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Beyond the balance sheet

What to learn from the recent failures in the hospitality trade

Matthew Wyatt 19/7/2018 3 minute read

Matthew Wyatt FCA looks into the closures at some of the big chains and assesses the lessons proprietors can take from it. 

Look back over the last 20 years and you'll notice the hospitality trade has undergone a remarkable change in ownership. Unfortunately it might not have always been for the better. Popular restaurant chains, once owned and operated by people who built their careers in catering and hospitality, have been acquired by trust funds, investment funds and other financial institutions. 

Alas when organisations are owned and run by people whose only motive appears to be driving revenues and profit, we witness foolhardy expansions into locations which any seasoned operator would never have considered. The fall-out from Jamie’s Italian, Byron, Strada, Prezzo and others demonstrates it's clear that some lessons need to be learnt.

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Realistic leaders are required

The food service industry needs the kind of understanding leadership that was provided, for example, by the Kaye family. Their successful scaling of the business was crafted very carefully over several years.

Instead what we have today is a sector that is owned in the main by anonymous institutions determined to wring the last penny of profit from the well established organisations they have acquired. They appear to have operated in the mistaken belief that restaurant profits would keep on rolling in if only they just kept expanding.

The restaurant business is far more subtle than that. Location is a very sensitive matter, far more so than other retail outlets. A poor restaurant location can be on the other side of the street to a successful one meaning a successful expansion needs an application of select, honed skills in terms of knowledge, timing and experience.

This has been sadly lacking in the last couple of years. High rents and high rates for properties in unfeasible locations has been the catalyst for the recent closures that now mire the strategy that was headlong expansion. Copycat menus, poor management, indifferent service and poor value were the other fundamental problems.    

The key components of a hospitality business

Food service is about exactly that, excellent service. It’s also about providing great food that the customer likes, in a good ambiance, at a good price in order to deliver an unforgettable experience.  Key to this is providing great value.  

Customers have to be nurtured to keep them loyal. That means recognising that keeping a customer loyal is far more valuable to a restaurant than offering a two-for-one deal (or similar). Such initiatives aim to attract new customers but in doing so actually lose the restaurant money.

It’s doubtful if many of the leaders of these chains fully recognise what a sensitive business a restaurant is and how essential staff training and staff motivation are to success. Only the staff can provide the warmth and experience to make customers feel wanted, needed even.

It starts with leadership

Running a successful hospitality business is about inspired management. The restaurant trade in particular is constantly shifting. New trends appear regularly to replace or challenge old favourites.  The wise leader will look at their offers regularly, ensuring they match customers’ expectations.

Menus that are set in stone, result in businesses that end up in the graveyard. Even the most successful menus are revised at regular intervals to keep things exciting for customers, thereby engendering loyalty and attracting new customers through the holy grail that is word of mouth. 

Many newcomers to the trade forget that a restaurant is not a one product shop. Food is only one of the offerings. A successful business will offer a wide variety of other experiences as well – warmth, comfort, friendship and especially value.

Without a real understanding how complex a hospitality business is, more closures will undoubtedly ensue from those who mistakenly believed restaurants were akin to operating any retail chain. It's a lesson independent proprietors would do well to heed.

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The content of this post is up to date and relevant as at 19/07/2018.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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