How to revive the hospitality sector

The coro­n­avirus pan­dem­ic has pre­sent­ed a huge chal­lenge to the hos­pi­tal­i­ty sec­tor, among the hard­est hit by the health cri­sis. As the world strug­gled to gain con­trol of an unprece­dent­ed glob­al event, con­sumer spend­ing nose­dived and restau­rants lay emp­ty.

Accord­ing to the lat­est Office for Nation­al Sta­tis­tics fig­ures, out­put shrank 86.7 per cent in the accom­mo­da­tion and food ser­vices in the three months to June, with the over­all econ­o­my shrink­ing 20.4 per cent and the UK sub­se­quent­ly col­laps­ing into reces­sion.

“The restau­rant indus­try is hurt­ing in a mas­sive way,” says Ryan King, edi­tor in chief of online food mag­a­zine Fine Din­ing Lovers. “It’s one of the biggest shocks it has ever seen. Hav­ing a restau­rant with zero cus­tomers for a pro­longed peri­od of time; it doesn’t get much worse.”

Signs of recovery in hospitality sector?

Around 80 per cent of hos­pi­tal­i­ty firms stopped trad­ing in April, with 1.4 mil­lion work­ers fur­loughed, the high­est in any sec­tor.

New data from Bar­clay­card, how­ev­er, has revealed some green shoots in con­sumer spend­ing, with restau­rants, along­side bars and pubs, see­ing a pos­i­tive uptick from pre­vi­ous months. In July, they saw year-on-year falls in spend­ing of 64.2 per cent and 43 per cent respec­tive­ly, com­pared to declines of 86 per cent and 93 per cent in June.

Hav­ing a restau­rant with zero cus­tomers for a pro­longed peri­od of time; it doesn’t get much worse

To bol­ster a belea­guered sec­tor, the UK gov­ern­ment announced a num­ber of ini­tia­tives designed to direct­ly kick­start con­sumer spend­ing. On August 3, it launched Eat Out To Help Out, with din­ers see­ing their bills slashed by 50 per cent, up to the val­ue of £10, mean­ing a fam­i­ly of four could save up to £40 a meal.

The Eat Out to Help Out scheme was one of a num­ber of gov­ern­ment-led mea­sures designed to sup­port the ail­ing sec­tor direct­ly, oth­ers includ­ed a VAT cut, busi­ness rate hol­i­days and gov­ern­ment hos­pi­tal­i­ty grants.

International responses to hospitality crisis

The UK’s tar­get­ed approach is in con­trast to a num­ber of oth­er coun­tries that have opt­ed to stim­u­late con­sumer spend­ing across all sec­tors and in more indi­rect ways.

“A clean­er option is to give peo­ple mon­ey in their pock­ets, so they can decide what they should spend it on,” says Flo­ri­an Hense, Euro­pean econ­o­mist at Beren­berg bank. “In the Unit­ed States, peo­ple have had a lot more unem­ploy­ment ben­e­fits, but the US knew these peo­ple would spend the mon­ey.”

In Ger­many, they opt­ed for blan­ket VAT cuts across all sec­tors, in addi­tion to more gen­er­ous and length­i­er fur­lough schemes, mir­rored by France and the Nether­lands. How­ev­er, the down­side of these more indi­rect meth­ods is, even with addi­tion­al mon­ey in their pock­ets, it doesn’t mean con­sumers will go out and spend it.

“The under­min­ing fac­tor in all this is the fear fac­tor,” says Carsten Brzes­ki, chief econ­o­mist for the euro­zone and glob­al head of macro for ING Research. “Gov­ern­ments can intro­duce mea­sures to increase pur­chas­ing pow­er and income, such as a reduc­tion in tax­es on labour so employ­ees have a high­er net income, but this won’t get rid of under­ly­ing uncer­tain­ty, whether that’s health or uncer­tain­ty about futures.”

Have government measures boosted consumer spending?

Some would argue that the more tar­get­ed gov­ern­ment mea­sures are, the more they incen­tivise con­sumers, par­tic­u­lar­ly in the hard­est-hit sec­tors. And on one lev­el this strat­e­gy, favoured by the UK gov­ern­ment, seems to work. More than 35 mil­lion meals were enjoyed by din­ers across the coun­try in the first two weeks of the government’s Eat Out to Help Out scheme, accord­ing to fig­ures pub­lished by the Trea­sury.

Food mag­a­zine edi­tor King says: “It’s been a great head­line and it plays well to vot­ers. It’s so sim­ple to sign up and good news for restau­rants and din­ers, as both will ben­e­fit.”

A clean­er option is to give peo­ple mon­ey in their pock­ets, so they can decide what they should spend it on

Broad­cast wide­ly across social media and high­ly pub­li­cised in the media, it enticed peo­ple out to vis­it restau­rants and the high street once again.

