Peach Business Leaders' Survey: What operators really think
20 February, 2013
Peach's annual Business Leaders' Survey reveals plenty of optimism for the year ahead while highlighting both the industry's key priorities and underlying concerns - from food costs to staff to technology. David Martin does the analysis
It’s tough out there, but business leaders remain upbeat about prospects for 2013. That’s the key conclusion of this year’s Peach Business Leaders’ Survey.
Company bosses across the eating and drinking out sector will be focusing on the customer experience, developing their teams and improving value in the coming year. They see eating habits being driven by a growth in ‘casualisation’ and flexibility—with all-day concepts being the ones to watch and emulate.
New openings will continue to drive expansion—with technology, and how to harness it effectively, a key operational challenge. When it comes to outside pressures, food costs are top of the list of concerns.
Now in its fourth year, Peach’s Business Leaders’ Survey is the industry’s most accurate barometer of boardroom and entrepreneurial sentiment. Over 120 senior executives, mainly CEOs, from major corporations to small start-ups took part in the research conducted during January.
The results map out the opportunities and threats for the year ahead—and occasionally highlight areas, such as the relative importance of food quality, where the industry and consumers might not always be eye-to-eye.
So what, then, are our leaders’ forecasts for 2013? Here are 10 key trends our survey highlighted.
* Leaders optimistic—about own business and the market
* More of the same: economy expected to bump along at best this year
* New openings will continue apace
* Food costs a bigger worry than reputation, VAT or rents
* Staff and customer experience hold keys to success
* Value seen as crucial—though customers pick quality
* Technology to drive everything
* Race to market leadership more competitive than ever
* Drink-led businesses still under pressure
* The rise of flexibility, 'casualisation' and all-day formats
1 Leaders optimistic—about their businesses and the market
With Christmas a fading memory, snow blanketing the country and the country tipped for a triple-dip recession, our survey closed at possibly the gloomiest time imaginable. It also comes at a time of tightening trading for leading managed pub and restaurant groups, as seen in the Coffer Peach Business Tracker, with slowing rates of growth for both total and like-for-like sales every month since the end of the summer.
But most leaders are looking forward to 2013 in a resilient mood and with judicious optimism. Confidence is growing.
The proportion of bosses who say the performance of their business in the year just gone was on target or ahead of expectations has edged up in successive years from 70% in 2011 to 75% in 2012 to 80% this time around. Roughly the same proportion is either fairly (63%) or very (15%) optimistic about prospects for the year ahead, again, a more positive picture than this time last year.
Confidence about the wider out-of-home eating and drinking markets is a little more restrained, but still positive. Just over half of all leaders are optimistic about their sectors in 2013, though only 6% of those are very optimistic, and 46% fairly so. Only one in eight is outright pessimistic about market prospects, however. This optimism is more evident among the smaller businesses (up to 50 sites), and the young and maturing ones (up to 10 years old)—the lifeblood of the industry.
2 More of the same: wider economy to bump along at best this year
Leaders’ confidence in their own businesses contrasts with widespread pessimism for the UK economy as a whole in the near term. The inauspicious start to 2013 is not encouraging, and nine in ten leaders do not expect to see any economic growth in the coming year. The majority expect it will be at least 18 months before we enjoy any macro-economic benefits, and one in four thinks that point is more than two years away.
The economic woes will pile more pressure on consumers in 2013. Only 24% of leaders think customers’ spend will increase slightly this year, compared to 38% who predict it will decrease slightly. That means that optimism derives more from the frequency of customers’ visits, which 38% of leaders think will increase. Significantly, there is more optimism around both frequency and spend per visit than in any of our previous three surveys, with more leaders forecasting an increase on both fronts than a reduction for the first time.
For those who think London is immune from pressure on spending, businesses with a national spread or those based mainly outside the M25 have stronger expectations of more visits and spend this year than those in the London area.
That suggests that the whole country, and not just the capital, can see some green shoots of economic recovery. In the meantime, the message is clear: many people find themselves with reduced spending, but they are determined to continue eating out. As we have seen with Coffer Peach Tracker data, mainstream casual dining is already under pressure in the hyper-competitive London market.
