Confidence in the out of home eating and drinking sector is returning despite mounting concerns about rates, other input costs and Brexit, CGA Peach’s 2017 Business Leaders’ Survey reveals.
The exclusive poll of around 250 senior executives finds that two thirds are either very optimistic (10%) or fairly optimistic (57%) about their business prospects in the next 12 months. That is well down on levels at the start of 2016 (83%) but up on November 2016 (61%), when uncertainty reigned about the impact of Brexit on businesses’ staffing and the economy. Leaders’ confidence about their own companies’ prospects is higher than it is for the market in general, about which only half (48%) are optimistic in 2017.
While Brexit fears have eased a little, alarm about mounting costs is clear—and it is most evident in business rates. This tops the Survey’s list of the most significant financial challenges facing operators in 2017, with more than half (55%) of leaders very concerned by the issue and another quarter (24%) concerned. It follows a surge in rates valuations in many areas of the country, prompting urgent calls on government to ease the burden on operators.
Hikes in rates are adding to a host of other costs issues for operators, the Business Leaders’ Survey shows—and in three key areas in particular:
- Food. Four in five leaders are either very concerned (41%) or concerned (39%) by rising costs here, led by lower availability and rises in the cost of items including vegetables
- Property. Beside rates, operators have been stung by soaring rental prices in many of the country’s hotspots, especially London. More than half of leaders are now either very concerned (31%) or concerned (23%) by property costs
- People. The introduction of the National Living Wage has raised many operators’ wage bills, and three in five are very concerned (24%) or concerned (35%) about it at the start of 2017.
Other challenges identified by leaders include drinks supplier prices and the threat of saturation triggered by the over-supply of sites. On the operational side, businesses’ biggest challenges are around engaging and motivating staff, providing a high quality customer experience and building loyalty.
Some segments of the market are more confident about 2017 than others, the Business Leaders’ Survey shows. For instance, well over half (57%) of businesses that are predominantly based within the M25 are optimistic about the market, much higher than the figure among businesses with a national spread (42%). It indicates the continued buoyancy of the London economy and the positive impact of tourism in the capital.
Smaller and more nimble businesses in eating and drinking out meanwhile tend to be more confident than their larger counterparts. A quarter (25%) of businesses established for less than five years are very optimistic about their prospects for 2017—way more than among mature businesses that have been running for more than ten years (7%). As the Market Growth Monitor from CGA Peach and AlixPartners has made clear, these smaller businesses are behind many of the country’s new openings lately, and are less likely to feel threatened by rising property, food and people costs.
Despite the crop of challenges facing operators, leaders’ forecasts for 2017 are ambitious, with optimism on issues including:
- Openings. A fifth (21%) of leaders plan to open at least ten new sites in 2017, rising to three in five (60%) of those with more than 200 sites
- Acquisitions. Just under a third (29%) of operators are looking into the option of a business acquisition in the next 12 months, with a similar number (27%) possibly interested if an opportunity becomes available
- International expansion. More than a quarter (29%) of respondents say their business has grown internationally in the last year, with three quarters of those anticipating more global expansion this year.
There is also hope that consumers might spend a little more when eating and drinking out in 2017. Two in five (40%) leaders think customers’ spend per visit will increase slightly in 2017, with another third (33%) anticipating no change. But access to funding remains challenging for some and could put the brakes on expansion—and perhaps the greatest cause for concern is that four in five (79%) leaders expect more business failures in 2017 than in 2016.
“Our fascinating Business Leaders’ Survey reveals a sector facing a barrage of input costs in property, food and people, with rates the issue at the top of execs’ in-trays. But this is a positive industry that is very much on the front foot rather than in retreat, and that deserves government support to ease its burden of expenses. Operators will have to ride out some big challenges in 2017, but strong, differentiated operators that can deliver a compelling offer while keeping a tight rein on their costs are well placed to thrive, both this year and well beyond.
— Peter Martin, vice president, CGA Peach