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The right time for a change

10 August 2012 by
The right time for a change

All businesses need to reinvest in their premises and equipment, but with the economy stagnating it's hard for hospitality operators to find the funds - or the hours - for a refurbishment. Emily Manson reports

Money's too tight to mention. So the lyrics go. And that's the way it is for many businesses at the moment, trying to keep going in one of the worst economic climates yet experienced.

So it's hard to know what to spend money on, when to invest and how much to use. And refurbishment is one of those things that is often put on the back burner. A building isn't OK one day, then suddenly not the next. It's a slow process of wear and tear that can be ignored or tinkered with around the edges to make it acceptable, give it a longer lease of life and prolong the inevitable overhaul.

Hotel consultant Melvin Gold warns: "Reinvestment is vital in any business to keep it up to speed and if one doesn't do it regularly then it's very easy to fall behind and find a much larger investment is needed at a later point that isn't affordable.

"It's better to keep up to date by doing small bits than doing nothing and hoping that one day you can afford to do the whole place, which becomes a very different and difficult financial proposition."

But it's hard to know when the school of make-do and mend is no longer acceptable and your business needs proper investment.

What

Jonathan Langston, managing director of TRI Hospitality Consulting, says that if operators don't refurbish continually, then products can quite quickly become dated and no longer fit for purpose. "It all relates to the state of the product and the market as there are two types of refurbishment: defensive, where you're maintaining pace with the competition and ensuring you're not competitively disadvantaged by the state of your product in the context of your market; and aggressive, where you see new markets or can plug a gap which you've identified in the context of your own market."

He advises setting aside money annually for refurbishment. "You don't necessarily have to go all out. As long as the fundamentals are there, you can be clever with where you spend, deploying money in guest-facing areas. Repainting, changing curtains and bedspreads are all high-impact investments which can be prioritised, as long as the underlying building is fit for purpose."

When?

But when is the right time to undertake a refurbishment? "It would be ideal to be doing it now, as the market is in the doldrums and there is the capacity, especially in bedrooms not being sold, to manage any works," says Gold.

Obviously, it's better to work on rooms when occupancy is lower, than when running at full capacity and the works mean turning away paying guests, he points out. "It also allows you to be better placed to take advantage of the up-cycle, whenever that is," he advises. "The refurb cycle often tends to be governed by when cash is available so it's done at the top of the market rather than at the moment, when cash-flow is tight. It's just a fact of business life."

How Much?

Keeping up with the competition is key. Alice Keown, associate director at leisure property specialist Davis Coffer Lyons, notes that many of the national brands have already gone through a refurbishment schedule, investing in their stores and undertaking rebranding or repositioning exercises. "Brands like La Tasca and PizzaExpress have already gone through significant investment programmes to refurbish their portfolios, as they have a responsibility to the brand to keep them refreshed," she explains.

Landlords of operations in venues such as airports and shopping centres all expect a certain level of investment throughout the term, Keown says. "In general, 5% of turnover is a good steer for the kind of money to spend on a site for a refresh. If this doesn't happen, landlords will very quickly jump on tenants and it doesn't instil confidence to work with that operator going forward.

For those not contractually required to invest, Gold still advises setting aside around 4% (of turnover) for refurbishment annually. "The upkeep of a property to its original standards is a cost of business," he says. "Refurbishment can restore the property to guest expectations and get the property back to optimal trading levels - sometimes known as ‘defensive capex'."

And for those in London where business is still relatively ‘booming', Keown says: "If the capital's operators aren't investing, then more fool them."

Creating a look that's relevant to the area, time and brand

Spaghetti House
Spaghetti House
In the past five years, Spaghetti House has been refurbishing its sites one by one. The original site on Goodge Street has just been reopened after a 10-week, £600,000 refurbishment.

"It hadn't been touched for a number of years and did need a face-lift," Peppino Esposito, group operations director, explains. "The customer revenue hadn't yet seen a decline but the area is very young, vibrant and mid-market and we need to appeal to a variety of customers. It could've gone on for a couple more years, but now it's in line with the new breed of sites."

The planning started three years ago, as the work included the mechanics of the building as well as front of house. There were architects, kitchen specialists and designers, before putting the job out to tender. The project removed the first-floor kitchen as well as redesigning all front of house areas.

"We prioritised extraction and how to make the four floors relevant to the area, time and brand," Esposito says. "We were the first to have ‘show' kitchens and wanted to retain that family feel of gathering round a table. We've extended our trading day to include an Italian breakfast offer, too, and expect turnover to grow 20% over the next five years."

