Growing optimism among leaders of restaurant and pub groups

The third annual survey of business leaders in the eating and drinking-out market could hardly have been conducted at a bleaker time for the economy, but nearly three quarters of bosses are either fairly (62%) or very (10%) optimistic about their own business prospects over the next year.

Perhaps inevitably, this proportion is higher than the numbers feeling optimistic about the market as a whole, but here, too, just over half of leaders are fairly (47%) or very (4%) optimistic about 2012. Both findings are a marked increase on the proportions feeling this way at the same time last year. Only one in four is pessimistic about the coming 12 months.

The views were gathered by Peach Factory, the sector’s leading insight expert, via online interviews with 71 senior executives in operating companies of all sizes and from all parts of the country during January. Over half were either chief executives or chairmen.

“The heads of our industry could be forgiven for feeling downbeat about 2012,” said Peach’s chief executive Peter Martin. “But the UK’s eating and drinking out sector is nothing if not resolute, and while they are all too aware of all the challenges, its leaders are rolling up their sleeves to tackle them in a determined mood. For most, 2012 is a glass half full rather than half empty.”

However, leaders believe there will still be pressure on consumer spending and frequency of going-out. Two in five (42%) think spend per head will decrease slightly or greatly because of the economy. More than half (54%) think frequency of visits will decline.

On the emotive issue of discounting and vouchers, the survey reveals a desire to rein them in. A quarter of bosses say they intend to reduce discounting activity, while only 6% will increase levels in their own business. However, there is less confidence that the market as a whole will follow suit. Overall, 34% think discounting market-wide will increase this year, 43% stay the same and 20% decrease.

Other highlights
•    Optimism generally higher inside the M25.
•    Younger and smaller companies are the most optimistic, with pub groups generally more upbeat than restaurant chains.
•    However, 42% think consumer spend per head will decrease slightly or greatly this year, while ore than half (54%) think frequency of visits will decline.
•    Consumer confidence is the biggest single challenge for leaders
•    Delivering a clearly differentiated offer and strong brand identity are chief operational challenges
•    Staffing issues will be given more prominence this year
•    Digital marketing will increase in importance in 2012
•    Discounting will be less important – with 24% saying they plan to reduce discounting activity
•    Fast food, pub restaurants and premium casual dining are tipped for growth
•    Street food is seen as the hottest emerging trend
•    The market is split on the benefits of the Olympics – with more positivity coming from within London
•    Leaders are confident in their skills to deliver quality food and customer service – but less so when it comes to marketing and technology


Guarded optimism
Much of the optimism is fuelled by the year just gone. Sale data from the Coffer Peach Business Tracker shows that leading pub and restaurant companies returned positive monthly like for like sales growth throughout the majority of 2011.

Nearly half (45%) of the leaders surveyed by Peach say their companies’ performance in 2011 was on target with expectations, with another three in ten reporting it was ahead (21%) or significantly ahead (9%) of expectations.

That leads to the robust confidence for 2012. Nearly three quarters of leaders are either fairly (62%) or very (10%) optimistic about their own business prospects over the next year. However, this proportion is higher than the numbers feeling optimistic about the market as a whole—but here, too, just over half of leaders are fairly (47%) or very (4%) optimistic about 2012. It is a marked increase on the proportions feeling this way at the same time last year, and fewer than one in four is pessimistic about 2012.

Given London’s seeming immunity to recession and the fact that we are entering an Olympic year, it is no surprise to find that optimism is generally higher among businesses operating mainly in the M25 than among their counterparts beyond it.

Younger companies and those with smaller estates are also more optimistic than the average, doubtless because they have more room to grow. More surprising is our survey’s finding that food-led businesses appear less optimistic about the year than operators that are drink-led or evenly balanced. Their hesitancy is probably due to the fierce competition in the eating out sector now; as one food-led business leader points out: “The market in the casual dining sector is highly competitive with more outlets competing for fewer guests.”

Bringing the confidence back
But while the general mood is one of cautious optimism, leaders acknowledge major challenges around consumer behaviour in 2012. Two in five (42%) think spend per head will decrease slightly or greatly because of the economy in 2012, while only one in five (21%) thinks it will increase. More than half (54%) think frequency of visits will decline, with only one in six (16%) predicting an increase. These numbers reveal a slight strengthening of confidence compared to 2011, but confirm that the squeeze on people’s spending will tighten even further this year.

Consumer confidence is the biggest single challenge to business for leaders who were asked to rank the relative importance of various factors But there is better news on other financial factors like food and fuel costs and access to funding, which should be less important this year than last.

Operations-wise, the importance of standing out from the crowd is paramount. On the ranking of operational challenges, the needs for a clearly differentiated offer and strong brand identity are considered the most important by some distance.

