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Round table: Restaurants – taking the industry's pulse

26 November 2015
Round table: Restaurants – taking the industry's pulse

More than three-quarters of UK restaurateurs polled by The Caterer in a survey with law firm TLT believe the number of restaurants will rise over the next 12 months. But operators still face challenges, as our round table discussion between movers and shakers proved. Rosalind Mullen reports

Participants

Mark Derry, director, Brasserie Bar Co

Tony Kitous, founder, Levant Restaurant Group

Steve Richards, chief executive, Casual Dining Group

Brandon Stephens, founder, Tortilla

Jon Yantin, commercial director, the One Group

Julian Mant, partner, TLT

Matthew Phipps, partner, TLT

What is the operator's perspective of the restaurant industry at the moment?

Steve Richards (SR):

And there is change on the high street. There are more bespoke retailers, artisan breadmakers and so on, who live above the shop. There are eateries bringing life into our town centres again, as well as the other phenomenon of people moving to leisure parks.

Mark Derry (MD): In terms of choice, consumers have never had it so good. But operators are piling into locations and so their cake is being cut thinner. There is some interesting stuff going into country towns though.

Jon Yantin (JY): The One Group operates in London and internationally. When Americans come to see us in the UK, they are amazed by the offer and innovation on our high street and say we are ahead of the US. I agree consumers have never had it so good in terms of all the touchpoints, but is it sustainable?
I think London is getting smaller. Five years ago, Notting Hill was thriving and now it is not. The heart of the action is now in Zone 1, the City and the edges of Camden - and it is getting tighter. The footprint is shrinking.

Tony Kitous (TK): London is very different from the rest of the country. Customers are well travelled and understand the different cuisines. We only have a few sites outside London because the demographic is so different. I was in Manchester the other day and was trying hard to find London brands, but I was struggling. It's not as obvious as in London - for instance, around the Strand you have several Pret A Mangers.

Julian Mant (JM): Tim Bacon has secured a lot of the premium space in Manchester for Living Ventures. He has shown a skill in developing brands outside London and then moving them to London.

SR: Our operations at Casual Dining Group are in premium-mass areas, so our pricing in terms of customer aspirations and spending power is the same. But there are bits of London - residential areas - where you can't make money because the consumer is handing it over to their mortgage companies.

What are your thoughts on discounting?

SR: It is back in the market and it feels as if it has increased. PizzaExpress is offering 40% off between Monday and Friday.

TK: Isn't discounting a disease?

SR: It's everywhere, but some outlets offer discounting using different mechanics. Fixed-price menus, for instance.

JY: Yes, it is at the perceived top end as well. It is being done without using the phrase "discounting". You expect discounts only two or three times a year when business is slack and then there are the boom times such as Christmas and New Year, so business blends out.

MD: Fixed-price menus go back hundreds of years. Happy hours also stimulate business and mean restaurants hit the ground running. The problem is with an overt 50% off.

SR: We track it. Ed's Diner is giving 50% off from Monday to Friday. I have not seen that level of discounting outside of January. However, August was a bad trading month because of the weather and the train strikes and so on.

TK: TopTable http://www.tltsolicitors.com/" target="_blank" rel="noreferrer">now OpenTable] has cheapened and changed the industry. It charges for administration and then gets more per booking. We don't use it any more.

Matthew Phipps (MP): But restaurants using it must feel they are getting empty seats filled.

JY: The core of our concept is the vibe not just the food, so we need more people. If we can create extra footfall to change the atmosphere for the people paying full price, it improves the experience for them and it is padding for us.

Can you comment on the fact that some 77.7% of restaurateurs polled by The Caterer and law firm TLT expected to see an increase in the number of restaurants over the next 12 months?

SR: People are dining out more. There are only about 200 good high streets in Britain, but 500 branded openings every year. That is a lot of capacity.

MD: In three years, Bath has nearly trebled capacity, but the population has stayed the same.

MP: A lot of restaurants have gone into retail spaces in Bath.

TK: Location is key. Everyone was talking about Chiswick, but when established operations went there, it didn't work. It only works there at weekends.

Property is a huge consideration for restaurateurs, with 47% saying they would consider acquiring leased sites to expand and 44% preferring freehold. What are your concerns?

MD: The government has already destroyed pubs. Rates are escalating. If you can't pass it on to consumers, the consequences are huge.

SR: Yes, property is the biggest challenge for operators. It might be the death of independent restaurants. Casual dining is growing, but independents can't cope. Is that the Britain that people want?

MD: Independents don't have access to capital.

TK: The challenges are getting worse by the month - the Living Wage, and rent is going up.