3 New openings will continue apace
Perhaps the biggest sign of market confidence for 2013 can be found in leaders’ expansion plans. More than 90% intend to open new sites this year, with one in four targeting 10 or more locations. These are similar levels to those measured in 2012, and show that the bulk of operators continue to grow their estates despite the sluggish economy.
As in previous years, the tightest brake on expansion might be funding. One in four leaders considers access to bank funding to be a major concern, and the issue is particularly acute for some maturing businesses—though many have been imaginative in pursuing other ways of overcoming it. In this context, property pipelines and site availability are considered ‘very important’ operational priorities by just over a third (38%) of our sample—rising to over 50% inside the M25.
4 Food costs a bigger worry than reputation, VAT or rents
As well as the trials of the wider economy, operators will face plenty of challenges in 2013. Last year’s survey found that consumer behaviour was considered by business leaders to be the biggest single challenge, but our 2013 poll finds that overtaken by worries over food costs.
Four in five respondents are either very concerned (35%) or concerned
(45%) about these, and ongoing crises connected to supply and demand show their anxiety is justified. No other issue on leaders’ agendas comes close in significance to food costs, and it is the most pressing issue for all kinds of businesses, not just the food-led.
All other issues are considered ‘very concerning’ by well under 20% of leaders. VAT remains a headache for some, no doubt linked to the higher rate of 20% since 2011 and some high profile and ongoing test cases with HMRC—and perhaps frustrations over the lack of success of any of the political campaigns to reduce VAT for hospitality.
Corporate reputation is another topical issue causing some worry, especially in light of the bashing Starbucks has received over its tax strategy. Rental and property costs are a particularly heightened concern for those businesses focused inside the bubble of the M25, while other anxieties include staffing costs and the prolonged dip in consumer confidence.
5 Staff and customer experience hold the keys to success
Last year’s survey of leaders highlighted the importance of a strong brand identity and clear differentiation of offer. These are still key preoccupations, but the leading operational priorities for 2013 are engaged and motivated staff and the delivery of a high quality customer experience.
In an essentially flat market where one operator’s market share gain is another’s loss, these things will be more critical than ever this year. Nearly nine in ten (88%) of leaders rate the overall quality of customers’ experience as a very important driver of customers’ choice when eating out. And they are putting their money where their mouths are, with training and customer service the most frequently identified areas for investment in the year ahead.
Beyond the experience, operational priorities for 2013 will include property pipelines and site availability, considered very important by just over a third (38%) of our sample. Given the fierce competition for good locations in London, it is no surprise to find that the importance of this is heightened for those operating predominantly within the M25, 51% of whom think it very important.
6 Value seen as crucial—though customers pick quality
As pressure on spending mounts, people who eat and drink out want more and more for their pound. Value for money is considered a very importance choice-driver for consumers by four in five (79%) business leaders this year.
In light of this, it is interesting to find that discounting and vouchers is considered the least important operational challenge for 2013—rated by only one in four leaders as either very important (4%) or important (21%). The emphasis they place on vouchers is lower than the importance given to them by consumers in Peach BrandTrack polls—but other research suggests that the public, too, is tiring and increasingly suspicious of them. For many people, assessments of value go way beyond crude discounting to take in the complete experience.
Intriguingly, operators rate the quality of food as only the fourth
most important choice-driver, and only half (52%) will increase investment in menu development this year. While we are hardly going to deny the importance of other experiential factors, it is worth noting that Peach BrandTrack research consistently shows that for consumers food quality invariably trumps value as the main driver of consumer choice—and is closely linked to the strength of overall brand recommendations.
7 Technology is driving everything
Hospitality is human, but technology in this sector now touches everything, and continues to evolve fast. In 2013, it is likely to add greatest value to operators’ marketing and promotional activity, cited by two thirds (66%) of our industry leaders. Just over half think technology will reap benefits via online reservations and ordering (55%) or via staff training, recruitment and communication (54%). Two thirds (66%) of leaders say digital marketing will be an area for investment this year.
