CGA’s latest Follow-the-Money webinar on Wednesday (30 September) showed the scale of current challenges, but also set out reasons to be positive about the long-term future and attractiveness of the out-of-home sector.
Deals will be done, as companies find ways to adapt and tailor their operations to the new restricted reality. Here are some of the key insights from the expert panellists:
‘Hospitality always finds a way to adapt’
CGA’s director for food and retail Karl Chessell ran through the latest market data—including news that while one in four licensed premises is yet to reopen, a quarter of business leaders still have plans for new openings this year. That is an example of the unique combination of concern and hope that exists in the market at the moment.
Confidence has been boosted by the Eat Out to Help Out scheme, which led two thirds (65%) of leaders to report that performance was ahead of expectations since they reopened. But the latest round of government restrictions has set back much of that progress, and raised concerns about consumer spending in the run-up to Christmas.
It’s impossible to underplay how fragile consumer confidence is at the moment,” Chessell said. “But hospitality has been around for generations and it always finds a way to adapt… that innovation will see it good long-term.”
‘Livelihoods are on the line’
CGA’s research has shown the immediate impact of government restrictions on sales and confidence, and a cross-industry survey suggests a quarter of hospitality businesses think they could fail in the next three months without government support. CGA vice president and webinar chair Peter Martin said the case for intervention was clear. “If we don’t get support and restrictions lifted soon… there are going to be a lot of jobs and livelihoods on the line.”
‘The pipeline for restructuring is pretty full’
After a wave of restaurant companies undergoing CVAs and closing sites over the spring and summer, more business evaluations will follow, said Paul Newman, head of leisure and hospitality at RSM UK. “The pipeline for restructuring is pretty full… we’re seeing businesses examining their models more stringently, and we’re looking at deeper cuts now.”
With so many brands exiting properties, opportunities are emerging for new and ambitious businesses—especially those that can pivot to cater for changes in consumer behaviour. And the sector’s appeal to investors hasn’t diminished, Newman said. “I’m encouraged that there’s still investor appetite… there are a lot of people out there who are looking for quality assets—the challenge is finding those assets.”
‘Landlords are making some generous deals’
The exit from properties is leading some landlords to offer tenants better rent deals and capex contributions, said Mark Sheehan, managing director of Coffer Corporate Leisure. “Landlords have got much closer to businesses and they realise they have to support tenants to keep those sites paying the rent…. They want to help businesses come out the other end,” he said.
With many vacant units fully fitted out, new restaurants can get up and running quickly. “Make no mistake, landlords are offering generous deals to get tenants into good locations.” Another positive side effect of closures is that places previously saturated with restaurants will now find a better balance between supply and demand. “It’ll make it easier for other operators in smaller towns to survive,” Sheehan said.
‘Turnover rents are a transitional solution’
Property negotiations have led to an increase in turnover-linked rents, said Graeme Smith, managing director at AlixPartners. They provide businesses with breathing space at a time when trading levels are so uncertain—but when footfall returns they might want to revert to previous deals so they can keep more of the upside. “Turnover rents are a sensible transition solution, but in the long term we’ll get back to more of a fixed rent structure.”
Reduced overheads are a reason to be optimistic, Smith said. “Rental deals will be much more favourable, capacity will have been taken out of the market and, unfortunately, we’ll have higher levels of unemployment than when we went into the crisis. All of those point to reduced pressure at the topline, but also a reduction in the cost base.”
‘Tough for teams on the frontline’
Frontline teams in pubs, bars and restaurants have worked hard to combine safety and positive experiences for consumers—and now they have to comply with new government measures that frustrate many guests, said Martin Wolstencroft, CEO of Arc Inspirations. “It’s very tough for our teams out there on the frontline… [Regulations] are very confusing but we have to do our best to understand it and communicate it as best we can to our teams… and keep them relaxed.”
Arc has meanwhile embraced bookings, along with non-refundable deposits that combat no-shows, Wolstencroft said. “[Deposits] are something more people in the industry should move into… It’s been massive for our sales.”
‘Time to force technology change’
Online bookings, and apps have also been valuable to businesses like Turtle Bay and Flight Club, said its chair Jane O’Riordan at the webinar. “It’s been amazing how fast technology has been adopted into a sector where technology has been appalling… We should all be using this opportunity to force in technology change.”
The pandemic has also encouraged businesses to be more adaptable—in her case by thinking about smaller sites and new types of locations for Flight Club and Caravan.
There are growth opportunities out there if your business is relevant enough… but you’ve got to have a business plan that is reflective of new challenges.” Leaders also need to think beyond the pandemic, she suggested. “I’m interested in moving the mindset from tactical fire fighting into long term strategic growth planning… now’s the time to take a deep breath, start planning for the next 18 months and try to stick to it.”
‘A good business is a good business’
Robin Rowland, operating partner at Trispan, agreed on the need to pivot fast. “Banging out the same business model year after year isn’t going to work any more… you’re going to have to be more fleet of foot.” But well run companies with clear, good value propositions in the right locations will succeed over time. “A good business is a good business… it’s a question of making sure you don’t lose the DNA that made it appeal to customers in the first place.” The next few months will be painful, but there is cause to be optimistic for the long-term, he added. “People should see this as a starting point for rebuilding. We’re not quite at the inflection point, but we’re not far off.”
CGA’s ‘Follow the Money’ webinar was run in partnership with AlixPartners, Coffer Group and RSM. You can download the presentation slides here. To view the webinar recording, click here.