Fig­ures from Spring­board, which mea­sures foot­fall, reveal the num­ber of peo­ple in retail venues after 6pm on August 3 was almost 19 per cent high­er than the pre­vi­ous week. The num­ber of vis­i­tors dur­ing lunchtime hours was up by 10 per cent.

How­ev­er, King warns that the pol­i­cy itself does not go far enough. “It’s good if you run a fast food chain, with a low val­ue cheque; cus­tomers will be get­ting a half-price meal. But not so good if you’re an inde­pen­dent restau­rant, with an aver­age order val­ue of about £40 or more,” he explains.

Restaurants who pivot can thrive

Accord­ing to new data from Visa, 40 per cent of hos­pi­tal­i­ty, food, drink and fran­chise busi­ness­es have had to adapt their busi­ness mod­el dur­ing lock­down to tack­le chang­ing con­sumer spend­ing needs. And the restau­rants that have piv­ot­ed appear to be show­ing signs of suc­cess.

Whether it’s launch­ing a take­out or take­away oper­a­tion that didn’t pre­vi­ous­ly exist, or “make­aways” which tap into the con­sumer lock­down trend for cook­ing at home, restau­rants have stayed con­nect­ed with their cus­tomers through new rev­enue streams.

“As a café that relies on peo­ple social­is­ing in the local park, we were faced with a real chal­lenge,” says Antony Wil­son, own­er of Lev­el Café, Brighton. “We had to quick­ly adapt to chang­ing con­sumer needs, so we start­ed sell­ing make-your-own piz­za kits and were inun­dat­ed with orders.

“Since the suc­cess of the piz­za kits, we now sell cof­fee pack­ages and Ital­ian essen­tials kits, and hav­ing them all online has allowed us to upsell these prod­ucts togeth­er. Where­as pre­vi­ous­ly peo­ple were only buy­ing one sin­gu­lar kit, cus­tomers are now buy­ing mul­ti­ple packs and we’ve seen an increase of 50 per cent on these add-on prod­ucts.”

Technology can provide a lifeline for hospitality

In encour­ag­ing news for the hos­pi­tal­i­ty sec­tor in gen­er­al, one in three con­sumers told Bar­clay­card they are look­ing to sup­port the indus­try active­ly where they can. Of this group, 36 per cent are now din­ing at restau­rants, 28 per cent are going out for drinks and 34 per cent intend on tak­ing advan­tage of gov­ern­ment ini­tia­tives.

“If you’re agile and can jump on the tech­nol­o­gy, tech can save so many busi­ness­es,” says brand expe­ri­ence agency Trib­al Worldwide’s exec­u­tive cre­ative direc­tor Vic­to­ria Buchanan.

Speak­ing on an Econ­sul­tan­cy pan­el, dis­cussing what’s next for hos­pi­tal­i­ty, she point­ed out that restau­rants that have embraced tech­nol­o­gy are the ones most like­ly to weath­er the storm. “Those with an ecom­merce offer­ing sur­vived the best dur­ing the lock­down, while many quick­ly part­nered with firms like Deliv­eroo and were able to shore them­selves up that way,” she explained.

Dur­ing April, May and June, deliv­ery firms report­ed a 50 per cent increase in break­fast orders and an 80 per cent rise in lunch orders, accord­ing to a new report by McK­in­sey & Com­pa­ny.

How to make the best of a bad situation

Although work­ing from home has damp­ened restau­rant foot­fall, espe­cial­ly in office-heavy areas, it has also cre­at­ed new oppor­tu­ni­ties. Data from Deliv­eroo reveals that Fri­day and Sat­ur­day night orders were up 36 per cent across Europe, com­pared with pre-lock­down num­bers, and the increase is like­ly to con­tin­ue at least in the near term. In the UK, they were up more than 40 per cent.

“Mobile tech­nol­o­gy rep­re­sents a key solu­tion to a num­ber of the chal­lenges posed in the hos­pi­tal­i­ty sec­tor,” says Will Broome, chief exec­u­tive of retail shop­ping app Uba­mar­ket. “Not only does it mon­i­tor con­sumer demand, it also pro­vides a solu­tion to increased safe­ty and hygiene con­cerns, by enabling fea­tures such as in-app pay­ments, remote order­ing and per­son­alised dis­counts.”

Effec­tive use of data enables restau­rants to improve the din­ing-in expe­ri­ence for con­sumers. For instance, before a meal, restau­rants can tar­get near­by con­sumers by per­son­al­is­ing dig­i­tal offers or pro­mo­tions. After the meal, restau­rants can engage with con­sumers via feed­back requests or with a rewards pro­gramme.