Giving power to the people
How can they do it? Perhaps the best place to start is with people. Leaders’ ranking of operational challenges reveals that staffing issues are much more prominent this year, with more and more businesses now aware of the close link between the quality of their teams and the satisfaction of their customers. As one leader of a medium-sized food-led business puts it: “Management focus will be on valuing and retaining teams [and] making our company a great place to work and grow. Happiness at work and team member satisfaction will be paramount to giving guests a superior experience compared to our competitors.” Rising unemployment this year will give operators a big pool of staff to choose from—but that will only make recruiting and retaining people of the right calibre even more important. 

The value of good people is confirmed by leaders’ thoughts on consumers’ priorities when deciding where to eat and drink out this year. More than nine in ten think quality of experience (94%) and service (93%) are very important drivers—higher than the figures for food quality (80%) or value (78%). It is more crucial than ever now to give people a good time when they venture out.

People also rank highest on leaders’ own lists of priorities for 2012. Nearly nine in ten (86%) will be investing management time and focus in staff training in 2012, and eight in ten (79%) in service levels. Both figures are higher than those investing in marketing—which proves that brand building is about so much more than communications and promotions.

Most businesses have nevertheless stepped up their marketing in the last year, with two thirds of leaders reporting either a small (53%) or significant (53%) increase in spend and fewer than one in ten claiming a small (6%) or significant (3%) decrease. They also signal the growing importance of digital marketing, with websites, email and social media all considered to be more important generators of sales than traditional campaigns like local marketing, events and vouchers

Room for growth
Given all the challenges and changes to the industry, which sectors of the market will fare the best in 2012, and how much growth do leaders predict for their own businesses? Given the importance of price, it is no surprise to find that the fast food sector is in poll position, tipped as a likely winner by more than half (59%) of our leaders).

But close behind, and tipped by significantly more people in this year’s survey (51%) than last, are pub restaurants. As the leader of one national food-led business points out: “There are certain concepts and brands that can benefit from the economic downturn if they provide consistent high quality food and experience with a true value for money proposition.”

Perhaps because purse strings are being tightened, fewer leaders back mainstream casual dining to succeed this year (39%) compared to last—though premium casual dining increased its share of leaders’ tips (34%), reflecting the success of more upscale concepts in London and the south east. Among emerging formats, meanwhile, street food is the one to watch, expected to grow by two thirds (67%) of leaders in 2012. ‘Food to go’ takeaways from pubs and restaurants (42%) and pop-up concepts (36%) are the next most tipped formats.

On their own expansions, leaders are decidedly on the front foot. More than one in five (22%) says their business aims to open more than ten sites this year, with only 7% planning no openings, compared to 13% in 2011. Taken across the whole survey sample, these intentions could translate to some 700 new sites this year—a very bullish outlook given that 2012 will be another year of constrained spending. It confirms that there are strong grounds for optimism about eating and drinking out in 2012—though the need to perform will be greater than ever. “The mediocre will get killed [but] great delivery will mean that the strong will not only survive but thrive,” concludes one small-scale food-led business leader. Or as another puts it: “Only best in class service will win the race.”

Leaders on… The Olympics
Predictions about the likely effects of the Olympics on pub and restaurant trade have veered from the wildly enthusiastic to the downright pessimistic, but what do business leaders think? Their forecasts are similarly equivocal. Just over a third (35%) think it will have a positive effect on their sales, compared to just under a quarter (24%) who think it will impact negatively. Those operating within the M25 are, naturally enough, much more optimistic about the Games, though several leaders point out that the event could cause major headaches in supply and be a distraction for staff. 

Leaders on… Discounting
Discounting will continue to be a widely used tool by pubs and restaurants over 2012, but our survey reveals a desire to rein it in. More leaders think market-wide discounts will increase (34%) or stay the same (43%) than decrease (20%) in 2012. But higher numbers will decrease (24%) than increase (6%) discounting in their own business, and there is agreement that the sector needs to get beyond blunt money-off deals. “The level of discounting is unsustainable in the medium never mind the long term,” says one large-scale food-led business leader. “We need to start transitioning from discounting to loyalty driving offers.”

Leaders on… Their own businesses
Leaders give an honest appraisal of their own businesses compared to the rest of the market, and there is a particular crisis of confidence around marketing and technology. Just 17% and 21% rate themselves as market leading in marketing and technology respectively—much lower than the numbers who think they are behind the competition in these two areas. But leaders are much more bullish on other aspects. Half (51%) think they lead the way in food quality, while slightly fewer consider themselves market leaders in customer service (45%) and staff training and development (39%).

The Peach 2012 Business Leaders Survey gathered opinions from 71 chief executives, chairmen and senior executive, from companies of all sizes and in both food and drink led operators, in January 2012.

The full report, with tables, is available free to Peach Report subscribers, or for £140 (plus VAT) for non-subscribers, from Peach Factory. To obtain a copy contact Christine Martin, call 01704 550383 or email christine@peach-factory.com