Around the UK, mid-market independent operators have had to be creative to maintain trending levels during the downturn. Daniel Thomas discovers what measures they have taken to keep business brisk
The UK may not officially be in recession, but the economic climate remains uncertain, with consumer confidence badly damaged by the continuing effects of the downturn and the spending cuts announced in last week's Comprehensive Spending Review.
As one of the main consumer-facing industries, the hospitality sector has inevitably been knocked sideways by the downturn. Accountancy firm Begbies Traynor estimates that 6,685 companies in the leisure and travel sector are struggling with "significant or critical" financial problems. Meanwhile, rival accountancy organisation BDO Stoy Hayward has predicted that 6,300 bars and restaurants will fail by 2015.
The warnings came after VisitBritain revealed that the number of overnight domestic trips taken in the UK showed no rise at all in the first half of 2010.
It is a commonly held view that independent mid-market operators are the ones who will be worst affected by any downturn, with the budget end of the market holding up due to price and the luxury end benefiting from high spenders who are unaffected by the economic conditions.
But the best mid-market operators have emerged from the recession as stronger and fitter businesses, according to the British Hospitality Association.
"The recession hit mid-market independent operators hard but they have come through it by being flexible - by cutting costs rather than rates - though price competitiveness is critical," a BHA spokesman explains.
"They've had to be particularly strict on employee numbers and payroll costs as well as cutting back as much as they can on energy and utility costs, and food wastage. The most successful have sought new sources of business and made extra efforts to attract guests back for a repeat visit."
Caterer has spoken to mid-market independent operators from around the UK to find out how they have survived the recession and what they are planning to do to keep cost-conscious customers coming through the door.
REVIEW COSTS - Lake Vyrnwy Hotel & Spa, Llanwddyn, Powys
The credit crunch hit the Lake Vyrnwy Hotel at the worst possible time, coming as it did just after a major refurbishment in 2008. Operations director Anthony Rosser explains: "The length of stay shortened; the average spend fell and our most expensive rooms became the last to be sold - having been the ones that always went first."
Having experienced previous recessions, as well as the foot and mouth crisis, Rosser was well aware how bad things could get, so he took immediate action. "The first thing we did was a departmental review to look at costs," he says. "We lost a few members of staff - mainly through natural wastage - and banned all non-discretionary spend. This had a huge effect. But we told the staff we had a problem so they didn't just think I was being tight-fisted."
However, Rosser continued to invest in marketing to ensure the hotel was meeting the new demands of increasingly cost-conscious guests. "We rebuilt our marketing and packaged our product into bite-sized pieces," he says. "We bought some big internet databases and invested in e-mail newsletters."
The results were impressive, with turnover up by 11% in 2008, 22% a year later and a still impressive 10% so far this year.
Looking ahead, Lake Vyrnwy will continue to focus on offering value. "Our marketplace has fundamentally changed - people aren't opening their wallets as wide," says Rosser. "We are turning what was a tired country pub into a smart brasserie to attract those customers who weren't going into the restaurant."
Rosser's advice for other independents that might be having a hard time? "Cash is king," he stresses. "Our cashflow drives all our decisions. It's very easy to lose control of it quite quickly."
Tightly control non-discretionary spend, but make sure you explain why to staff so as not to seem mean.
INVEST IN MARKETING - Lake of Menteith Hotel, Stirling
Ian Fleming is a Scottish hotelier and restaurateur, best known for running the Buttery restaurant in Glasgow before it was sold to the Two Fat Ladies group in 2007. His Fleming Homestead group, which includes the flagship Lake of Menteith Hotel, the Terraces Hotel and consulting business FH Hospitality, is renowned in the Scottish hospitality industry but even Fleming couldn't escape the effects of the credit crunch.
In 2008 he launched Striped Bass, a high-end seafood restaurant in Glasgow, but soon regretted it, he admits. "We opened literally as the credit crunch was looming - and we were planning to close the day after we opened," he reveals. "We exited quickly [six months later]."
Fleming retains the right to the Striped Bass brand and hopes to launch at a more suitable site within the next two years, but, after closing the restaurant, the group instead decided to focus on boosting profitability at its Lake of Menteith Hotel.
"The Lake hotel had been enjoying double-digit growth for five years, but we had to think hard about how to continue to achieve that," he says. "We increased investment in marketing and in the stock, and as a result have continued to grow, albeit in single-digit figures."
