Prezzo, Jamie’s Italian and Byron: these are just a few of the large restaurant chains that have closed locations this year. Over-saturation, new fast casual entrants, and customers’ desire to just eat at home have something to do with it. We get the thoughts from a handful of experts on what this means for our industry.
1. Cyril Lavenant, foodservice director UK at The NPD Group
In 2017, foodservice market demand was flat with just a +0.3% increase in visits. This performance is very much the result of low consumer confidence. At the same time, operator costs have increased strongly (pensions, business rates, rent, food price inflation). In response to this, operators have to increase the total number of consumer visits, which is of course a challenging strategy in an environment of flat demand. These trading conditions are unlikely to change during 2018 and could well continue into 2019. Looking at one part of the market in particular, we believe there are too many Italian/pizza restaurants in the UK, especially in London, which in any case is a very expensive and saturated market. And it is hard to find clear differentiation between the Italian/pizza restaurant chains on our high streets.
In this kind of business environment, consumers are telling us that they want quality and value for money. Consumers are more price sensitive and they tell us that ‘good price’ is now the second most important reason they choose an outlet, up from third most important in 2012. So operators need to ensure they give consumers what they want – the winners will be the businesses that offer the highest possible quality of food and beverages backed up by compelling value for money and a strong experience. Operators need to be ‘super attractive’ to consumers. They need to be sure they understand what drives consumer demand. That’s the way a foodservice operation can stand out from the crowd.
2. Philip Harrison, president and managing director of Harrison, a leading hospitality concept creation consultancy
Why are so many restaurants struggling?
While there are bound to be some Brexit related issues affecting consumer confidence, it is fair to say that some geographic areas that brands have extended in to have been struggling with their disposable income for over a decade now.
There is also an element of over-saturation, but this is by no means a national pattern. High Streets and even suburbs in many cities are probably saturated, not just in terms of the number of different brands operating, but in the proximity of the same brands restaurants to each other.
Failure to evolve their offer and to stay in tune with changing consumer trends is proving to be a particular problem. Even more problematic is a failure for restaurants to evolve around their core values, confusing guests in the process and damaging their relationship with the brand in the process.
Independent operators have also undoubtedly taken some market share on a city by city and region by region basis.
Are there examples of restaurants that are managing to buck the trend?
There are examples of brands bucking the trend. They tend to be ones that are not saddled with excessive debt or have a strategy that is not based on rapid short-term expansion at almost all costs.
They spend wisely and are careful not to cannibalise their market and won’t go into locations that cannot support their brand, or the capital investment required.
For example, we recently worked with a US fast-casual chicken brand, Slim Chickens, on the launch their first restaurant in the UK which opened on James Street in March. They have a genuine appetite to expand in the UK and regularly have queues out the door which suggests demand is still there for interesting and unique casual dining offerings.
It is so important to have a clear proposition, understand your customers’ needs, a tried and tested business model, a distinctive culture, remain agile and receptive to outside economic and social changes. The Beech House in Amersham operated by Oakman Inns and Restaurants, is a good example of this, which from day one has continued to exceed its sales expectations.
How does this differ by country?
All countries tend to differ in terms of maturity of the market and the historic role of dining out as a social experience. Where social norms are strongest, there is generally a much greater penetration of good, reputation led, independent operators. You certainly see this in countries such as France, Italy and Eastern European countries where you do not have anything like the range of brands you see in the UK.
The US is an interesting example, where brands have dominated for many years, but now you can find significant independent operators in different market systems who are big enough in their own right to challenge the dominance of the national brands.
They are quicker to adapt to change and they often run very individual restaurants which are underpinned by a common operating platform and set of values.
You must bear in mind that an independent operator in the US could be running anything from 25 to 80+ restaurants so they certainly pose a serious threat.
What are the challenges facing the sector in general?
There is a perfect storm of higher food costs, higher wage costs, increased business rates, over supply, a weakening economy and a failure to maintain standards. These are all going to affect profitability in one way or another, either by increasing the cost base or not being able to maintain guest loyalty and encourage repeat visits.
We believe that this will also provide opportunities for emerging, agile operators who embrace change, leverage new technology and understand what today’s guests really want.
What opportunities are there?
One significant opportunity is a rising demand and spend per head in the over 50’s market. Recent research indicates that the total out of home visits by people aged 50-plus is set to increase by more than 4% by 2022.
This demographic tends to be wealthier, be more active and more experimental when eating out compared to previous generations and will account for more than 70% of the growth in the UK’s population between now and 2022.
3. John Trueman, CEO of Quadranet Systems
Brexit undoubtedly caused a drop in consumer confidence, which hit the restaurant industry hard: the number of new restaurants opening continued to grow, while the number of people eating out plateaued, and then started to fall. This imbalance in supply and demand has hit both chains and independent restaurants alike.
The restaurants that are weathering the storm are exclusively either: those most able to respond with agility to volatile market conditions, the owners and operators who have made sure their property and technology investments are quickly scalable when business is growing, and easily cut back when the market is in decline; or those who have retained a passionate focus on improving their customers’ dining experience beyond that provided by their competitors; or in some cases both. With great service, great food and an agile business model, there are still rich pickings in the restaurant industry.”
4. Cyrus Todiwala, chef proprietor of Café Spice Namasté and a celebrity television chef
Trading conditions have become ever so difficult for some in the restaurant sector. Some operators seem to be doing extremely well and growing rapidly and showing superb growth results, whilst others are struggling and some even crumbling. New openings are still the thing to watch out for along with new themes and ideas.
However life is a lot more difficult. The looming threats of rental increase from landlords are causing challenges along with the increase in council rates, the acute shortage of manpower and from that the amazing rise in manpower costs, coupled with costs of raw materials and other day to day purchases. This is led by the weakening pound throwing the farming industry into mayhem, the cost of running a business and on top of all that legislation that creates more expenses. These are all issues adding to the general burden of running restaurants today.
So yes in short troubled times lie ahead for some of us and, perhaps great times for others to grow and prosper as they have larger coffers of reserves to combat the shortfalls which for some become non-scalable.
Businesses may tackle these situations in various ways and sadly some will eventually pull the curtain and simply give up leading to more greater issues. However, our industry is made up of fighters and this is not new news for many who have ridden the storms of various recessions.