Audit, tax and consulting services company RSM has compiled a list of seven predictions for 2017. Paul Newman, RSM’s head of leisure and hospitality, looks ahead to what 2017 has in store for the sector:
A renaissance of ‘Best of British’ and seasonal menus
We will see a surge in British ingredients and drinks hitting menus and the on-trade in 2017. The quality of English wines continues to improve and hugely growing volumes and distribution capability of craft British beer and spirits brands will expand their reach into even the most local pubs and bars. Innovative operators will create seasonal menus in order to benefit from lower input costs of various ingredients throughout the year to interest customers and maximise margins.
Homogenisation of prime rental areas
The laws of supply and demand are pushing rents up in prime areas in London and other cities to record levels. Very often, the only operators able to compete effectively for new sites are those who are already very well-funded and are typically larger, managed groups. We will see independent operators and smaller groups being squeezed out to off pitch sites with lower footfall and homogenisation of brands in prime areas.
The return of vouchers (but not as we know them)
With a need for operators to drive loyalty, increased visits and use of their assets throughout all hours of the trading day, we predict the widespread return of discounting. Paper vouchers are certainly outdated for today’s generation. Social media-driven ‘flash’ events to generate excitement and footfall at certain times of day, or geo-targeting to focus on those customers within walking distance, will reduce the risk of brand erosion.
Operators fight back against delivery
The larger chains will start to take back control, and margin, from the increasingly powerful delivery companies. They will set up delivery options of their own as they seek to engender brand loyalty in their customer base.
More failures and restructurings
Experience amongst our own client base suggests banks are currently supportive in rebasing previously agreed covenants albeit after a more intense negotiation process. With cost pressures continuing to rise and competition intensifying, we may see banks forcing some disposals of groups that can no longer support the level of debt raised over recent years.
A cut in VAT
Consumer confidence will stutter in early 2017 once the realities of a Trump presidency, an increase in interest rates and the start of the Brexit negotiations hit. With the world’s eyes on the UK during Brexit negotiations Theresa May will want to retain the UK’s status as one of the G7’s fastest growing economies. The Government will be forced to undertake fiscal stimulus to generate short term demand – it worked once before with a cut in VAT post-Lehman and we predict a repeat of this measure in the Autumn 2017 budget.
Less PE investment, more consolidation
It’s no secret that private equity has enjoyed a successful run in the sector over the past decade. We see increased private equity scepticism of underlying market growth in the UK and operators’ ability to retain margin. It’s likely though that US private equity or corporates will seize on the opportunity created by recent fall in the pound to increase investment into the UK food and drink sector.