It Will Get Better
God it’s painful operating right now. It really is. Out of the frying pan of lockdown – and into the fire of scarcity, inflation and uncertainty. Is there no end to the torment? Feel free to smite me with a £10 pint of sunflower oil, but I think there is. Or to some of it anyway.
I was lunching with a friend of mine last week who plies his trade in “Big Ag”. He started his career farming irrigated cotton in Australia, operating monstrous farms with acreage and Star Wars-type equipment that can be seen from outer space. Having sold that business, he is now growing avocadoes on an industrial scale in Chile. He said two things are happening right now. First, the global supply chain is creaking back into gear post-covid. Second, “Big Ag” types are acutely aware there is money to be made in all the stuff that Ukraine grows. His summary? “The best cure for high prices? High prices.”
The invisible hand of the market is dangling the pricing on key items (grain, chicken, cooking oil, you name it) in front of producers who are then moving hell and high tide to find new places and new ways to grow/produce/manufacture them. Yes, capitalism is still functioning backstage. The likely result is if operators can survive until next year, scarcity will turn to glut, and purchase pricing will reduce on the worst affected items. There are three massive swing factors, of course – geo-politics, people and consumer demand.
On the first, I really hope and almost believe the Ukraine war will come to an end soon and won’t metastasise in the region. Similarly, I find it hard to believe president Xi will invade Taiwan – though admittedly I felt the same about Putin/Ukraine. Plus, do we really think the Chinese will continue to tolerate a moth-balled manufacturing sector? I certainly don’t. And with yesterday’s (Thursday, 7 July) departure of Boris Johnson – and our newfound solidarity with Europe over Ukraine – do we honestly think Brexit won’t be softened? A benign geo-political outcome on any or all of these matters would be an instant shot in the arm for markets and trade. It is also on balance the most likely outcome even though tensions will remain high for the foreseeable. But it certainly isn’t nailed on.
More on Boris. There is a distinct possibility the Tories will elect a so-called “headbanger” as leader. For the first time in a generation, the grass roots smell blood and think the corpse of Mrs Thatcher can be exhumed in policy terms with slashed taxes and pro-business legislation. Whatever you think about the Tories, this is a very possible improvement in all of our prospects.
Then there’s people. No-one could claim staff wasn’t the biggest challenge pre-lockdown. But nothing could prepare us for the great conundrum of the post-covid employment world. I don’t think I am alone in being stumped by this one. Working in a busy restaurant with a full complement of well-trained staff and functioning systems can be a satisfying and even fun way to make a living. And I get that when that same venue is staffed with too few undertrained workers and heaving with a recently liberated populace wanting to dump their furlough money then the whole experience becomes unbearable. I also understand restarting a hospitality business from scratch staff-wise in a post-Brexit world is hugely challenging – instantly recreating a competent operating culture was harder than many of us anticipated. But this seems to be a global problem – perhaps during lockdown many who built careers at the sharp end of customer service businesses got a glimpse of the laptop class’ lifestyle. And they liked it. This might explain why interviewers right now are hearing that candidates like the idea of hospitality but are only available to work nine to five and not on the weekends.
I hear mixed reports on progress – some say recruitment and retention is improving, even back to 2019 levels. Others are still seeing management bandwidth evaporate as yet another new cohort of staff are expensively recruited and trained only for them to evaporate into thin air a few weeks in, “seeking a change of career” as many report in exit interviews.
The sector is making huge efforts to improve pay and conditions with some extraordinary eye-catching initiatives from the likes of BrewDog (as you’d expect) and Megan’s – to name a few. But it does feel like something has shifted in our culture – and this is exacerbated by current Brexit restrictions. Roll on the age of the robot, though that can’t be less than ten years away?
And as for consumer demand. Pollyanna would say that many of our customers have not been this cash-rich in living memory. I suspect if or when recession bites the purveyors of the affordable luxury and the extraordinary if expensive top-end experience will survive, if not even thrive. But the mediocre mid-market could be treated harshly. For the first time since the mid-noughties, quantitative easing is unlikely to ride to the rescue. Rates are rising and conversely banks’ balance sheets are strong enough to allow customers to go bust. We may see unprofitable brands disappear at a rate long predicted by experts. The good news here? The UK market has been crying out for this creative destruction for years – staff, sites and customers might all be available in greater quantity as poor-quality competition disappears. While this will be of little comfort to those working in the vulnerable businesses, the new jobs being created will be better ones. As they say on the podcasts, buckle up. It’s going to be a hell of a ride.
Charlie McVeigh is the founder of Draft House and chairman of The Breakfast Club and Butchies