In the beer world, craft brewers get all the attention – and for all the right reasons. They have shaken up the world of beer from one where seven large producers largely controlled the UK market leading to laziness and non-existent new product development as they focused solely on cost-cutting and increasing profit margins.

The craft beer revolution was the antithesis of this money-oriented focus, with effort going into sourcing high-quality ingredients and creating rich flavour profiles. Why be Scrooge-like and use one hop when you can put six into the mix and end up with a multi-faceted beer that smashes the insipid brands of the big beer companies out of the park?

Beer-drinkers were thirsty for something different and a new group of brewers – over-indexing on young males with beards – were more than happy to learn the art of brewing and set themselves up in a railway arch or industrial estate unit to slake this growing demand for tasty beer. There is no doubt about it, brewing combines a heady mix of romanticism, coolness and satisfaction in being able to produce something that induces people to state their undying love for each other following consumption.

The only downside to this combination of a lack of focus on the money side and appeal of being a brewery owner has been the deluge of new businesses. In London alone there were only four breweries at the start of 2010, now there are more than 120.

Crowdfunding has given many of these brewers a helping hand, allowing them to appeal to the growing army of craft beer drinkers and asking them to stick money into a good cause. This has been massively helpful in getting these businesses off the ground.

The crowd has certainly been a much better proposition than paying interest on bank loans – if the banks were willing to lend, of course. The problem is this has been “cheap money” raised with little due diligence and scant expectations from “investors”. This ability to tap into such a great resource has also been a component in driving overcapacity in the market. All but the very best of the brewers have found it increasingly tough to get repeat purchases from pubs, never mind permanent lines.

The obvious solution has been to reduce the price of the beer but for this to work financially it requires economies of scale. Brewers need to bump up capacity through adding employees, installing more kit and cranking up production. To fund this they return to their old friend – crowdfunding.

In doing so these businesses have opened their books to potential investors to reveal the majority of them are unprofitable. Many have their own bars and taprooms in which they can sell a decent amount of their output and keep a chunky amount of margin, but even with this guaranteed channel to market it has seemingly failed to improve the financial situation many small craft brewers face.

 

This is worrying because if these businesses were having trouble selling their beer before then, what is going to happen following the industry’s widespread cranking up of production as it seeks the necessary economies of scale?

We might be heading for some serious financial woes and failures in the ranks. While the increased competition on pricing might be great for bar owners and drinkers, it doesn’t look too clever for the growing army of small brewers. The craft beer revolution has been tremendous for beer drinkers. I hope the brewers that have produced these great beers for our pleasure also manage to get something positive out of it too – and not just a hangover.

It is difficult to grow tired of great music, great places or great friends – we always want them to be part of our lives. Many would say the mark of a great product or service is you never grow tired of it so it makes sense for any business to be as good as it possibly can – to be a “great business” with the intangible ingredients that pull customers back again and again.

Casual dining chains have transformed the look and feel of the British high street. Established brands have dropped anchor in every major town across the land and become integral parts of the urban landscape. In bigger cities, especially London, smaller brands have set up shop too, tempting consumers with new cuisines presented in new ways. So many brands, so many choices.

However, looking at Britain’s foodservices industry today there is clear evidence of challenges accompanied by media reports telling us how saturated and competitive the British casual dining sector has become. We have all read stories of operators overstretching themselves, of investors pursuing stellar returns over short time-frames, and of the insolvency procedures, administration and restructurings that have become increasingly commonplace.

So has the “casual dining revolution” given way to the “casual dining crunch”? Is casual dining collapsing? Is there a crisis? The market data currently suggests the answer is no. Our latest figures show casual dining continues to grow in Britain. Many operators – especially newer, challenger brands – are continuing to focus on expansion.

For the year ending September 2018, visits to British casual dining outlets were up almost 8%, equivalent to an extra 41 million visits compared with the previous 12 months. Casual dining now accounts for 5% of visits in Britain’s eat-out or out-of-home (OOH) foodservice industry.

While the overall OOH market suffered a decline of 48 million visits in the year to September 2018, casual dining chains grew visits by 34 million. Britons spent £6bn on casual dining in the year ending September 2018, about 11% of total OOH spend. During the same period, spending on casual dining restaurants grew four times faster than the total market.

Casual dining restaurants remain one of the key growth stories in Britain’s OOH foodservice market, despite the high-profile closures, rescues and restructuring seen in the sector in recent months. But while the market is expanding, success isn’t guaranteed. Some of the newer brands are failing to set themselves apart from competitors, leaving consumers with the sense they are getting similar menus, similar venues and similar customer experiences. But the biggest issue is the pressure on profit margins, with business rates, rent, food and labour all costing more in an oversupplied market.