The group chose to do the works at the beginning of the financial year, in April. "That way, it was just at the right time for us, as everything from a financial point of view was in place," Esposito adds.

Keeping ahead of the curve

Vineyard at Stockcross
Vineyard at Stockcross
When the Vineyard at Stockcross, Berkshire, opened in 1998 it was seen as modern and innovative but the past few years have seen new entrants into the market. "We had rested on our laurels a bit and actually fallen behind the curve as far as ‘wow' factor," admits managing director Andrew McKenzie. "The business performance hadn't declined but we needed to give ourselves new impetus."

The five-month refurbishment saw a totally rebuilt reception, conservatory and lounge area, as well making more of the property's wine heritage with the introduction of a "Wine Vault" with a glass floor to the cellar below.

"Now guests walking in know why it's called the Vineyard," McKenzie says.

The project was financed by HSBC after being presented with a business case for the investment, including what it would cost, how it would be achieved and what return it would bring. "Their criteria was to be comfortable that we could service the new debt above an agreed margin and that our loan-to-value ratio was at a sensible level. We fulfilled both conditions and in real terms will make a return on investment within 36 months," McKenzie explains.

The hotel didn't shut as it couldn't afford to lose the business, so closed off sections at a time. "It still had an impact on trading," admits McKenzie, citing £500,000 as a ballpark loss.

The total works took five months - more than the originally planned three - and increased in budget from an original £1.2m to £2m through additional projects, including the construction of a tasting room and resurfacing the driveways. "The plan is we'll put £1m on the top line and that'll come down to around £660,000 on the bottom line per annum," McKenzie says.

Target spending and save cash where you can

Lofty Turtle
Lofty Turtle
Having worked at the restaurant previously, Patrick Fogarty, the new owner of the Naked Turtle in Sheen, south-west London, found the site "in an awful state of disrepair" when he bought it in January 2009. "The place needed gutting. It was like nothing I'd ever seen: jaw-droppingly bad."

With a background in setting up bars, he put together a business plan and a time frame. "I was pretty clued up on what things cost and what order things needed to be done in," Fogarty explains. "Banks weren't lending so we put in the money ourselves. It was all on a tight budget."

He ripped the place apart, refurbished all the floors, ceiling, bathrooms and bar with a builder friend working day and night for two months. "Some things - like plumbing, electrics and gas - you have to do properly, but I did lots of shopping on Ebay or at auctions and I targeted my spending," Fogarty says. "We bought stand-out lampshades for £70 as lighting is really important and adds a lot to the atmosphere.

"I did a lot myself, sanding the floor, all the upholstery - there's nothing Youtube can't show you - leather panels on the bar and banquettes, even making my own cushions."

Being free of tie, Fogarty went to InBev and got them to refit the cellar. "They paid for the cost of fitting it out, font heads and cooling systems - it saved me around £10,000 - I'm signed up for two years but then free." He also got deals and investment from Diageo and other pouring contracts.

Having run it as the Naked Turtle for three years, Fogarty then changed the restaurant to the Lofty Turtle this January in a second, six-day refurbishment costing £10,000. Having bought much of the new furniture on Ebay, he swapped the furniture, adding Chesterfield leather sofas (£200), arm chairs (£200), stage lamps (£160), an arcade and pool table (£400 each) among other purchases.

"It was all done very cheaply and efficiently but it doesn't look cheap," Fogarty says. "If you have time and know what you need then Ebay is great. It just takes patience."

Seven tips for successful refurbishing

1. Beware of the cheapest "Budget alternatives" are always available but may result in horrendous maintenance costs, shorter lifespan and hard-to-come-by spare parts.

2. Look at energy costs Energy-saving features in new equipment will reduce your carbon footprint as well as your costs.

3. Existing kit Try to incorporate good existing equipment into new schemes to reduce capital costs. Catering equipment distributors can often strip old equipment out, clean and refurbish it and then re-install it.

4. Design & planning Use a reputable catering equipment specialist. A fresh pair of eyes can help reduce labour costs, increase efficiency, and improve food quality.

5. Research new technologies Rather than just replacing like with like, research what's new.

6. Menu changes and future proofing Think about the needs of your business for the long-term and consider current trends in food, presentation, and styles of service. A refurbishment provides an opportunity to equip the business to deal with change and refresh the business.

7. Programme Refurbishment may mean a closedown. In some instances the extra costs of undertaking works out of hours may outweigh the lost revenue from a closedown.

Mike Mellor, managing director, Space Catering Equipment

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