Challenges and New Opportunities

20th March 2018

By richard

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The Challenges & New Opportunities for Restaurants

Philip Harrison, Managing Director of Harrison, was recently asked for his thoughts and opinions on the restaurant sector, its current challenges and opportunities.

Q) Why are so many restaurant chains struggling? Is it a reflection of wider concerns in the economy, change in dining habits (such as the rise of independents and/or food vans) or simply over-saturation?

While there are bound to be some Brexit related issues affecting consumer confidence, it is fair to say that some geographic areas that brands have extended in to have been struggling with their disposable income for over a decade now.

There is also an element of over-saturation, but this is by no means a national pattern. High Streets and even suburbs in many cities are probably saturated, not just in terms of the number of different brands operating, but in the proximity of the same brands restaurants to each other.

Failure to evolve the offer and to stay in tune with changing consumer trends is proving to be a particular problem. Even more problematic is a failure for restaurants to evolve around their core values, confusing guests in the process and damaging their relationship with the brand in the process.

Independent operators have also undoubtedly taken some market share on a city by city and region by region basis.

 

Q) Are there examples of restaurants that are managing to buck the trend, particularly in the mid-market sector? What is the secret of their success?

There are examples of brands bucking the trend. They tend to be ones that are not saddled with excessive debt or have a strategy that is not based on rapid short-term expansion at almost all costs.

They spend wisely and are careful not to cannibalise their market and won’t go in to locations that cannot support their brand, or the capital investment required.

It is so important to have a clear proposition, understand your customers’ needs, a tried and tested business model, a distinctive culture, remain agile and receptive to outside economic and social changes.

 

Q) How does this differ by country? Are any countries thriving while others struggle? If so, why?

All countries tend to differ in terms of maturity of the market and the historic role of dining out as a social experience. Where social norms are strongest, there is generally a much greater penetration of good, reputation led, independent operators. You certainly see this in countries such as France and Italy where you do not have anything like the range of brands you see in the UK.

The US is an interesting example, where brands have dominated for many years, but now you can find significant independent operators in different market systems who are big enough in their own right to challenge the dominance of the national brands.

They are quicker to adapt to change and they often run very individual restaurants which are underpinned by common operating platforms and set of values.

You must bear in mind that an independent in the US could be running anything from 25 to 80+ restaurants so they certainly post a serious threat.

 

Q) What are the challenges facing the sector in general? Eg, staff shortages, Brexit, rising food costs, higher business rates. Is it becoming more expensive to run a restaurant, with narrower profit margins?

There is a perfect storm of higher food costs, higher wage costs, increased business rates, over supply and a failure to maintain standards. These are all going to affect profitability in one way or another, either by increasing the cost base or not being able to maintain guest loyalty and encourage repeat visits.

We believe that this will also provide opportunities for emerging operators who embrace change, leverage new technology and understand what today’s guests really want.

 

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