The increased investment was funded from existing cashflow - which flies in the face of general financial advice, admits Fleming. "The smart money is not usually to take the cash you have and immediately spend it," he says. "But we continued to invest in public relations and the website and it paid off - profit is increasing in double digits this year."
Earlier this year, Fleming used profits from the Lake of Menteith to purchase the Robert Morris Inn in the US for £1.3m as part of a lease-to-buy deal in a joint venture between Fleming Homestead and Salter's Chesapeake Gourmet. The Robert Morris Inn only made £75,000 last year, running as a bed and breakfast, but Fleming and his team made that in the first five weeks by reopening the restaurant and tavern.
Don't completely compromise marketing spend. Investment in promotion will help bring in that missing custom.
reinvent yourself - Curran's Bar, Ardglass, County Down
Along with many rural firms, Curran's Bar was hit dramatically by the recession, as it was dependent on workers from struggling industries, such as fishing, farming and construction.
Owner Paula Mahon explains: "We are in a remote area, which doesn't have much tourism, and there are no retired civil servants around to prop up the bar. We took a big hit at the start of the recession."
seeking new markets
To combat falling sales, Mahon admits that the bar had to re-invent itself. "It was all about seeking new markets," she says. "So we did things like arrange free transport for people, and linked in with local walking groups - every possible market we could think of."
Curran's also launched new services, such as breakfast, a carry-out menu, karaoke and party organising, and focused more aggressively on marketing, from leafleting locals to offering meal deals through national newspapers.
"The downturn proved to be a good opportunity to look at the business," Mahon says. "Now is the time, more than ever, to get out there and market yourself."
While the bar, which includes a steak and seafood restaurant, was forced to reduce prices in certain areas, Mahon remained focused on quality. "We did not scrimp in areas like food, cleaning and customer care," she says. "You can't compromise on standards because people simply won't come back."
Look further afield for new markets. Leaflet locals and consider putting on transport for them.
embrace the web - Cromwell's Restaurant, the Wirral
The recession has affected the majority of hospitality operators in some way, but few have ended up in hospital as a result. That was the fate that befell Kay Featherstone, restaurant manager at Cromwell's, after plummeting profits meant the restaurant had to drastically cut its overheads - seriously ramping up the pressure on the team.
"Outgoings got so high, but the money coming in was declining," she says. "It meant we had to curb our spending. We carried less stock and cut back on staff. We were doing more hours - which led to me being admitted to hospital with an inflamed gall bladder due to stress. Hundred-hour weeks weren't unusual."
The main issue - a familiar one for many operators - was that while just as many customers were coming in, their spending per head had halved. "Everyone started to tighten their belts - even our regulars, who had been coming in every week for 10 years, were coming in every other week," says Featherstone. "It really impacted on our gross profit as the cost of food went up, utilities went up, and our bank charges increased."
To combat falling sales, Featherstone decided to open an account on social networking site Twitter last January and the effects were almost immediate. "More and more people followed us, and more and more came in," she says. "We decided to offer a free bottle of wine when you dine, as long as you booked via Twitter or Facebook - we still do. It meant that people had an incentive to come in, then they would spread the word to all their friends - which they did."
The restaurant now has at least six covers a night off the back of Twitter, many of them coming in more than once a week, and they spend double per head compared with regular customers.
The increase in custom allowed Cromwell's to expand on a massive scale. It has moved from the old 26-seat site to new premises with 90 seats.
"I can honestly say that if it wasn't for Twitter, as a business, we wouldn't still be here today," admits Featherstone. "Social media for us initially was all about driving customers to our website, and getting people in - but it's more than that now. We host the Wirral TweetUp every quarter, where Twitter users from the local area can meet each other, and have a good laugh.
"We've just paid for Facebook advertising, instead of taking out our annual dining editorial in the local paper," she adds. "It cost a tenth of the price, and we've already had bookings off the back of it. More people have seen it than the circulation of the paper."
Embrace new marketing methods. Social networking sites such as Twitter or Facebook can be an inexpensive way of reaching a large audience.
work with your peers - Stanwell House Lodge, Lymington, New Forest
The 27-room Stanwell House Lodge was acquired by hoteliers Robert Milton and Victoria Crowe with the backing of local entrepreneur Tony Jones in 2007. They pretty soon began to feel the effect of the credit crunch, admits Milton.