“Our expe­ri­ence sug­gests that in the con­text of the pan­dem­ic, cus­tomer expe­ri­ence lead­ers are like­ly to do well,” accord­ing to the McK­in­sey study. “Dur­ing the glob­al finan­cial cri­sis of 2008, restau­rants that were lead­ers in cus­tomer expe­ri­ence came out top, deliv­er­ing approx­i­mate­ly three times greater cumu­la­tive return to share­hold­ers.”

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Three restaurants adapting to the times

01 The Black Swan, Oldstead

Acclaimed chef Tom­my Banks had to think on his feet when forced to shut his Miche­lin-starred York­shire-based restau­rant The Black Swan, in March, along­side sis­ter restau­rant Roots, as a result of coro­n­avirus.

In ear­ly-April he launched Made in Old­stead, a new pre­mi­um food box ser­vice, offer­ing three-course meals designed by Miche­lin-star teams, deliv­ered direct to cus­tomers’ homes. The box­es include ingre­di­ents grown both on and around the Banks’ fam­i­ly farm and by the restaurant’s local sup­pli­ers. Menus change week­ly and cus­tomers can order cock­tails and drinks too.

“The uptake has been phe­nom­e­nal,” says Banks. “We’ve had some peo­ple order them every week since we start­ed. It’s been a way to stay in touch with our cus­tomers, but also a whole new rev­enue stream for the busi­ness. There have been Zoom din­ner par­ties, but also cus­tomers order­ing for spe­cial occa­sions or cou­ples with young chil­dren who don’t have to arrange child­care,” he adds.

After suc­cess local­ly, the ser­vice has expand­ed nation­wide and they now deliv­er more than 500 box­es a week; box­es start at £75. “From a busi­ness point of view, when you own restau­rants you have all your eggs in one bas­ket,” Banks explains. “We need­ed to make a new busi­ness, but one that would still fit with the ethos of the restau­rants. A huge amount of thought has gone into the devel­op­ment of the dish­es. It’s gourmet food at home.”

02 Kahani, Belgravia

Indi­an restau­rant Kahani, in London’s Bel­gravia, opt­ed to bring the fine-din­ing expe­ri­ence to cus­tomers’ homes, with a num­ber of ini­tia­tives debuted dur­ing lock­down to help main­tain engage­ment with its client base and stay afloat.

Chef patron and co-own­er Peter Joseph explains: “As a high-end, inde­pen­dent restau­rant, we did not real­ly ben­e­fit from the government’s schemes, apart from the reduc­tion in VAT. We have, how­ev­er, launched new ways of din­ing with Kahani to retain our loy­al cus­tomers and gain new ones.”

These ini­tia­tives include Kahani at Home, where Joseph cooks a three-course meal for cus­tomers in their home, com­plete with som­me­li­er and cock­tails. In addi­tion to home-teach­ing pri­vate din­ing par­ties, where clients can cook the meal along­side Joseph and his chefs, there are BBQ box­es, tap­ping into the new “make­away” trend for home-cook­ing.

To reward cus­tomer loy­al­ty, he also devised a so-called Red Enve­lope Cam­paign, hid­ing three envelopes in Kahani take­aways each month with prizes for cus­tomers to win. “After Red Enve­lope launched, we saw a 30 per cent increase in orders,” says Joseph.

Launch­ing new rev­enue streams has offered a buffer to the loss of sales from clo­sure of the restau­rant. Joseph says he is now down only about 20 to 30 per cent year on year, as a direct result.

03 Top Cuvée, Highbury East

Described as “hip High­bury new­com­er” when it launched in Feb­ru­ary 2019, neigh­bour­hood restau­rant and wine bar Top Cuvée moved into retail to help plug the loss of sales after its sud­den clo­sure in March.

Own­er Brodie Meah launched Shop Cuvée, a new online wine deliv­ery and sub­scrip­tion box ser­vice to main­tain links with its client base, while tap­ping into the grow­ing trend for home-drink­ing.

With a focus on nat­ur­al wines, with­out “exces­sive use of chem­i­cals in the vine­yards”, he relaunched the web­site and offered next-day deliv­ery on all wines, with a bicy­cle same-day ser­vice any­where in Lon­don, includ­ing parks.

“It was the per­fect storm,” says Meah. “The demand for wine deliv­ery was up and the mar­ket was there. The repeat cus­tomers have been 60 per cent a week, which has been a huge indi­ca­tor of its suc­cess.”

He says the new launch has offered a great avenue to attract new cus­tomers to the busi­ness. “If you live in a small town in North Wales, you can’t vis­it the restau­rant, but you can buy some wine from us,” says Meah.

The project has been so suc­cess­ful that this Sep­tem­ber Shop Cuvée is due to launch its first bricks-and-mor­tar site, just around the cor­ner from the restau­rant.