Hi-tech payment solutions, most notably contactless, are cited by only a third (34%), so may be a less imminent opportunity. But this area gets more votes from businesses within the M25, perhaps with a view to the boost to awareness and adoption that is likely to follow the launch of contactless Tube payments this year in London.
8 The race to market leadership more competitive than ever
Peach BrandTrack research has shown for some time that consumers are widening their brand repertoires, which means chain operators must build their share at the expense of their rivals. In this fickle market, business is hard-won, and operators must chase repeat visits from regular customers while also recruiting new ones. This is never an either-or option, and it is clear from our research that both are vital, with 81% of leaders intending to focus on encouraging repeat visits and 71% on attracting new customers.
The battle is intensified by the striking self-confidence of most operators. The majority of leaders consider their businesses to be market-leading rather than market-lagging on all issues except one—soft drinks, a category where the on-trade struggles to innovate compared to the grocery world. A bullish two thirds (64%) think their food quality is market-leading (perhaps explaining why they will be focusing more on value), and only 7% think it is behind their competitors.
9 Drink-led businesses still under pressure
As in our three previous surveys, it is pubs and bars, faced with the challenges of tax and drinking-at-home, which are considered likely losers in 2013. But it is a very different story for pub-restaurants. Among our industry leaders, 44% think these are well placed to thrive this year—a higher proportion than is the case for both mainstream and premium casual dining. This sentiment marries up with evidence from the Coffer Peach Business Tracker that the strong value proposition of pub- restaurants is driving above-average like-for-like growth.
Food-led pubs are primed for the takeaway market too. Leaders tip food-to-go as an increasingly important sector in 2013, and brands that have already made it a byline, like Harvester and Toby Carvery, are well placed to capitalise. This trend is also seen as more significant than food trucks, though these should perform particularly well in London, according to our respondents.
Other trends tipped to be hot in 2013 include chicken-focused operators and craft ale, both of which enjoyed a renaissance last year. Barbecue concepts are also backed.
10 The rise of flexibility, ‘casualisation’ and all-day formats
The traditional day-part pattern of eating is breaking down, with more snacking, grazing and out-of-home breakfasting and a general ‘casualisation’ of eating out. Up-and-coming brands such as Bill’s and Loungers, named Breakthrough Brand at last year’s Peach Hero and Icon Awards, are good examples of this all-day, all-purpose, all-comers trend.
All-day and flexible formats are considered a winning proposition in 2013 by 71% of our respondents—well clear of the next most mentioned, coffee shops, on 47%. Convenience is meanwhile considered a very important driver of consumer choice by more than a quarter (28%) of leaders.
But there is an issue here around understanding what customers really want from their concepts. Asked to assess their own businesses in relation to the marketplace, a majority of leaders consider they are ahead of the game on disciplines including cost control, procurement, staff and innovation—but a majority thought themselves behind the curve on issues including consumer research, marketing and the use of technology. If there is room for improvement across the sector, it is clearly around customer insight.
About the survey
The survey was carried out online during January 2013, with over 120 senior executives responding. Companies whose top people took part included: Searcys, Whitbread, Marston’s, Geronimo, Le Pain Quotidien, Jamie Oliver, Prezzo, Wetherspoons, Spirit, Ed’s Easy Diner, Whiting & Hammond, Harry Ramsdens, Rhubarb, Cabana, Wagamama, Oakman Inns, Tossed, InnBrighton, Mitchells & Butlers, Glendola, Pizza Hut, SSP, Las Iguanas, Rex Restaurants, CG Restaurants, Grand Union, Sticks’n’Sushi, Chipotle, GBK, Tampopo, Chilango, La Tasca, Greene King, Zizzi, Krispy Kreme, Amber Taverns, Peach Pub
Co, Bread, Obika, Cote, Square Pie, Caffe Nero, Bulldog, Barburrito, Little Gems, YO! Sushi, Stonegate, Honest Burgers, Orchid, ASK, K10, Canteen, Starbucks
To receive a copy of the full Peach Business Leaders Survey 2013 report, sponsored by Omnico, with all the accompanying data tables, contact Christine Martin on 01704 550383 or email email@example.com. It is free to Peach Report subscribers, or priced at £150 for non subscribers.