Things could be looking rather ominous in the land of the overtly branded restaurant chains if the performance of one of the bigger beasts in this jungle is anything to go by. The Restaurant Group has recently reported declining sales, which has certainly spooked investors. For the 17 weeks to April, the company suffered a fall in like-for-like sales of 2.7% and issued a worrying warning things look likely to worsen, which suggests we should all therefore expect a like-for-like sales decline of up to 5% for the group’s full year.

 

The City duly marked the shares down by almost a third, which comes on top of earlier falls this year that in totality equates to a 60% markdown in the value of the company. While the shares were trading at around the 720p level in late 2015, they now languish at the lowly 273p mark (4 May). The company is experiencing a serious deterioration in trading conditions as a result of intensifying competition in the UK restaurant sector – we all know this has been taking place but it is now starting to have a real effect. It looks like The Restaurant Group is taking the first hit as a result of it being a particularly large player and being fully exposed to scrutiny as a result of its listed status. There is nowhere for it to hide.

 

Questions have been raised about two aspects of its business and these will be relevant to a large number of other operators out there. Firstly, there is the growth of online shopping. This is reducing the footfall at out-of-town retail parks, which has been the major growth engine for the company for a good few years. The story to investors has been about the potential of this part of the group’s business. The Restaurant Group also enjoyed a number of contracts with leisure parks where it effectively had a near monopoly on the food and beverage offer. When times were good this was great but things have now reversed somewhat.

 

This must be something of a surprise to The Restaurant Group management – as it is to me in fact – because the argument has been that while the retail sector is being massively impacted by the growth of online sales, this will not affect restaurants in the same way, for very obvious reasons. This immunity appears to have been unfounded and the brands of The Restaurant Group – namely Frankie & Benny’s, which accounts for more than 50% of its portfolio – that are located on retail and leisure parks are starting to suffer from this major shift in customer behaviour.

 

The second question about the company’s situation is the relevance of its brands. This is a serious issue and there are undoubtedly many established brands in the marketplace that will have some concerns about the health of trading at their sizeable estates from the changing patterns of consumers. While we all know that branded chains benefit from consumers being comfortable with a known quantity there is a trend among younger consumers – Generation Y’s in the 18 to 34-year-old range – to seek out adventure. The Sacla “Eating Out – Today and Tomorrow” survey found this adventurousness relates to discovery, whereby people want to be the first to try something out and then share these new experiences with their social media community.

 

This represents an enormous challenge for established operators. It is no surprise therefore three new restaurants open for every one that closes – and many of them are newer, less well-known concepts. To feed this desire for adventure the shopping centre operators now seek out newer restaurant concepts to add into the mix with the more established players. Hence, at the extreme of this, the Trinity shopping development in Leeds has food trucks on-site that are regularly changed in order to keep the offer fully refreshed for its regular visitors.

 

The challenge for the big brands against this increasingly uncertain backdrop – with the ultimate downside being irrelevance in the market – is also reflected in the pub sector. The industry has for years been awash with the large pub companies constantly rebranding their more troubled pubs with the latest concept that’s rolled out of the workshops of their brand-makers. Despite their best efforts, few of these new makeovers seem to stick and an increasing number of these unwanted boozers have found their way into the hands of smaller operators. And they have been doing rather well, with growth at twice the rate of the larger chains – 30% versus 13% over the last five years, according to research from Ortus Secured Finance.

 

It is a fact of life that some of these smaller pub operators – along with the newer restaurant concepts that we are seeing emerge today – will undoubtedly grow into larger branded chains and face the usual challenges that come with scale and familiarity. But for now the tough challenges are firmly in the hands of The Restaurant Group and its big branded contemporaries. 

 

In keeping with many Londoners, I spend my commute nose deep in a newspaper. And I have begun to notice an increasing trend towards doublethink across the media since I last sat down to write an article for Propel. Newspaper articles expressing concern for the loss of community pubs sit cheek by jowl against those calling for new regulation or more red tape. 

Criticism of restaurants and cafes for changes in menu or team rewards sit alongside a cri de coeur for more artisan neighbourhood offerings. The television schedules extol food entrepreneurship, but we don’t like it when it means tough commercial decisions. We may be a nation of foodies, but the media has a distinctly schizophrenic approach to food as a business. I was particularly struck with this when I opened the Evening Standard and saw the same journalist writing two articles – one with the headline “A world with no bars or cafes and no friends is edging closer” and another with “spare us this poverty plea from Costa” – and with no hint of irony or a sense that they might be in any way linked. 

 

In the first article, he bemoaned the march of the machines – automated cocktail mixers, iPads and online ordering at McDonald’s and Tossed – and the consequent lack of human interaction and service. He acknowledged business was tough, both for bars and restaurants – rents are high, rates are high and staff costs are only going one way, meaning productivity savings are essential. He concluded by worrying about the future of hospitality – on the one hand, without productivity savings we may lose more valuable outlets; and, on the other, it may be reduced to “solitary eating and drinking pods where we count the margins and wonder where all our friends have gone”.