One way to address margin pressures is to seek lower-cost sites and there are signs the push to expand casual dining is now less inclined to focus on London, where the 2017 business rates revaluation has had a sharp impact on many operators. For the year ending September 2018, there were less than one million additional casual dining visits in the capital versus the previous year, compared with 22 million more in the south and 17 million in the Midlands and Wales.

The casual dining sector is also using a variety of strategies to expand. Delivery continues to grow strongly across the casual dining market (up 17% year-on-year), order ahead/click-and-collect visits are also up (27%), as are visits using meal deals or promotions (up 19%). Casual dining restaurants are also benefiting from consumer recommendations, with visits driven by positive comments on a word-of-mouth basis, on social media or via review sites up 49% year-on-year, more than two times faster than for the wider market. Some casual dining restaurants are trying to expand beyond dinner into other opportunities such as breakfast (up 16% year-on-year within the casual sector) and snacking (up 21%). The growth rate casual dining operators are enjoying with breakfast is 15 times greater than breakfast growth in the wider OOH market.

Casual dining has a strong following in the family segment. Family visits grew 10% for the year ending September 2018, more than twice as fast as family visits across the overall OOH market. Consumers are generally visiting casual dining restaurants because they want “something different” and are attracted by the “quality of the food”. Both motivators are more pronounced among casual dining customers than for the overall OOH market.

Young adults/millennials are also loyal fans of casual dining restaurants. Visits from 16 to 24-year-olds are up 23% year-on-year but only 3% among 25 to 34-year-olds. Visits by both groups to casual dining restaurants are still growing comfortably faster than with other OOH outlets such as quick service restaurants.

The continued growth of casual dining in Britain is good news for our foodservice industry. Operators can support further growth by building strong consumer awareness, maximising automation to reduce costs, maintaining prudent supply chain management, and driving off-peak visits through flexible pricing. 

However, growth brings the risk of saturation and for that reason it is likely the casual dining boom will see further closures and rescues. Casual dining chains are most at risk from the “perfect storm” of oversupply, lack of differentiation and sharp exposure to inflation, particularly labour costs. A chain that deals with this by cutting prices to boost visits will be the one that is most at risk.

Given the intense competition in Britain’s casual dining sector and the heightened commercial risks, there is no better time for operators to scrutinise their business models. It’s difficult to envisage too many problems for a business built on a strong foundation of carefully controlled costs that offers great quality, sharp differentiation and a memorable customer experience.   

There are many themes operators can work on. Based on NPD’s experience of working with foodservice industry clients, there is a widespread understanding of the importance of having good staff. Hiring the right people – and training them – is key to helping a business stand out from competition and increase consumer spending. How well does your front-of-house team know the dishes you serve, what they are made of, where the ingredients come from and how the meals are prepared? How friendly are your staff? Do they have the confidence to pair food with wine, cocktails and beer? Can they persuade your customers to buy a dessert, order another bottle of wine or stay for a cocktail? How do they behave when they encounter repeat customers? Can they remember customer preferences and use that knowledge to engage with customers, perhaps by helping them move away from their “regular choice” and encouraging them to try a different option?

Nobody in Britain’s foodservice industry welcomes news of a business facing difficulties. Looking at the coming year, the operators that will thrive will be the ones that work on their store estate, menu price engineering, promotions and new product development. Let’s look at these one by one. One of the problems in casual dining has been a tendency for some operators to scale up too quickly, with “quantity of sites” outweighing “quality of sites”. 

At NPD we believe this expansion will slow or even go into reverse. This process of rationalising or “right-sizing” the store estate will become more important and some operators will benefit from driving like-for-like sales rather than new-store sales.

Menu price engineering always sounds like a mouthful but it’s about the important issues of preparation costs, profitability and popularity. Price increases will be necessary to offset increases in cost so you maintain profitability but it’s important to maintain customer satisfaction too – people need to feel your menu always offers great value.

Have you developed popular dishes that also have a relatively low cost base for your business? Are you monitoring which menu items are the most – and the least – successful? Which items should you replace? You should also check if there is a clear menu proposition that addresses different dayparts. How well does your menu accommodate customers celebrating important events or occasions? Are you offering a fun and healthy children’s menu? Focusing on menus can be particularly productive.

The use of promotions is increasing and can be an effective tool to drive footfall but avoid falling into the trap of encouraging consumers to visit your operation solely for promotional value. This will have a detrimental effect on margins and doesn’t benefit your long-term brand health.

Operators that fail to keep up with changing consumer tastes and develop their menus to align with consumer demand risk becoming tired and unfashionable. Any industry needs to develop new products – the foodservice world is no different. Is product development a continuous process for your business or is it something you look at only sporadically? Imagine a family eats in your restaurant once a month. Will they see exciting changes each time or the “same old thing”?

