How to Succeed in Hospitality in the early 20s
Reading the trades and business pages you’d be forgiven for thinking that the UK hospitality sector is dead and buried. Yet the wet-led and QSR strands are booming as a whole and there are plenty of examples even in casual dining of businesses which are putting on sites and organic growth.
What is unquestionably true for a lot of food-led businesses is that too many investors have taken a bath, so growth capital and exit opportunities are thin on the ground. Valuations are low to non-existent and many businesses are mired in debt, declining sales, cost headwinds and increased competition. Some operators won’t have the creativity, confidence, investor support or free cash to invest in escaping the death spiral. The CVA culture will delay their demise but die they will and – given that it’s inevitable – we have to believe it’s a good thing for the sector long-term. The impact on the property sector is also potentially devastating, with shopping centre owners and other landlords themselves staring into the abyss.
Who knows, by mid-decade we may find ourselves back in the kind of market where the likes of Pizza Express thrived in the late 80s and early 90s. Reduced competition, cheap property and high margins. Picking the winners now who can navigate today’s Zombie-strewn landscape to reach that sunlit upland is challenging. A key characteristic is founders and CEOs prepared to take a few sacred cows out back and put a bolt in their heads.
The sacred cow-in-chief is the strategy which has selling up as its principal goal.
Forget about exit – assume it ain’t gonna happen this side of 2024, or certainly not at a valuation that’s worthwhile. So behave like you will own your business forever and build the model and culture accordingly. If the stakeholders can genuinely walk this talk then suddenly everything can change. Building the balance sheet, generating a net profit and paying dividends become as important as opening new sites. It might be slower, but it will be sustainable. Enjoy the ride, hang out with your people, love your customers, look around at the scenery, listen, learn. Make the business your life, not the getting rid of it.
Imagine that you are a German, and your DNA demands that your precious legacy is handed down to the next generation in good shape with low debt, careful deployment of capital, strong brand and potent culture. Stop worrying about like-for-likes, manic site acquisition, short-term tactical promotion.
The great things is, if this mindset can be achieved psychologically, emotionally and financially it will only be by a few – the rest will be chasing the quick returns to meet covenants and going through energy-sapping ‘processes’ to satisfy investors. The long-term player will have a clear plan which by definition might also include thoughtful strategic opportunism as others fall by the wayside.
Second sacred cow is that a pure hospitality background is required or even enough to create and/or scale a 2020s hospitality business. Look at the CVs of the founders of FlightClub, Sessions Market and Crosstown Doughnuts (tech), Swingers (marketing), Leon, Flat Iron and Gail’s (strategy consulting), JD Wetherspoon (law)…the list goes on. It’s almost as if you need to be an outsider to disrupt the sector.
For JP Then at Crosstown, it wasn’t enough that he and Adam Wills had made doughnuts into a must-have luxury item. JP looked at an industry being held hostage by the delivery aggregators and felt compelled to build SLERP, which allows an end-to-end brand experience for businesses delivering to customers at work and at home – at a fraction of the cost of Deliveroo. Now, Slerp members, including my partners at Butchies Buttermilk Fried Chicken, can post an image of an item on Instagram, customers can click to order and be eating that item 15-20 minutes later. And not an expensive turquoise kangaroo in sight.
The third sacred cow is a more recent creation. It says that the days of the large 100+ unit hospitality business are over. I can hardly bear to give this one the time of day. It’s a function of the many brands that grew too quickly, lost site of their culture, customers and cost-base and who destroyed the narrative for decent operators. Yes, there is saturation (and in part by Zombie brands). Yes, there are cost headwinds. But do we see that stopping Loungers, Franco Manca and Nando’s to name but a few?
This apparently apocalyptic period in hospitality’s chequered history as an investment is in fact an opportunity for operators large and small.
So dance like nobody’s watching. Because they aren’t. And while the money men are looking the other way, change the game.
The investor herd will be back in numbers in 3-5 years’ time. And they may be joined by international trade buyers seeking juicy UK brand-morsels in our fragmented sector. If so, who will look best on the dancefloor? The company that genuinely doesn’t want to be bought, which has embraced future marketing and tech, and which has taken advantage of the current disarray to grow their business. I can see that prompting a bidding battle. Now there’s a nice problem to have. Much better than sitting on the beach – I know, I’ve tried it.