Managing Director, UK of Revenue Management Solutions
Normal is still a far way off for United Kingdom restaurant owners and operators, but July did bring about a few bright spots amidst a tough first half of the year.
On July 4, restaurants and pubs opened. A few days later, borders reopened for travelers from much of the EU. Then, starting July 15, the British government cut the value added tax (VAT) from 20% to 5% on food, lodging and attractions purchases. The 5% VAT will remain in place until January 12, 2021, and it is expected to serve as a £4bn catalyst benefitting more than 150,000 businesses and consumers – and helping to protect 2.4 million jobs.
Following the announcement of the VAT decrease, UK’s Chancellor Rishi Sunak went on to say that the government would launch a voucher initiative that would encourage residents to return to restaurants in August.
Called “Eat Out to Help Out,” the program awards a 50% discount on food and non-alcoholic drinks (up to £10) to diners who dine in at registered UK establishments every Monday, Tuesday and Wednesday from August 3 through August 31. There’s no physical voucher required (diners just show up) or minimum spend; and the program is open to restaurants, cafés, bars or pubs; work and school canteens; and food halls.
As of the Aug. 3 launch date, more than 72,000 outlets had signed up for the program, and the first three days were a huge success. According to figures from S4labour, the online labour-scheduling management system from Catton Hospitality, sales increased 70.9% during between Aug. 3 and Aug. 6. Food sales more than doubled, with a 114.3% increase, while drink sales were up 29.8%. While the industry welcomes these short-term fixes, the managing director of our London office, Phillip Laqué, suggests more bankruptcies will follow unless the UK market can make systemic change.
“I think the key for the UK market,” Laque says, “is the rent structure, which drives so many companies into difficulties.”
This perspective aligns with statements from coffee chain, Pret a Manger, which recently announced the closure of 30 London locations, including the Terminal 3 location at Heathrow, and its Boston and Chicago market presence. Company leaders noted that the “difficult decision” to close stores “reflected lower footfall, rental costs and new safety measures.”
Pret is among several formerly thriving brands to announce closures in response to decreased patronage. Others include Casual Dining Group, which operates Cafe Rouge, Bella Italia and Las Iguanas brands, permanently closed 91 of its restaurants in July and fell into administration – although the Aug. 3 purchase by former TGI Friday’s owner Epiris, adds a brighter chapter to the story.
Particularly in once-bustling London neighborhoods, lower footfall and traffic make for a potentially devastating combination. According to the UK Office of National Statistics, as of July 17, overall footfall is down approximately two-thirds as compared to the same period in 2019, and that the figure is the highest since lockdown began in March.
The drastic change in traffic also reveals weak links related to restaurant unit counts. Laqué believes some sectors, particularly fast casual, had an oversupply of outlets or an oversaturation of repetitive inventory pre-pandemic. Now as traffic slows or stops, brands recognize that more is not always more.
Will the U.K.’s reduced VAT and programs like ‘Eat Out to Help Out’ give the country’s restaurant industry the shot in the arm it so desperately needs? Time will tell. RMS remains optimistic that positive lessons will come out of these developments that will help Britain’s restaurant operations and prove informative to other geographies.
Whether it’s broad trends or granular data at the location – or even customer – level, RMS will continue to act quickly with data-driven strategies that lead to a sustained recovery.