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Morning Briefing for pub, restaurant and food wervice operators

Fri 14th Jun 2024 - Friday Opinion
Subjects: The golden rule of franchising, Generation Z and hospitality – a call to action for leaders, is informality now a formality, getting it right with Euros promotions
Authors: Matt Kirby, Alastair Scott, Glynn Davis, Chris Turner

The golden rule of franchising by Matt Kirby

Over the years, I’ve worked out there are roughly three types of people. The largest group, which forms more than 90%, are prepared to be told what to do in return for a paycheck. The other 10% divide into two groups – entrepreneurs who might take the occasional bit of advice, and the slightly more balanced group that want to be their own bosses but work within a structure that gives them support in terms of a proven brand or concept. These people often make good franchisees.
 
I sold my first franchise in 1992 to a couple of customers who wanted to open an 85-cover Mongolian Barbecue restaurant in their hotel in Kensington. The franchise agreement was two pages long and said we would help support their business in return for a percentage of their sales. The franchise lasted 15 years, making a healthy profit every year, and only came to end because the new owners wanted to take the hotel and its restaurant offer in a different direction (so, like most aspiring hotel restaurants, it quickly returned to losing money). 
 
Franchise agreements now run to hundreds of pages, and you need specialist lawyers on both sides to point out all the relevant clauses. Throughout the 15 years of the franchise in Kensington, we never needed to look up point 7.1.2.6 on management fees because both parties worked off a model that allowed them to make money.
 
Too often, I read in the trade press that some pizza, bubble tea or dessert concept is going to add another 150 units in the UK and 500 overseas by growing its franchise network. The concept of franchising is very attractive for the would-be franchisor – a chance to minimise capital investment while getting valuable royalty fees from different operators. However, too often, set-up franchise fees are taken from potential operators for territories and sites that don’t stack up economically. 
 
This I know because as a franchisor for nearly 30 years, I’ve taken money from people I should not have. If that franchise business starts to encounter difficult trading, who is the first person that doesn’t get paid? It’s the franchisor. I quite often rationalised this situation as the franchisee’s lack of effort or their inability to commit themselves to the brand. The reality is, I should have told them not to buy our franchise. In my experience, when a franchise fails, its more likely to be the franchisors’ fault for giving them a weak site or trying to extract too much of the revenue stream without supplying the franchisee with the tools or business model economics to make it work. 
 
When there is the right balance between the brand owner and the franchisee, it can work well. I’ve sold franchises to individuals and groups who have gone on to develop very successful enterprises because the business model gives them the return on investment that they need to make money and expand. This I have worked out because I have been both a franchisor and franchisee. In fact, I’m probably one of the few operators who developed a franchise concept, then ended up being a franchisee, but that’s what happened at Chozen Noodle.
 
After selling the business in March 2023, we took the Chozen Excel franchise from our new owners Chopstix. Like most franchise arrangements that work, it’s been a good partnership. We pay it a royalty and it helps us with advice, product support and purchasing. [Chopstix founders] Sam [Elia] and Menashe [Sadik], and [managing director] Jon [Lake] all understand what’s needed to help the franchisee make money, which is why both the Chopstix and Chozen brands work so well.
 
In the US, more than 200,000 restaurants and quick service restaurants are franchised. Fords Garage Café is a franchise, and we pay royalty fees to both the Florida-based franchisor and Ford Motor Co. In addition, we pay a national advertising fee and have to make a commitment to also spend on local advertising and marketing. This all adds up, and in some cases, franchise operators are paying more than 12% of net revenue to the franchisor. This can still work if labour and costs of goods are below 30% each, but even in the great US of A, this is now rarely the case. 
 
So, in conclusion, on both sides of the Atlantic, the golden rule remains the same. It has to be a partnership, and the business model needs to be configured to make sure that there is enough margin to allow the franchisee to get a return on the risk capital that’s been employed. 
Matthew Kirby is a restaurateur and entrepreneur who founded and sold the Chozen Noodle brand. He is an investor in the Detroit-based restaurant franchise Fords Garage Café. This article first appeared in Propel Premium, which is sent to Premium subscribers every Friday. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email kai.kirkman@propelinfo.com to upgrade your subscription.
 

Generation Z and hospitality – a call to action for leaders by Alastair Scott

A recent topic that seems to come up often when I talk to industry colleagues is the appalling damage covid has done to Generation Z. For a while, there was much talk of the academic damage done, but less energy is focused on the social damage, particularly when it comes to the implications it has had upon them entering the workforce. 
 
If you are currently employing 16 to 20-year-olds, you are dealing with a generation that were between 12 and 16 when the pandemic began. School closures, remote learning and social distancing measures completely rid them of face-to-face interactions for a long time. Of course, this led to an increase in social anxiety and discomfort in real-world settings. For many Generation Z workers, the prospect of engaging with customers, colleagues and supervisors in person is really daunting. And, of course, within our industry, the need for social skills when entering the workforce is essential.
 
