Challenges and successes
The food and drink sector is diverse, covering a wide variety of operators, from chains, to high-end restaurants, to cafes and more. But the pandemic has affected them all.
Many, such as high-street restaurants and food courts based within shopping centres, had aligned their business to high volumes of ‘footfall’, which disappeared for months on end.
The Government’s ‘Eat Out to Help Out’ initiative provided a boost at the time and generated hope that we would soon be moving into whatever the ‘new normal’ was going to look like. Instead, there was a series of more restrictions and lockdown, creating a ‘stop-start’ environment.
Furlough, government grants and VAT deferrals have also been helpful, but these have been a stop- gap, not a solution to the difficulties introduced by coronavirus.
This all means that historic considerations in terms of site chosen, how to operate and estimates of levels of trade are not a match for current circumstances, but there has been uncertainty about what the future might look like.
The main problem is that businesses, for planning and investment, and also for restructuring and rationalisation, need to have some degree of certainty that they’re making sensible decisions about how they’re going to adapt and go forward.
Nevertheless, restaurants and bars have had to re-evaluate their business model and reassess the basis on which they were going to run, build and grow their business.
Despite the challenges, the positive outcome is that the sector adapted in the meantime, with some businesses bringing their offering to customers through Just Eat and Deliveroo or their own delivery service or by providing takeaways for collection – in other words, functioning as effectively as possible while on ‘shifting sands’. To a degree, some have been successful with this. But it will still be a while before core business returns.
Continued uncertainty, despite encouraging news
At the time of writing, it has been reported that pubs and restaurants are likely to open again in May, after many months of uncertainty.
But reopening with social distancing in place presents significant challenges, as it changes the cost model; business owners obviously have to consider the health and safety of their staff too. These are dynamics that up till last year had never been faced, and the costs will have to be incorporated.
Another issue is that city centres are now very quiet due to people working from home, although outlets outside cities which might not have performed so well in the past, are perhaps doing much better for this same reason.
City-centre operators therefore have many questions about the future of their business. For instance, when will office workers return and for how many days per week? Will it be the end of 2021, mid 2022 or even the back end of next year, and will it be a phased return? And will these city-centre restaurants and bars still require the same volume of square footage for their premises? Those based in London’s Docklands will be wondering how long it will take before they see the 120,000 people who worked in Canary Wharf again.
Venues with large units will have to figure out whether they have an advantage, in that they can be more easily adapted for social distancing, or whether that is cancelled out by the fact that their number of covers may drop by as much as 50%.
All of these issues can significantly change the metrics of a company’s business model and its ability to perform profitably and successfully.
The future
Due to the impact of the pandemic, we can expect to see much change in the sector, with some brands disappearing and others acquired and taken forward in a different format. There is also going to be further re-evaluation of business models – for instance some businesses that were in a growth phase before the pandemic will have to review where they are now and revise their plans. They’re also going to have to make different investment decisions in the future.
In addition, since the pandemic began, there have been businesses who thought they would be OK in three-six months’ time. But we are now close to a year down the line and these businesses will have incurred additional debt.
There are other questions hanging over the sector – if the public are turning more to the delivery and takeaway environment and enjoying dining at home, will they want to come back to sitting in a restaurant, bar or pub? There are of course the social benefits of going out, but social distancing will restrict it. Also, will the person who would usually eat out twice a week now only eat out once a week? And will there be pent-up demand initially which will then peter out?
Furthermore, there has been a swathe of job losses, not only in the food and beverage sector but also in other industries, so some people may not have the disposable income to eat out that they did before.
To sum up, we don’t know what consumer confidence is going to look like. And it’s not just about confidence in terms of capability to spend – it’s also about people having the confidence to go back out and do what they were doing before, in the way they were doing it before.
So, there is going to be more stress in the sector as it adjusts. There will inevitably be casualties, but there will also be a high number of businesses who will survive this period and will thrive again. The key point for all in the sector is to make sure they are one of the latter by carefully re-evaluating the cornerstones of their business, assessing where they are now and working out how to take the business forward in the ‘new normal’.
Building financial fortitude: more support for advisers and businesses
For more information, insight and support on the key issues businesses and professional advisers are facing please go to our Building financial fortitude hub at www.quantuma.com/fortitude. There you will find a series of video interviews, articles, and further support from experts across our firm.
This article constitutes general advice and should not be acted upon without taking specific advice. Neither the authors nor Quantuma Advisory Limited accept responsibility for any actions based upon this general advice.
