CM magazine May 2019

EXCLUSIVE REPORT
What’s On the Menu?
An analysis of the UK restaurant and takeaway sector
and the impact Brexit may have on its future.
EXCLUSIVE REPORT
AUTHOR – Markus Kuger
AUTHOR – Markus Kuger
LIKE many other industries,
the UK restaurant and pub
sector has been impacted
by the prolonged economic
uncertainty and Brexit
effect. The CGA’s business
confidence survey published in November
2018 found that just 30 percent of leaders
were optimistic about growth prospects
in the eating and drinking market for the
12 months ahead. Dun & Bradstreet is
maintaining its outlook for the UK political
environment as ‘rapidly deteriorating’
and predicts real GDP growth to slow –
forecasted at 1.6 percent in 2019-20.
The hospitality sector is the third largest
private sector employer, providing 10
percent of employment and contributing
up to five percent of UK GDP. However,
there has been a reversal of consecutive
years of growth (since 2015) with over 385
outlets closing in 2018 according to a PWC
survey and the number of restaurants in
the UK dropping for the first time in eight
years. In what has been termed a ‘crisis in
the casual dining sector’, there have been
a number of high-profile closures such
as Byron, Jamie’s Italian, Carluccio’s and
Prezzo Group.
Restaurants and pubs also suffered,
with a net 506 outlets closing, reversing
three consecutive years of growth since
2015. Carluccio’s, Jamie’s Italian and the
burger chains Byron and Gourmet Burger
Kitchen have all downsized amid a crisis in
the casual dining sector. The most popular
dining brands in the UK in a recent YouGov
survey were lower cost chains with Greggs,
J.D. Wetherspoon, McDonald’s, Subway
and Pizza Hut featuring in the top five.
CHALLENGING ENVIRONMENT
Recent business rate discounts
implemented for High Street businesses
will provide some benefit for smaller
businesses but is unlikely to have a
significant impact on this industry,
especially for larger chains and franchises.
Data from the Office for National
Statistics (ONS) shows that there were
32.5 million people employed in the UK
at the end of 2018, the highest rate since
the start of the data series in 1971. The
unemployment rate stood at the lowest
reading since the mid-1970s, which
creates both opportunities and risks for
businesses.
Resource-heavy industries such as the
restaurant and bar sector are increasingly
struggling to find employees, as
highlighted by a rise in the number of total
UK vacancies (853,000 in November 2018).
At the same time, wage growth is easily
outstripping inflation, thereby adding to
companies’ costs. In addition, a 4.9 percent
rise of the country’s minimum wage in
April also add to the cost pressures.
The labour issue is exacerbated by
lack of clarity around employment and
residency of EU nationals in the UK in
a post-Brexit landscape. Many in the
hospitality industry have voiced concerns
as the number of migrant workers in
the UK fell in 2018 and trade body, UK
Hospitality, warns this will ‘undermine’ the
workforce across UK restaurants and bars
and hinder investment and growth in the
sector.
Cashflow can also be an issue and
Dun & Bradstreet’s latest data on payment
performance in the industry has improved,
but the average percentage of payments
made on time based on the data analysed
was still a low 31.8 percent average for
the fourth quarter of 2018. Although the
industry pays more promptly than those
in the manufacturing and government
sectors, it still lags way behind other sectors
such as agriculture and construction.
CHANGING TRENDS
Despite a turbulent time, the CGA’s Market
Growth Monitor does still indicate growth
in the sector, with a stable number of small
and medium businesses opening their
doors and the expansion of successful
brands such as Wahaca, Wagamama,
Nando’s and Giggling Squid.
Although high street retailers saw a
decline in credit card sales and an overall
slowdown in UK consumer spending, data
from Barclaycard showed an 11.7 percent
increase in spending at pubs, and 8.6
percent increase at restaurants in October
2018 compared to the previous year.
The industry is also impacted by wider
lifestyle trends such as an increased
demand for healthier food options and
specialist dining such as vegan or glutenfree.
There is also much more of a focus
on ethical sourcing and sustainability
with consumers looking more closely at
issues such as where the food products are
sourced from, and the distance it travels to
the amount of plastics used in packaging.
Deloitte’s report in 2017 also predicted
that ‘the restaurants of the future will
use technology throughout the customer
journey’ across a range of processes from
ordering and delivery through to pricing.
With the growth of websites and apps
such as Just Eat and UberEats, takeaway
deliveries are on the up and with increasing
choice in a busy marketplace, businesses
are under increasing pressure to enable
more personalised experiences, which
require investment.
Although there are undoubtedly tough
times ahead for the hospitality industry
in a busy and competitive marketplace,
there is evidence of growth and expansion
for certain brands and opportunities for
growth are out there for those who can
adapt and move to meet changing needs.
Markus Kuger is Lead Economist at
Dun & Bradstreet.
The Recognised Standard / www.cicm.com / May 2019 / PAGE 30 The Recognised Standard / www.cicm.com / May 2019 / PAGE 31