 

In the second article, right alongside the first, he was critical of Whitbread and its subsidiary Costa for voicing concern about the “crippling cost” of the National Living Wage and the fact it might need to put up prices or change staff benefits as a result. If it allowed its workers to share in its growth, he argued, “ordinary people might have more money to spend on cappuccinos in their free time and everyone might benefit long term”.

 

I put it to him afterwards that his two articles had neatly captured the cause and effect of legislation at the moment and the challenging position in which this puts business. He struggled to see how the two were linked – and explaining that is our challenge as a sector with politicians, the media and the general public as we move into the next challenging period as ever more costs hit the sector.

If you significantly increase costs above what is sustainable, then businesses have to look at productivity across the board. This is not necessarily a bad thing for the economy as a whole – productivity improvement, once a key measure of growth, has yet to recover its level pre the financial crisis of 2007 and the crisis in productivity is the elephant in the room at every Budget – but in a labour intensive business, productivity gains have consequences for employment and people.

 

The success or failure of any hospitality business is dependent on one thing and one thing only – its people. We don’t sell products and services, we sell hospitality and experience, so there are many things you may be able to skimp on, but your people is not one of them. The idea that, in a highly competitive marketplace, businesses would actively choose to pay people less than they are worth or withhold benefits just doesn’t stack up. But businesses do have to face the commercial facts of life, pay what they can afford and reward their teams in a way that allows them to continue to invest in training, in growth, and in their communities.

 

The alternative, of course, is ever increasing automation. That may mean an electronic mixologist or it could mean a return to ordering at the bar. In America, it has fuelled the rise of quick-service restaurants and self-service – with up to half as many staff as a result. The World Economic Forum forecasts five million jobs will be lost in the world’s 15 major economies by 2020.

 

Now, I’m no purist – even Jay Gatsby had an automated cocktail maker and Charles Baker considered the electric hand blender the greatest gift to daiquiri bar rum – but we are all only too familiar with what automation has done to the weekly shop. Retail has seen decimated service and staffing levels and high profile business casualties – in short, a lot of unexpected job seekers in the bagging area. 

 

The chancellor asks for our continued understanding when he makes tough decisions in the light of economic uncertainty and our businesses deserve the same level of support, not castigation, when they make their own tough decisions. Acknowledging cost and seeking ways to mitigate it is not trying to get round legislation, it is trying to protect jobs and hours that may otherwise be lost.

 

Of course, we can choose not to – but as the Evening Standard journalist noted, that leaves us with a world with no bars or cafes and no friends edging closer.

 

Andrew Turner, category and trade marketing director for Heineken UK, was on one of the panels at the Association of Licensed Multiple Retailers Spring Conference in April, and what he said about the Generation Y/millennial generation was illuminating. He said (and I am paraphrasing) one of Heineken UK’s challenges was being able to really get into the heads of these customers in order to communicate with them because they have to communicate with them in the way they want to be communicated with.

The days of blockbuster, mainstream advertising to do this is over. Now it’s about being local, smaller and personal. In essence, it’s about being there when they want to find you. They will come looking for you – you can’t go looking for them.

 

So, who are these millennials?

They were born between 1980 and 2000 (although some say 1995) so they are now aged between 16 and 36. From everything I have read from a variety of sources, they are assumed to share some key characteristics – important when marketing to them (if this is the right thing to do). I cannot imagine someone taking their GCSEs this year in Leeds has much in common with a 36-year-old City trader but I am patently wrong. By 2020, they will comprise 75% of the UK’s workforce according to an article by Restaurant Property last August.

In the same article, the authors argued for nearly 50% of millennials, speed of service was the most important thing at breakfast and lunch. This means operators have to ensure their systems and processes are up to scratch, as technology is key in helping them pay quickly and effortlessly. The article also stated: “Although the millennial generation is much more aware of advertising and marketing than previous generations, 66% prefer outlets that are active on social media.”

 

Social media and the millennials was a subject covered in a presentation at the NRA in Chicago last year, which unfortunately I missed. It was run by Joshua Swanson and entitled Marketing to Millennials. It was very well received by the audience. In his presentation he said this generation was the biggest generation in history, that they visit upscale restaurants once a month in the States, and communicate to others about services, brands and products after an online search via text (44%), social media (38%), instant messaging (38%) and blogging (16%). They think their relationship with technology makes their generation unique.

 

Swanson describes millennials as the instant gratification generation – 69% think office attendance is unnecessary on a regular basis, 41% have made a purchase on their mobile and 77% participate in loyalty schemes. They will wait two seconds for a video to load – after five seconds the abandonment rate is 25%, after ten seconds its 50%. More than 50% play video games for fun. They put off getting married and having children but that’s not forever. They want maximum convenience at lowest cost.

Not surprisingly, wellness is a “daily, active pursuit”. Swanson says millennials are using apps to track performance and go online to find the healthiest foods. They prefer to eat four small meals a day at unusual times and 68% of them will search online or ask friends for recommendations before choosing a restaurant. His advice to restaurateurs was – be authentic, tell but never sell, give, give and give again, don’t worry – they will never cook like you, social media is a humanising medium so act like one, and what you think is mundane, we think is the story behind your brilliance. I have no doubt Turner has read Swanson’s wise words. I look forward to seeing how Heineken markets to the millennials.