Contrary to expectations, we have not yet witnessed a dramatic slump in consumer spending which seemed like a foregone conclusion at the start of the downturn. This has allowed far more businesses within the leisure sector to survive than we originally thought. According to BDO’s Industry Watch survey, after peaking in 2009, failures across the leisure sector decreased by a third in 2010. However, the subdued economic outlook relating in particular to the erosion of household spending power is likely to keep business failures around this level until at least 2015.
From our experience, despite the relatively resilient performance of the market during the recession, the eating out market has still contracted slightly with around a quarter of consumers either reducing their expenditure per head on eating out or reducing the frequency of their visits. The market has also experienced a shift in demand of perceived consumer value with our most successful clients expanding their value menu options to drive sales. The importance of brand and customer perception of branding has also been a crucial factor. Consumers are increasingly spending their money with trusted brands where they view there to be value whatever the price point.
Adopting to change
Overall, the sector as a whole is unlikely to quickly bounce back from difficulties in the short term. In the next six months therefore managing increased downward pressure on turnover, reducing disposable income and dealing with rising food costs will be crucial. But a changing market will continue to provide opportunities. Surviving and thriving will be achieved through a combination of adopting the business model to what consumers want and having very close control on the financial management of the business – particularly when things aren’t working. Operators need to understand how to deliver goods and services that resonate most with their clients. Recent trends point to increased demand for casual dining options; recent successes have been noted for restaurants that incorporate shops and takeaways in their offering. There has also been a rise in “pop-up” restaurants and gourmet food trucks; two examples of sector innovation. Reflecting on some other recent success stories, one of our clients, Domino’s Pizza, have reported significant growth in recent years. Domino’s have capitalised on changing consumer demands, and this growth has been driven in part by their innovation in mobile and web technologies. Flexibility is one of the key components to success. Operators need to do more than tweaking menus and prices to manage margins. There are still too many restaurants in the wrong location, being poorly managed offering over priced goods and poor customer service. Once you know what your market wants and how to reach them, the next step is ensuring that your restaurant is operating efficiently.
Quality management information is key to successfully managing a business’s financial performance. Whilst as a matter of course it should be accurate and timely, just as importantly, it must contain the key information that the management team needs to effectively run the business. Assessing what the key performance indicators of your business, both financial and non-financial, and more importantly acting rather than reacting to the market, is the key to success. Having visibility is also essential in the form of robust financial projections, of the likely capital needs of the business and ensuring appropriate facilities are in place. Key to this is having an open dialogue with the stakeholders in the business. Any underperformance will make this even more essential.
We believe there is a significant opportunity for those businesses with the appetite to continually review and refresh operating models and market assumptions. The rewards are still there for those businesses that embrace a firm, clear and relentless focus on the consumers that are waiting to be enticed to spend. But underestimating the challenges ahead could be disastrous. Ignoring warning signs and not responding to the market quickly could result in irreparable damage to both finances and brand, which could ultimately result in business failure.