"From the point of view of bookings, it was like a tap being turned off," he says. "The lowest point was people cancelling Christmas bookings, as it is usually such a buoyant time."
The first stage in Stanwell's recovery plan was to let the staff know it was belt-tightening time. "We had to get them on board," explains Milton. "If you just cut staff, it's the beginning of a downward spiral that's hard to get out of."
Milton also sought the support of the New Forest Tourism Association. "I've been a hotelier for a while now and during the Foot and Mouth crisis, we got together to work out how we could recover," he says. "The Association usually meets monthly but [as the credit crunch hit] an ad hoc meeting was called. With the pound dropping, we got in touch with some European journalists who came down to do some pieces on the New Forest as a tourist destination, which worked out well."
from business to leisure
One of the major changes within the hotel was to focus solely on the leisure market. "We realised that there was more revenue from leisure, so we scrapped our conference room and launched two premier suites," says Milton.
Other measures include hiring a new chef who has created locally focused menus; launching the Dry Dock Bar, which acknowledges local boy Ben Ainslie's Olympic achievements; and a redesign of the website.
Summing up, Milton says: "Everyone can cut, but we are in hospitality - people want an experience. Don't bury your head and just cut costs; look to push on."
Get the staff on board and ask local tourist associations to help with marketing and promotion.
How to survive a downturn
● Target business in off-peak periods
● Focus on repeat business - an estimated 80% of hospitality business comes from 20% of customers
● Keep staff informed at all times, especially when job cuts are planned
● Cut running costs as much as possible, but do not compromise on standards. Try and maintain marketing budgets if you can
● You can drop prices but do it cleverly - by providing value for money packages
● Listen to your customers
Industry advice on defeating the downturn
"Working harder, but also smarter is a key factor for operators looking to survive through a downturn. Existing customers are seen as the lifeblood for hospitality businesses during a challenging trading environment, so providing excellent customer service is essential. You still need to get the message across about what your business has to offer, so be prepared to maintain marketing spend but negotiate better advertising terms."
Simon Chaplin, director, Christie & Co
"Really get to know who your customers are; without this you don't know who you are talking to. Second, stay relevant - provide offerings that suit your core customer base as opposed to menu offerings that just desperately try to attract everybody. Third, whatever you do, don't cut the service - this is part of the unique offering that operators can use to distinguish themselves from their competitors."
Chris Cannon, marketing director, Heinz
"The challenge for any food service operator over the past 18 months has been to keep people coming through the door. Those that have survived or are continuing to thrive in the downturn are the companies that are promoting innovative deals and interesting, transparent menus that offer realistic margins."
Tracey Rogers, managing director, Unilever Foodsolutions
"You must have the courage of your convictions. Don't down-sell your product. We have been through other recessions and have never dropped our standards. You can drop prices but do it cleverly - by providing value for money packages. Use feedback wisely - don't tie yourself in knots reading things like TripAdvisor, but take on board customer comments. And, of course, training is of huge importance."
Shirley Spear, owner, Three Chimneys, Isle of Skye
"Cut your running costs as much as possible according to business levels, maintain and improve standards, keep investing. That way you'll be in better shape compared to your competitors as things begin to improve and this will result also in maintaining existing business and pinching market share from your competitors."
Tim Howard, general manager, Judges Country House Hotel, Yarm, Yorkshire
"Don't be tempted to sit tight. Use this as an opportunity to look at your business and explore new ways of working. I believe that the best thing that will come out of this is a step change in the way businesses work together, creating increasingly open relationships within the industry which in turn will lead to better working practices throughout the sector."
Ian Crawford, group commercial director, 3663
"The key is to play to your strengths as an independent business by using your business-making agility to win over larger chains - ie, faster turnaround time, greater flexibility, and more personal contact with guests. Operators also need to remember the importance customers place on first impressions, especially as they seek absolute value from every pound spent away from home.
Nick Beresford, managing director, P&G Professional
"While the temptation is to respond by cutting prices or portion sizes it is important to remember that with money tight, eating out will be seen as a discretionary purchase, so customers will still be looking for quality as well as value for money. If operators can deliver both they will be able to maintain a profitable food offering."
James Armitage, marketing director, Brakes