crystal ball

Where are we heading?

Current economics are against the successful establishment of new businesses, unless you really know what you are doing.

It seems like the industry is in a state of upheaval at present, especially after the Corona Virus pandemic. As I have predicted for some years now, there is a current shakeout occurring and quite a few restaurants and other hospitality businesses are going under — and more will close down over the next year or so, until some kind of economic balance is achieved.

The causes of this situation are complex but the main ones can be summarised as: excessive competition leading to relatively stagnant selling prices; rapidly rising wage and food costs; acute skilled staff shortages; and a television educated public demanding higher and higher food and service standards; and a public thet has re-learned to eat at home. You wouldn’t want to be trying to establish a restaurant right now unless you are a very, very experienced operator — yet they keep on coming.

Not much joy for a while

If I consult my Ouija board and my crystal ball, I don’t see a lot of joy in the near future. Overseas there is a great deal of uncertainty about how the global economy is travelling and our media are feeding a communal sense of foreboding. I am seeing a decline in the average spend right across our customer base and having seen this before in my career, take it to be the symptom of a nervous public.

Predicting the future is an imprecise science, but some trends are inevitable.

People move down-market in times of economic uncertainty

People will always eat out, no matter what the economy does — it’s just that they spend less or move down-market according to their perception of their own financial security. For example, during the global financial crisis a few years ago, my top end clients took a hit while fast food and the cheaper end of the restaurant and café market had a boom. For this reason, if you are contemplating going into a foodservice business in the near future, I would not go up-market and attempt fine dining because I see it as unnecessarily risky.

That having been said, I am well aware that measured logic does not appear in the establishment of new hospitality businesses nearly as often as irrational ego. You only need to look at some of the over-the-top fitouts of new restaurants to see examples of ego versus economic responsibility. I cringe when I see new premises with a multi-million dollar fitout and know that this will cancel out the profits for the next seven years. Why bother, I ask myself?

How the professionals do it

The experienced operators I deal with tend to either buy existing fitouts at bargain basement prices after the previous newbie operator goes belly up, or they create highly effective spaces on a shoestring by being strict with the designers and frugal with exotic materials.

Professional operators don’t overcapitalise.

I have found that imminent bankruptcy is a wonderful motivator for change, and we are seeing that demonstrated in the latest trends — no bookings, communal tables, tasting menus, less protein on plates, etc. Those operators who sit on their hands and hope for the best are almost guaranteed to fall by the wayside as the rest of the world moves on. The better businesses I work with are in a constant state of evolution, creating trends rather than following them.

The rise of the dark kitchen

We will continue to see innovations as necessity dictates. As an example, a few of my clients are considering the setting-up of what we call commissary kitchens — which are now commonly called ‘dark kitchens’. These are basically small preparation kitchens in cheap rent locations that employ basic kitchen hands to process the routine daily prep that is needed for a group of restaurants. They are also a goo base for home delivery operations. This allows a smaller kitchen in prime real estate and therefore more seats in high rent locations where restaurants are usually established, while reducing wage costs at the same time.

Commisary kitchen
Dark kitchens are located in low rent environments.

Sub contract services

I am also seeing more and more sub-contract services being used to reduced costs. Services like external bookkeeping, marketing, website maintenance, HR support, trainers, menu development, wine list construction, beverage purchasing, etc.

Even some of the more sensitive artistes I deal with in top end kitchens are giving ground over the vexed issue of buying-in semi-finished food products, in a desperate attempt to reduce out-of-control wage costs. Wonders will never cease.

Yield managemment
It is inevitable that restaurants will start to use similar pricing to the airlines and hotels.

Yield management

There is more to come, though. I predict that the leading restaurants will soon adopt the same yield management systems as the airlines and hotels have been using for years, by charging more for highly desirable tables and high demand nights — it’s only a matter of time. Once they all run out of secondary and tertiary meat cuts to use (sphincters madam?), they won’t have a choice or they will go the way of the dodo.








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