As an industry, we see it in the people we recruit. Our teams struggle with some basic engagement skills ­– eye contact, initiating conversation and smiling, among others. As operators, we are having to work much harder than we did pre-covid to help young people through this journey. And we must – our industry survives on young people and improves the lives and capability of so many. It also helps people to develop essential life skills.
 
This is unprecedented territory for us all – how do we help? From talking to others in the industry, I know there has been a focus on teaching conflict resolution and better customer service etiquette, whether that is through mentoring or role-playing different scenarios. The other big one is opening up communication, to create an environment where employees feel comfortable asking for advice or discussing challenges, whether it be job-specific or general social competencies. 
 
We rely on young people in our businesses, so we want to encourage and support them so we can retain them. Generation Z are tech-savvy, quick learners, and often more open to change and innovation than older generations. I find that these traits can be really undervalued by leaders, but in our post-pandemic world, they need more recognition – particularly now we are increasingly relying on digital solutions and service models everywhere.
 
In our pubs, I always enjoy it when I see the younger members of the team getting dropped off in a nice Range Rover. Their parents could easily afford to give their children the money they are earning. But instead, they recognise that working, particularly in hospitality, gives them much more. For starters: a work ethic, an ability to understand the value of money, an ability to talk to other people and engage with different generations in a meaningful way. These skills are invaluable and cannot be taught by staying at home or by asking mum and dad to fund your life every weekend.
 
And beyond this, I think that our industry is now more important to UK plc than it has ever been. It would be great if, at some point, the government stopped taxing us to the hilt and instead helped drive an industry that prepares people for the working world in a way that school, or even university, cannot. It is real work with real customers and real expectations.
 
I heard recently that hospitality employs more than three million people. But given the high staff turnover, the percentage of young people that are in some way involved and moulded by hospitality is immense. An incredible number of the people I meet have, at one point in their journey, worked in hospitality, even if it was only for a summer. 
 
We need more recognition for the job we do, and more support for helping people through this journey. One-to-ones and coffee chats are all part of the training journey, but I think that one of the most important things is praising people when they do a good job. This is the reinforcement people need to try harder, be braver and challenge their fears.
 
I do not think I am alone in believing that our standards have dropped since covid. We are all working hard to build back and get to the levels we want, and even to go beyond that. Of course, many things have changed due to covid, but with change also comes a real opportunity for hospitality leaders to shape a more resilient and capable workforce. So, get to it!
Alastair Scott is chief executive of S4labour and owner of Malvern Inns 

Is informality now a formality by Glynn Davis

Celebrating a special family occasion recently took us to Charlie’s restaurant in Brown’s Hotel in central London, for a very leisurely Sunday lunch. Despite the smart surroundings, my son still felt inclined to eat his over-sized Yorkshire pudding with his hands.
 
Maybe I shouldn’t have been that surprised really, because we were only a train ride north and a linen tablecloth away from the famous Yorkshire Pudding Wrap that was invented at The Sandwich Shop in York. It gained global fame for having translated a full Sunday roast into a hand-held meal. This much-copied delicacy is simply one of a number of food creations in an ongoing movement that removes any formality from food consumption. It has reached the point whereby it has rendered knives and forks redundant.
 
Even in Fallow, a very well-regarded restaurant in London’s St James’ area, the effect is being felt as its breakfast menu includes a section highlighting its royale signature croissant rolls. These are certainly a thing of beauty, with my choice incorporating a sausage patty, cheese, bacon and a fried egg held in place by a buttery top and bottom of round perfectly formed croissant. 
 
These creations don’t require a knife and fork, although you can choose to use them if, like me, you are that way inclined. My children rolled around laughing when we dined out on burgers in a pub in Oslo and I chose to use the traditional dining implements. To save myself from more embarrassing dad activity, I chose to ditch the knife and fork during breakfast last Christmas at The Bell Hotel in Sandwich, which served up a terrific breakfast bap.
 
Younger consumers are driving the preference for ever more informal dining, with dishes and cuisines now being created to satisfy these desires – which invariably involves getting your hands dirty. The traditional food types such as burgers and pizza are invariably eaten without any utensils, and they have been joined by newer brands involving the likes of burritos and tacos such as Tortilla, Chipotle and cross-over brand SushiDog (sushi rolls like a burrito). They are packaged up to be eaten on the go and can be conveniently consumed in one hand if required.
 
Even the emergence of a plethora of healthier brands like Urban Greens, Tossed and The Salad Project are based on bowl foods and rely on merely a spoon. Farmer J does at least involve a fork, if that’s your uncool style. 
 
I’ve begun to wonder whether anybody would risk bringing a new concept to market that required anything more than a spoon or a dreaded spork. Maybe fish and chips has become less popular of late because it’s not quite so easy to eat by hand – especially when you throw in mushy peas, as I simply have to.
 
The demand for effortless food propositions has even been extended into the composition of the menus of established super-casual players. KFC has found that its traditional bone-in chicken was losing it younger customers, who do not want the hassle of dealing with bones and prefer boneless options. In the US, the brand found itself struggling against major rival Chick-fil-A, with its boneless menu.
 