What do you need to consider when looking at sites?

SR: We are investing in new-build leisure parks and retail. It is a big phenomenon in the UK.

JM: If tenants are being asked to pay a premium at the start of a lease then they have less capital to invest in their business. It is a short-term gain for landlords as you get cash up front, but you may not have a tenant in five years' time.

TK: Remember the days of 20 to 25-year leases? Now they try to give you five or seven years with so many options it's almost a licence.

MD: The nature of the market is that we pay a huge amount of rent.

TK: It is hard to compete. In some sites, if a restaurant brand comes in next door and can pay more, they put our rent up. And if you can't afford it, somebody comes along who can.

Brandon Stephens (BS): There shouldn't be a situation where one outlet determines rent.

JM: Are freeholds outside London out of the question?

MD: The process of using covenants means you lose flexibility. We did freeholds and then flipped to sale and leaseback. One site could make you £250,000, so if you get that in the mix it is helpful.

What about finance? Half the respondents in the research saw bank loans as the preferred route. Do you think a shift in the way restaurants raise money - such as online crowdfunding - could help?

JY: Crowdfunding is only good for certain styles of business in a certain market.

SR: Enterprise Investment Schemes are a good tool for smaller companies.

BS: Or the Seed Enterprise Investment Scheme, which offers tax-efficient benefits to investors in return for investments in small and early start-up businesses.

JM: Yes, it is off-the-shelf now and easy to access.

SR: Non-traditional banks are coming into the UK with names you have never heard of offering fixed-term amounts. You don't have to go to RBS. The demise of RBS took 30% of lending out, but that gap has been filled by these new guys. They can finance big business.

What will be the impact of a National Living Wage?

JY: It will take a while to bottom out. We won't know the impact until quarter one of 2017. We've got bigger things to worry about at the moment. But it will probably change our view of labour. We will see it as more of a commodity and we will have to get cute and clever and make use of technologies - both in the room and back of house - without affecting the consumer. We need to get smarter before we add 20p to everything on the menu.

BS: It is a major challenge, but I hope we will attract more productive staff.

JM: Bear in mind that suppliers will have to put up costs too.

Will you welcome contactless payment methods?

JY: Four or five players are coming and they won't all survive. Apple Pay probably will. The problem for the consumer is which app to use in which restaurant, so people will probably resort to credit cards again.

MD: I personally hate the end of the evening when you can't pay your bill.

BS: Apple Pay doesn't solve that. Isn't the whole point of going out to eat and drink and get away from technology?

JY: We will get used to it. In three years' time we will be where we now are with social media. In fact, I think prepay will come in. In five years we will be asking the consumer what they want. They will say "I have got £50 to spend tonight, so who wants my business?"

BS: Well, at Alinea in Chicago we were asked to pay in advance instead of a deposit.

JY: Yes, for some restaurants if tables don't show it costs them a big percentage.

TK: We suffer from no-shows. You need to be in a position to mend it, but you can't give a guest too many conditions.

MD: We are stopping online bookings at weekends. We trialled it at one of our sites and made £2,500 a week more. We found that if people have to ring to make a booking, we can develop more of a relationship with them and they are more likely to turn up.

PizzaExpress is introducing a delivery service. Other companies use an intermediary delivery service that can charge up to 30%. Which is best?

TK: The headache of managing drivers means companies such as Deliveroo are making a killing out of the delivery business. As restaurateurs, we don't know how to manage drivers, insurance and so on.

JY: As it grows I would be interested to see what happens to the quality of food. It affects your brand if the food is not delivered in good condition. You need to research your packaging.

TK: And packaging can be expensive. Chinese, Indian, pizza cuisines are deliverable, but how can you deliver steak au poivre in a good state? If you want the packaging to do justice to your food, that could be £5 out of a bill of £30, plus paying the delivery service - so is it worth doing?

BS: We tried offering delivered food, but it didn't work as there was no critical mass. But delivery companies such as Deliveroo are here to stay - it has had funding of $100m [since its 2013 start-up]. If you can get critical mass then it could become a platform for operators that are not on a high street, but in a warehouse.

TLT

TLT is a law firm with a specialism advising the leisure sector, with offices in London, Manchester, Bristol, Belfast, Edinburgh and Glasgow. They assist some of the leading restaurants, bars, clubs, brewers, pub companies, hotels, caterers and visitor attractions to stay ahead in this highly competitive industry. Clients include Barburrito, Boston Tea Party, Byron, Las Iguanas, Living Ventures and Pizza Pilgrims.

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www.tltsolicitors.com

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