are making, meaning that the hole looks too big and the options to fill it are not there, you need to speak to an insolvency practitioner or lawyer quickly to get advice on what your options are.
Most will tell you that once the business reaches a point of no return, where it is no longer able to meet its debts as and when they fall due and there are no reasonable prospects of avoiding insolvent liquidation, you have no option but to appoint an administrator. This is because, if you allow the business to continue to trade, there is a risk that the directors can be personally liable for the losses suffered by creditors from that point onwards. 
As many in the sector have done, the administrator will step into the shoes of the director, analyse the business and its prospects and market it in order to see if it can be sold to a new owner, or sometimes to the existing owners using a new financing structure. If the business can be saved, then the administrator will do its best to find a buyer, and a good example is the recent pre-pack administration sale of Vinoteca to new owners. 
If there are no prospects, the administration will end and the business will go into liquidation, and the role of the liquidator will be to recover as much as they can from the sale of the assets of the group and then wind it up, paying creditors as much as they have been able to recover.
So, beware of the cost of the repayments of your CBILS. If you do have one, prepare a prudent cash flow forecast and make the operational changes you need to protect your margins, and the earlier you pick up the phone to a specialist insolvency practitioner to get some advice, the more likely that you will be able to trade out of a tight squeeze or find a purchaser to avoid an insolvent liquidation, or worse still, avoid personal liability for wrongful trading.
David Roberts is corporate partner and head of restaurants at international law firm CMS. This article first appeared in Propel Premium, which is sent to Premium subscribers every Friday. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email to upgrade your subscription.

Older guests calling the shots in hospitality now by Glynn Davis

News that the former glamorous London restaurant Le Caprice is to reopen on its original site by its previous owner, renowned restaurateur Jeremy King, has made plenty of headlines and highlighted the myriad glitterati that regularly dined there in the 1980s and 1990s, including Princess Diana.
In these reports, it is clear the real star of the swanky establishment situated close to The Ritz Hotel was its maître d’, Jesus Adorno – and his return to the new Le Caprice will be integral to its future success, according to King, who clearly massively values the experience his former front man brings to running restaurants and keeping everybody happy.
This experience comes with age, and at 70 years old (based on my calculation), he will no doubt be significantly older than the rest of the team when the restaurant opens its doors. Whereas his grey hair would have made him an outlier before the pandemic, this is not so much a guarantee today because the shortage of workers in hospitality has led to a drive to recruit from a broader cross section of people – including those with bus passes.
The days of ageism are seemingly over, and there is thankfully a more inclusive approach being taken to recruitment. According to research from recruiting site in late-2022, as many as 62% of businesses stated they were hiring more inclusively to resolve labour shortages, and 25% said older workers would be important. This shift in behaviour has seen the number of people aged 50 and above now accounting for more than 25% of the hospitality industry’s approximately 2.2 million workforce.
The likes of McDonald’s has run UK advertising campaigns specifically seeking older workers, and Fuller’s has also been proactively targeting the older demographic, having recognised that not only can they fill yawning gaps on the work rota, but they also have some attractive skills.
Dawn Browne, people and talent director at Fuller’s, says: “People aged 50-plus are a really important talent pool for Fuller’s. We find that our older employees bring valuable skills, wisdom and insight to the table thanks to their years of experience, both inside and out of work. Their softer skills, typically honed through years of practice, make them excellent candidates for customer service roles – the lifeblood of the hospitality sector.”
What is helping the likes of McDonald’s, Fuller’s and other enlightened employers is the ongoing growth in the number of older people in the UK now available for work. Many are expecting to work into their 70s, according to Rest Less, which found a 61% increase in the number of over-70s in employment in 2022 compared with 2012. The current cost-of-living crisis is further contributing to the serious pressure on many people’s pension situations.
This does not mean there is deep pool of individuals willing to jump into any old hospitality role. Companies need to better understand the needs of older workers. Having done some work with Rest Less, Fuller’s found that flexible work practices are of the utmost importance to the older grouping with their ongoing juggling of health, family or caring responsibilities alongside a job. “That’s why we’re hoping our flexible shift lengths and work patterns give all of our team members the flexibility they need to live their lives alongside earning an income,” says Brown.
What these older workers also bring is a not particularly secret weapon – an affinity with older customers. Let’s take a moment to consider that among the more mature demographic are many individuals who wield serious spending power. Consider that expenditure by those people aged 65 and over increased by 75% between 2001 and 2018 versus a decline of 16% by those aged 50 and under, according to research from KAM. 
While younger people are either paying increasingly onerous rents or dealing with mortgages that have been affected by rising interest rates, the home-owning older grouping have the disposable income to enjoy themselves. They are now calling the shots in hospitality, and this trend looks set to continue, with older people forecast to account for 63p in every pound spent in the UK economy by 2040, compared with 54p in 2018. 
It seems pretty obvious that the hospitality industry now has to look after the older grouping, both as employers and also as customers. This is something that Le Caprice and Adorno will no doubt be fully aware of, and well placed to benefit from, when it throws open its doors in 2024 after its four-year closure.
Glynn Davis is a leading commentator on retail trends

