Preserving margins and minimising pricing impact
The Folly in the City is packed, with every table taken. The greeters on the door are struggling to cope with sudden influxes of the baying, harassed and hungry city crowd. It’s loud, bustling, busy and slightly manic. The bar is heaving. The waitresses never stop and they skid to a halt when I try to stop them to ask for yet another coffee or a mac ‘n’ cheese side dish. They don’t tut at me – they never do – but there are more important, bigger tables to serve with the prospect of more cash in hand from tips. My drinks take an age, but it’s fine – in fact, the waitress tells me honestly she forgot to order it so it’s on the house. That’s great service to offer whilst under pressure, making me feel like less of a nuisance. I can eat, drink, work and watch.
You would never ever sit here and think this is now a slightly nervous, apprehensive and anxious sector. That the combined cost pressures (many government driven) of rent increases, rate increases, apprenticeship levies, minimum wage increases and food cost inflation are deeply worrying to those that operate bars and restaurants like this one. While customers here eat, drink, laugh and gossip, operators are trying not to think themselves into recession and what they might do in that catastrophic economic scenario.
Now though, operators are reacting to the current scenario in a number of ways with their offer. Faced with suppliers and wholesalers demanding up to 6% food price increases in October, many operators raised prices in November, helping to generate some great like-for-like sales performances over Christmas (albeit not all including pricing in their like-for-like figures). Undoubtedly, more price increases, sooner rather than later, are about to hit. No operator wants margin dilution. The customer will have to pay.
While menu food pricing has moved upwards, it’s wine pricing that has really taken the body blow, with house wines often difficult to find under £20. Wine lists have had to change at short notice. Wine suppliers have been changed quickly where they haven’t been able to respond flexibly to the new dynamic (or haven’t wanted to). Soft drinks have also had to take some of the pain, understandably.
Menu dishes have been uncoupled. Items that used to form a constituent part of a dish have now moved to sides and charged accordingly. It is now the customer’s decision whether to buy or not – spend per head has increased and margins have been preserved.
Portion sizes have also reduced and some dishes moved on to smaller plates so they don’t look too puny. Dish presentation changes have been dramatic in some cases – at one high-street casual dining brand I ate in recently, it felt as though everything that could have been removed from the plate had been. My inch-deep shepherd’s pie looked forlorn on its own with no attempt to create plate fill. It’s a hard balance. Preserving margins and minimising pricing impact, all while trying to maintain value-for-money perceptions, is really challenging. At the same time, much can (and has) been done in menu design – and that really is both an art form and a mathematical exercise.
This is only the start. I know (as you do) many operators who have stopped expansion and are now actively selling sites. I know others who are now cutting both head office and site-based teams. ‘Nice to have’s’ that may have been considered integral to the brand offer are now being removed. The move to more cost-effective digital marketing is really moving apace. It does feel like all hands to the pump in a real effort to get through this year unscathed.
Operator ingenuity and creativity will, as usual, ensure the best survive. They have to – because the bigger challenge of talent recruitment and management in a world outside of the single market is coming over the horizon. People, not product and pricing, is the bigger threat to our market. It’s a threat that these diners and drinkers aren’t even aware of – yet.