This shift to ultra-casual, no-fuss dining sits particularly well with the rise in delivery, where diners can chill out at home with their effortless chow. Likewise with the unstoppable drive-thru market, where customers don’t even have to bother with the formality of sitting at a table. They can simply tuck in in the comfort of their own vehicle – an environment stripped of all possible elements of faff and formality. Even in a quick service restaurant, there is generally the requirement to adhere to some very basic rules like returning your rubbish to the bins at the end of the meal.
 
Where we will go next on this move to eradicate any formality from dining is anybody’s guess. Or maybe ordering boneless options from a drive-thru and chomping away in your car is as casual as it is going to get. Whatever happens, I will continue to defend the honour of formal dining with my trusty knife and fork, which should easily see off any hand-held Yorkshire pudding and chicken tender.
Glynn Davis is a leading commentator on retail trends

Getting it right with Euros promotions by Chris Turner

Better versed football-fanatic friends tell me that England are tipped to do well in this year’s Euros. While my first love is rugby, I do enjoy the beautiful game. And I do recognise that the opportunity the Euros will provide for trade is one of the biggest this year.
 
During the 31 days of the tournament, the British Beer & Pub Association predicts that 300 million pints will be sold across the sector. Opta predicts a 19.9% chance of it coming home for England, as the highest of any team, with France closely following behind at 19.1%. Needless to say, it’s a key event in the hospitality calendar for most of us.
 
With pubs and bars gearing up over the last few weeks, it’s a good chance to watch how the best in the sector are approaching their Euros promotions. And, in some cases, seeing how not to do it.
 
There’s absolutely a place for print. Posters can occupy small and otherwise unused spaces that can catch the eye of customers and cement the venue as a place to watch a match. The back of the toilet cubicle, as an example I’m sure many have acknowledged while WhatsApping on the loo. The tangible presence of well-designed print materials makes them a solid part of a promotional strategy.
 
While many pubcos are well ahead of this tradition, promotion of other recent sport fixtures has shown me there’s a long way to go across the industry. A classic error that I’ve seen many times this year is out-of-date promotions. One of the downsides of print is that it sadly doesn’t update itself. It’s down to the staff to remember to take down and replace table talkers and posters once they’re no longer relevant, but the many other tasks keeping a pub manager busy means that this is often forgotten or delayed. 
 
Keeping on top of promoting fixtures – update assets, print, assemble, take down, repeat – can be a faff. Not to mention pesky fixture changes or postponements. And not just for the pub staff, but for the marketing teams that need to deliver the content ahead of time to numerous locations. Then there are the printing costs and the obvious environmental downside that these outdated posters are heading straight for the (hopefully, recycling) bin.
 
One alternative to this is using digital signage, which, again, can be massively effective if the content’s right and it’s deployed well. When there are already screens in pubs, it’s a no-brainer to use these outside of the matches themselves to promote upcoming tournaments like the Euros, whether that’s with direct fixture promos or supportive content to gear up excitement around the event – trivia, predictions, breaking news and other entertaining videos, for example.
 
But so often – even as I write this, a week before kick-off – I’m out on the road seeing the likes of Homes Under The Hammer and The Chase grace screens, with daytime TV that’s been left to roll over in the background, adding zero value. If it’s not this, it’s often screens being off completely during times when they could be driving engagement. On the day of a match, for example. There’s more to show than the generic half hour run-up, but relatively few are taking advantage of this.
 
Of course, not every pub wants TV running 24 hours a day. But for the pubs and bars that rely on sport to attract much of their footfall, it’s worth looking beyond the table talkers and 90-minute match on TV to entertainment that’ll drum up excitement and make the venue a leading destination for sport.
 
When comparing with print, digital signage is much easier to update, with marketing teams able to upload and deploy content across multiple venues’ screens in minutes. This can be done without disrupting a wider schedule of content too, allowing for flexibility and control in the long-term. And, of course, there’s no additional cost to print and distribute content to pubs.
 
Sport promotion services like Startle Arena do all of this and more; it’s all about automation. Branded templates are created on the fly using live sports data via an API – no involvement from pub managers or head office staff required as assets update themselves. This is a great way to create customer engagement through statistics pertaining to the fixture or tournament.
 
The more proactive operators often have a multichannel approach that utilises similar sports marketing content across both in-venue signage and social media, reaching a much wider pool of customers outside of the venue while enforcing consistency and with good creative, brand distinctiveness. With social we can, of course, benefit from more precise targeting if desired, and more easily track ad effectiveness.
 
For many pub managers, there’s huge untapped potential in digital signage – in promoting sport events like the Euros and beyond. Ditch the dull daytime TV that no-one’s watching and the repetition of the same food and drink ads and think of your digital signage schedule as a much wider marketing tool. Communicate brand messages, showcase food and drinks ads and have your screens display a varied, constantly updating stream of sports content that’ll be a refreshing change for your audience.
Chris Turner is account director at background music and digital signage business Startle

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