Beer lists by Phil Mellows

I’ve just finished reading beer writer Des de Moor’s welcome new book, “Cask”. One point among many that jumped out at me in his comprehensive case for cask conditioned ale was how pubs and bars simply fail to tell people what they’re selling, a fundamental error in any kind of retailing that somehow seems to be accepted when it comes to beer.

“Pub websites and social media pages, increasingly important in helping drinkers plan their night out, typically include extensive information about food, wine, spirits, cocktails, soft drinks and, often, keg, bottled and canned beer,” de Moor observes. “But look for the cask offer, and you may well find an unhelpful statement that they also stock ‘a selection of real ales’.”

The problem is there too when you get to the pub, he adds. You’ll frequently find a detailed food menu and wine list with no mention of beer. And while the rise of craft has improved matters, I do think it’s an issue for beer in general. 

The pub trade’s best-selling product is too often treated as a commodity. It’s seen as perfectly okay to blandly advertise cask ale, craft beer or, for that matter, cold lager, with no further specification necessary.

This is, as de Moor notes, especially apparent online. As part of the preliminary research for the guide I’m writing about British beer breaks, I check pub websites and social media to get an idea of the beer offer with very little success. Hotels, too. Hotels are the worst. 

There are, of course, some inspiring exceptions. The first online beer list I encountered was for the Dove Street Inn in Ipswich, at a time when the internet was still in its infancy. No smartphones to check it while you’re on the move, but still very useful.

I’m on the pub’s website now. It looks like the original web design, very retro, complete with Comic Sans, but the beers are being continuously updated and it works fine. All the information you need, tasting notes and all.

Beer specialists like the Dove Street Inn appreciate the importance of telling prospective customers what’s on their taps, especially because the list may frequently change. But even if a pub is not selling a big range of cask and craft beer, there’s no reason for it not to tell people what they do have. In fact, it should be easier.

And I’ve noticed most customers these days will be asking for a brand. Usually Madri, but it shows active decision-making. Fewer will simply order a lager, and mainstream craft brands such as Beavertown and Camden have also made people think harder about what they’re going to drink.

Let’s imagine, though, that you’ve gone to the pub anyway, confident that they must at least sell some beer you’d like to drink. Once you’re there, more often than not, the only way to find out what’s on is to uncomfortably lean forward at a 45-degree angle and squint along a line of pump clips and font badges.

Happily, more pubs and bars are writing their beer lists on the wall, ideally including style and ABV. Beer drinkers perhaps lend too much importance to the latter. Wine drinkers aren’t bothered at all, but they have a right to know and find it out without having to search for and decipher tiny numerals on the pump label.

Another enhancement, which I first saw at the Red Lion at Cricklade, is those little jars of beer that show you the colour. A lot of drinkers choose beer by the shade, and it’s good the pub is making the effort. Again, though, it doesn’t necessarily tell you what it’s going to taste like – much better to ask for a sample, which I’m pleased to say, most pubs are happy to supply now.

