HOW HAVE OPERATORS LIKE KRICKET, ISLAND POKÉ, LINA STORES AND KYM’S BEEN AFFECTED BY COVID-19?

We’ve gone from 15 profitable restaurants to 0 revenue in the space of a week and a half or two weeks. Obviously, everything has been closed down as per government instructions. The first part was securing all the government support that has been offered – the usual furlough payments, COVID [business support] loans and general government support, and luckily we’ve been in a position where the government has backed all of our businesses. Everything then shifted to where we can create new revenue streams and how we pivot these businesses.

WHAT NEW AVENUES HAVE OPERATORS EXPLORED SINCE THE LOCK DOWN? WHAT HAS BEEN THE SUCCESS OF THIS?

So, for Lina Stores, which has been a Deli since 1944, we launched an online grocery delivery service. That’s been quite successful – we’re expanding nationally soon and are launching a Deliveroo and Uber Eats offer which includes some home-cooked kits. Kricket is also doing a Deliveroo offer, and Island Poké have launched a make-at-home poke kit which will too be launching via Deliveroo very soon. It’s obviously a huge shock to revenue, but our brands have managed to pivot and create new revenue streams in a very short period of time, and now it’s about planning for the next phase of reopening.

Probably the biggest piece created has been the online grocery delivery platform for Lina Stores. It’s a nice growing business, and a positive outcome in the crisis with a whole new selection revenue stream. We also have quite a nice natural hedge with our meal kits as the weather’s gotten cooler, the Kricket home-kits have spiked and Island Poké spiked when the weather was hot…

ONCE GOVERNMENT SUPPORT SUCH AS THE JOB RETENTION SCHEME STOPS IN OCTOBER, DO YOU THINK OPERATORS WILL STRUGGLE TO SURVIVE?

The hospitality and leisure market is going to be utterly decimated over the next 18 months. We are strangely in the easy period right now because we have government support and strong reasons to argue with our landlords about paying our rent. When restaurants are allowed to open and landlords are demanding their rent, revenue is going to be badly hit for quite a considerable amount of time, we are going to see mass liquidations across the market. Typically, it’ll be the old wave brands that were in trouble before and didn’t have the margin.

All this said, there are going to be some really interesting opportunities out there because the previous hospitality model was broken in the sense that rents were too high, there were staff shortages and there was too much competition. With COVID, properties are now going to come on at reasonable prices, the unfortunate truth of 10-15% unemployment means there’s going to be staff available, and a lot of the competition would have been taken out, so there’s going to be a fundamental shift in a pretty dark market. There should be some pretty great opportunities for new wave brands to succeed in this new market.

HOW SHOULD OPERATORS PLAN TO REOPEN/IMPLEMENT SOCIAL DISTANCING ON RESTAURANT SITES? HOW WILL THIS AFFECT YOUR BUSINESS?

My first bit of advice would be: don’t rush into it.

If you fully open a restaurant exactly as you did before, but your revenue is 30-50% of what it was, that’s the quickest way to burn through cash. So, I think there will be menu engineering to reduce the cost of the menu and staffing. There is the obvious parts that I think every restaurant now will have to do considering hygiene, which we were all doing before anyway. There can be overkill on that – I’m not sure every restaurant needs to be posting on Instagram about how often they wash their hands(!). You know, things like temperature checking staff, ensuring procedures are being followed.

The biggest issue is going to be social distancing. If you have to keep 2 metres between seats, every restaurant group in the country will close because you just cannot operate like that with the rents that we pay. Some restaurants will work better. For instance, for Island Poké we’re putting up plexiglass screens for cashiers – it’s in and out, you can socially distance whilst queuing and that’s fine. But, when you think of Lina Stores in Soho, a 48 seat site that crams everyone into a basement and turns the tables 4-5 times a day, we can’t do that until people feel safer to be closer to each other.

WHAT IS YOUR ADVICE TO OTHER RESTAURANTS? SHOULD OPERATORS BE THINKING SERIOUSLY ABOUT CHANGING THEIR OPERATIONS I.E. LEANER MENU, REDUCED STAFF, INVESTMENT IN TECHNOLOGY?

I think naturally people will have to adjust their menus and their staffing. I think it’s important for people to look at whether they need to be open on particular days. Start slowly. Re-looking at your entire cost space – can you have sensible conversations with every one of your suppliers about what is possible? I think you’ll also need to look at your pricing mechanism. I’ve seen sites that have added on a COVID surplus to a bill, which hasn’t gone down very well, but space has to come with a premium. If people are going to sit in your restaurant and get freshly cooked food by talented chefs, do you need to look at your pricing structure? But, do I want waiters standing there wearing masks and gloves? I don’t think that’s hospitality for a number of our businesses – that’s not right for something like Kricket or Lina Stores.

DO YOU THINK COVID-19 WILL HAVE AN IMPACT ON INVESTMENT INTO THE HOSPITALITY SECTOR?

Previously, there were only a few groups that invest in this sector. Now, I think there’ll be far less.

Generalist funds will avoid the sector for a considerable amount of time. Larger PE funds – there will be a lot that are caught up restructuring large businesses with old wave brands with 50 or 100 leases signed at the peak of the market. I think in a near term it’s going to be few and far between. For restaurant businesses trying to raise capital in the next few years, it’s going to be tough. That said, there will be opportunities. We’ll still be looking to invest and grow businesses on the other side of this. However, I think it’s going to be new wave businesses that show that they can succeed in this new world. Unfortunately, the market is not coming back any time soon.

WHERE DO YOU SEE THE FUTURE OF THE HOSPITALITY SECTOR IN THE NEXT 2-3 YEARS?

2 years – utterly decimated.

The biggest fallout any of us will have ever seen in our entire lives. However, the fundamental need remains for people to eat, drink and socialise. That will never go away, it’s part of our human nature. This isn’t a dying industry, it’s only ever-changing so people will adapt. Even if there’s no vaccine and there’s a constant reoccurrence of this, people still need to eat 3 times a day so there will be new wave businesses that succeed in this new world. But its going to be a very difficult time for anyone in the hospitality industry, but there will be huge opportunities. It might take 3/4/5 years before you see that coming back. People have re-found a love for cooking, and the quality of deliverable products has just progressed so quickly. What could have happened in a 5-10-year period has happened in about 3 weeks. So, that’s a big part of it. Excitingly, I just don’t think we’ve seen the best of it yet. I think flexible formats are really critical. Looking at taking a brand and flexibly expanding it. But if you’re a pure sit down restaurant, you may struggle.

Specialist accountants to restaurants, bars and hotels, Jeffreys Henry LLP empowers hospitality entrepreneurs to achieve their business ambitions through award-winning accountancy, tax and advisory services.

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