Operators also need to look at their delivery strategy. The ability of delivery platforms to reduce barriers to entry has particularly helped small brands expand. Casual dining brands using aggregator platforms have grown delivery visits by 59% during the year to September 2018, more than three times faster than casual dining delivery visits overall. But care is required because there’s no sense in offering a delivery service only to find it cuts into your in-premise customer base.

Delivery certainly drives traffic but it can have a negative effect on margins if it requires third-party delivery services, where commission rates can be high. There are also risks and opportunities associated with “dark kitchens” supporting restaurants that want to extend their reach without opening new premises. Should a casual dining brand look at these resources? Should they even consider launching sub-brands that are only available via delivery?

Last but not least, there are opportunities in technology. Invest in an app that can help with payment and menu ordering. An app is less expensive than self-serve kiosks but is likely to help increase the value of the average bill in a similar way.

Is there any truth to the idea of a “casual dining crunch”? The answer right now is no. Britain’s casual dining sector has been serving up all sorts of great products and should continue to do so for many years to come. But the foodservice industry faces challenges. Is this the right time for some operators to ensure their business is as strong as possible, that their operation has the same appeal as great music, great places or great friends, that it can pull the punters in – again and again?

Well, 2018 has been a tumultuous year by any standards. For the hospitality industry, I can’t remember a time when the threats and uncertainties were so formidable. As well as business rates, minimum wage hikes and a looming huge increase in fees from the PPL/PRS legalised protection racket, we have the huge uncertainties of Brexit and its impact on recruitment and staff shortages. Then there is the ever-present agitation from that other racket – so-called “public health”.

Regarding Brexit, I’m a libertarian by instinct as much as intellectual conviction but even I can see sometimes the sheep need a shepherd. If Mrs May’s deal falls, at the risk of being howled down by a demented mob shouting “it’s the will of the people”, I think Parliament needs to reassert its sovereignty and move an amendment to revoke Article 50. 

This Brexit madness has gone on far too long and it needs to stop. Indeed, if our elected representatives hadn’t abdicated responsibility and taken this decision themselves in the first place, we wouldn’t be in this position. Brexit on any analysis will have a hugely negative impact on the hospitality industry.

As far as copyright organisations are concerned, I’ve written about their antics before and I think it’s time the government reviewed intellectual property law and reconsidered at what point the repeated playing of a piece of music, with all the marketing benefits that has to the performer, publisher and record company, mean it is now in the public domain and the copyright owner can’t go on rent-seeking from it forever. 

Copyright organisations have gone beyond musical performances and we’ve now seen the development of the Motion Picture Licensing Company, which collects fees in relation to TV and movie broadcasts in licensed premises and hotels. The copyright racket is a classic Del Boy-type wheeze, using the law to exact a rent without adding economic value – it’s a case of rinse and repeat – the licensed trade is a big cake and everyone wants a slice.

Where do I start with the public health racket? Its most emblematic policy, minimum unit pricing (MUP), came into force in Scotland in May and is already unravelling. Despite a 10% increase in alcohol prices across the board, we’ve seen a 15% increase in the value of alcohol sales in Scotland during the first six months of this policy. In volume terms, a 4% increase in the consumption of pure ethyl alcohol in the off-trade. Remember, MUP was meant to reduce consumption in its first year by 3.5% across the whole population and by 7% among problem drinkers?

Now the swivel-eyed temperance fanatics at Alcohol Focus Scotland and Sheffield Alcohol Research Group are saying while consumption may have gone up in Scotland it hasn’t risen as much as it has in England, where we don’t have MUP. So when they said consumption would go down, they really meant it would go up – just not as fast as elsewhere! 

You can almost hear the sound of goalposts being moved and ridiculous excuses being made – “the hot summer or the World Cup made Scots drink more”. Correct me if I’m wrong, but Scotland didn’t feature in the World Cup finals so are we supposed to believe Scots were knocking back more Buckfast while loudly proclaiming their support for the England team? Wouldn’t that be nice?!

I mustn’t leave out the sugar loons. The mass reformulation of our food supply at the behest of a public health lobby that sees business as vectors of disease and a conspiracy against the public goes on unchecked – and this under a Conservative government that is supposedly on the side of business.

With my attitude to Brexit I guess I must be an unrepentant member of the “liberal elite” stuck in my ways and in denial of populist democracy but, finally, here’s one that really got me ranting. David Runciman, professor of politics at Cambridge University, has complained the UK’s ageing population is creating a democratic deficit for the young. Is he advocating votes for 16-year-olds? Nope, that’s not radical enough. He wants voting rights for six-year-olds – “provided they can read”. I’m not making this up but if MPs continue to behave like six-year-olds, he may have a point. Merry Christmas!