I once spent an afternoon in Birmingham with the late legendary beer ticker Mick “The Tick” Baker and was surprised when he pulled out a miniature telescope to scan the 20 pumps at the Wellington. Especially as there was a live electronic beer board above his head (the Welly is another one that was ahead of the game).

During that peculiar episode of the pandemic when we had to stay in our seats and couldn’t approach the bar, I seriously considered investing in one of those little spy glasses. If there had been printed beer lists on the tables, as there were food menus and wine lists and cocktail lists, it would have been easy. But no.

Too many pubs and bars take their beer sales for granted. Perhaps it’s time for them to give their beer-drinking customers a little more encouragement.
Phil Mellows is a freelance journalist

Why employee engagement starts with the payroll team by Scott Read

It’s National Payroll Week, and it’s an occasion designed to mark the hard work payroll professionals do to keep Britain paid. And they really do. In a year that started with CPIH inflation rates of 26.7% (Office for National Statistics 2023), payroll is becoming the most important department in every business, and the payroll team is potentially carrying the weight of success on its shoulders.
According to Sage, 35% of UK employees would find another job if they were paid incorrectly even once, and 51% would lose trust in their employer and resent them. Based on this, you could be seeing more than a third of your staff walking out the door if the payroll department mess up just once – this is huge. Overlooking payroll processors as a business-critical role opens companies up to risks that aren’t just limited to financial in nature.
The first risk to consider is morale
If an employee is paid incorrectly, they lose trust and confidence in the management and they might be vocal about it too. You can imagine it: “we’re not priority”; “we’re an afterthought”; “I bet the boss still got paid”. Of course, the thoughts will depend on how big an error is, how frequent errors are and who is on the receiving end. 
But they can quickly create a culture where people question the management’s integrity – if it doesn’t care enough to get my pay right, it certainly doesn’t care about what’s going on at home. Low morale can lead to a reputational issue internally, but with the growth of review sites such as Glassdoor, internal reputational issues can quickly become external issues not only impacting retention, but talent acquisition too.
Do it more than once, you’re in trouble 
At this point, any change (good or bad) can raise suspicion. If you pay people a day early but don’t communicate why, they’ll think you don’t know what you’re doing. Pay people a day late, they’ll think there’s a cash flow issue. A lack of trust here will make employees question their faith in the leadership team to make decisions in other areas of the business, and ultimately, their confidence in the business and its products or services. And no matter what the cause is, people won’t 100% believe your reasons. 
People leave jobs for more money

Yes, more and more people are considering culture and employee benefits over salary, but ultimately, in a time where less and less people have savings for a rainy day because it’s been raining for two years, pay matters and is usually the deciding factor. So, a reputation for paying people late or incorrectly isn’t a look you need to be going for.
Employee benefits are not contractual in nature and can be removed from an employee’s contract without consultation. Being paid correctly on a certain date is. In essence, if you mess up payroll, you mess with people’s contracts of employment. Employee benefits don’t mean anything if you have a bad culture anyway. So, for those companies that attract people based on a great rate of pay, if you don’t deliver it on-time and correctly, you better have an out-of-this-world company culture to make them stay. Of course, chances are you won’t if you have payroll issues. 
Payroll is complicated
The importance of paying people correctly isn’t new – but when you consider that a third of UK workers are now living payday to payday (WTW 2022), the potential impact of payroll errors and mistakes has higher stakes.  But payroll is complicated. You only have to look back to last year, when bosses of high street giant Next apologised to staff for underpaying some of them by up to £200 a month due to a payroll error, and just a few months ago, when WHSmith, Marks & Spencer and Argos were among a list of companies facing financial penalties for payroll breaches.
If the big boys can make mistakes, it’s a stark reminder to check in with your payroll team or provider to assess the potential risk to your business. If new legislation is announced, how is it handled? Do they have the reliable updated software to comply automatically with significant changes?
Ultimately if you want an engaged workforce, check in with your payroll team or provider first. If you want to invest in employee benefits to improve company culture, check in with your payroll team or provider beforehand. If you genuinely care about your employees and believe they are the key to business success, you guessed it, check in with your payroll team or provider. Happy National Payroll Week!
Scott Read is chief executive of employee services at payroll provider Growth Partners

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