16 October 2018
It doesn’t get much better, although perhaps the worst of the storm has passed for the casual dining sector. It is only three months since the CAU restaurant chain collapsed and Jamie Oliver recently reported that his restaurant empire was just two hours away from bankruptcy. Our Corporate Recovery team continues to deal with solutions for insolvent restaurants. However, after the storm, there is evidence to suggest that the smaller operators will now emerge stronger following the flushing out of some of the larger chains. In addition, the commercial property market is easing, such that landlords are relaxing their terms, which is good news for operators.
The Main Concerns
The principal areas of concern for operators remain the same. We list them here with a prediction of whether things will get better or worse in the year ahead against the backdrop of Brexit, and also offer some potential solutions:
Staff shortages
The fears here are probably overblown given the lobbying being done by the Hospitality industry and the desire of the Government not to destabilise the sector, given its contribution to the UK economy. More thought should be given to innovative solutions which encourage both young and old to work alongside one another in Hospitality, creating a “diversity of ages”.
Property costs
As outlined above, the pendulum may be swinging back towards the operator and away from the landlord. This will enable the operator to negotiate better terms, lower rents and deposits, and greater incentives in terms of rent-free periods. Again, the Hospitality Industry and others are lobbying the Government to level the playing field between the “bricks and mortar” and “on-line” businesses, with a review of the rates system and the introduction of a digital tax on sales, although the implementation of these is likely to be a long way off.
Customer reviews
These can damage or enhance a restaurant’s brand, particularly in the age of social media and influencer marketing. The message as always is focus on the food, quality of service and offer value for money, so that the customer will continue to return. Listen to the reviews and respond in a professional manner – if there is a common theme, such as the introduction of more technology for ordering or payment, and it is appropriate to address this, take positive action.
Food costs
If food costs rise then a decision has to be made as to whether that cost increase can be passed on to the customer without impacting their “value for money” experience. In addition, if possible, action can be taken to switch to substitute products and suppliers to lower the purchase cost. If UK operators are worried about a further fall in Sterling against the Euro as the UK prepares to exit from the EU, because of substantial purchases of foodstuffs from overseas, then hedging foreign currency exposure through forward contracts with a Bank is one option to mitigate this risk.
If you would like any advice about the topics covered in this article, please contact Martin Jones.
