The eating-out sector, which experienced ‘slow but sustained growth’ during 2013, will continue to grow - albeit slowly - in 2014 as consumers find themselves with more disposable income. Foodservice consultancy Horizon’s foresees particular growth in the fast-casual (£5-£10 per head) and casual-dining (£10-£20 per head) sectors with brands such as Itsu, Chilango, Bill’s and Giggling Squid set to lead the way.
“Casual dining has really been the success story of the past few years,” says Horizons’ managing director Peter Backman. “Consumers have traded down from more formal dining to establishments with more flexible menus, extended opening hours and value-for-money food.
"With competition strong in this sector operators, including high street brands and pub operators, have concentrated on improving their service, offering more innovative dishes and remaining price competitive.
"This has kept customers dining out and as the market picks up even further these establishments will benefit from the loyal customer base they have built throughout the downturn.”
Meanwhile, new chicken restaurant concepts, which arguably took a back-seat in 2013 with the burger boom, could well come to the fore again as poultry prices will come down by about 7 per cent this year according to the latest report by Prestige Purchasing - which also notes that prices for beef, cheddar and wine are set to remain significantly high.
When it comes to the location of new venues, many chains will continue looking at out-of-town locations to grow their estates. (A number of high-profile shopping centres have been built in recent years that have attracted many restaurant brands). However, a recent survey by Deloitte highlighted the opportunity that remains on the UK's high streets.
“Food and beverage operators have an increasingly important part to play in the development of the high street," explians Jon Lake, a corporate finance director in the licensed retail group at Deloitte. "They need to innovate to meet the changing demands of the modern consumer. However, the high street needs help to evolve in response to the changing landscape. An important factor will be the need to address its fragmented ownership and management structure, together with policies that support the regeneration of town centres."
The British Beer and Pub Association (BBPA) is hoping that a beer duty freeze in the 2014 Budget will ease some pressure on pubs whose beer sales have continued to decline since the introduction of the duty escalator in 2008. We will have to wait until April to see if that desire is met.
While traditional beer sales may be waning, many operators are cashing in on the craft beer trend, with the sector growing by 79 per cent in 2013.
When it comes to hot beverages, there will be a continued demand for quality as a new nation of coffee drinkers becomes more discerning. We could also see further merging of food and drink as hot beverages are used as ingredients or as matches to meals instead of alcohol.
“We have noticed a number of changes in the food and drink market over the past few years, particularly a strong demand for expertise relating to food and drink pairing which we predict will only grow stronger in 2014,” says Ian McDonald, B2B commercial manager for the UK & Ireland at Nespresso.
Meanwhile, 2014 is going to be a particularly difficult year for nightclubs, according to Paul Hemming, partner and head of corporate finance at Zolfo Cooper, who believes the traditional nightclub model will be 'under real pressure' this year.
“Whilst young people will always want to go dancing, our research continues to suggest that the younger generation are rejecting the formal ‘big box’ nightclub experience," says Hemming. "Nightclubs have to offer a better experience to attract the younger generation, who have grown up dancing in very high-quality late-night bars, many of which have the advantage of not charging an entrance fee.
“Although the good operators continue to deliver strong results, running multiple nightclub venues successfully is becoming the pursuit of the chosen few, and there is continued pressure on the ‘big box’ clubs to improve their offer in the face of increased late-night bar competition.”
The serviced apartment sector, which finally received recognition in 2013, will continue to grow further in 2014, according to real estate advisor Savills which predicts the expansion of a number of aspiring brands backed by a wave of new investors.
Meanwhile, John Wagner, director of Cycas Hospitality, predicts that this year will be the one when big hotel brands, who have so far been slow to adopt the extended-stay model, will confirm their belief in the concept and start to make their presence felt in a market driven by corporate business.
He says the extended-stay sector currently accounts for just 1 per cent of the UK market, but that is set to change over the next 10 years. “Until now in the UK we have only really seen activity in London but the next stage of aggressive growth will also include the UK regional market. Brands looking to reinforce their market share will include Marriott with Residence Inn, Accor with Suite Novotel and IHG with Staybridge Suites.”
For all hotels, we are likely to see further investment in technology, particularly around mobile. So says Choice Hotels Europe chief executive Duncan Berry, whose company launched a Digital Direct Programme in 2013 to help hotel owners boost their online bookings.
“Mobile technology will become ever-more important to the hotel sector as people rely more on their smartphones to book rooms and services,” he says. “Brands will no doubt continue to invest, but it’s a hell of an expense for the independents. It will be important though.”
Berry believes that while the corporate traveller is returning to hotels, 2014 will also bring more travellers in the 60+ bracket.
“People are living much longer and want to be getting out and about during their retirement. It’s important for them to keep in touch with family who may be living in different areas and therefore they are looking for somewhere to stay on their visits. This is definitely a growth area,” he adds.
The serious stuff
The year ahead is set to be a busy year for mergers and acquisitions, according to Sam Fuller, managing director and head of consumer at investment bank Altium. Fuller predicts a willingness from the banks to help fund deals in the hospitality sector, particularly the informal dining concepts found on the high street.
“Casual dining M&A have been particularly active this year, with informal dining concepts an ever-popular presence on the UK high street. Quite simply, consumers have demonstrated that they still want to enjoy themselves and are willing to pay up for a decent burger at Byron or a quality steak at Hawksmoor.
“Having hopefully now navigated the worst of the downturn, as people increasingly find themselves with more disposable income, we anticipate further growth in eating out over the next few years.”
Fuller believes the appetite for buying restaurants remains strong among investors: “With 2013 having proven that restaurant deals can again get away for decent multiples we would envisage that a number of private equity-backed chains will consider an exit in 2014.”
“The crowd-funding market is forecast to grow to $5bn globally by the end of this year,” explains Will Hawkley, director at KPMG’s Leisure Advisory Group. “Companies that are willing to seek alternative sources of funding may find crowdsourcing is a good alternative to traditional sources of debt.”
While the 2013 Budget brought immediate good news for pubs with the scrapping of the punitive beer duty escalator, the rest of the hospitality industry has another reason to raise a glass this year with the implementation of George Osborne's 'Employment Allowance', which comes into practice in April 2014. The new initiative will take the first £2,000 of the employer national insurance bill off of every company - this means that around 450,000 small businesses across the UK will pay no jobs tax at all.
On the legislation front, foodservice businesses will need to take note of the upcoming changes in Food Information Regulations.
On 13 December 2014, a new law will be introduced that will require food businesses to provide allergy information on food sold unpackaged. Restaurants will no longer be able to claim they are 'unaware' if an allergenic food ingredient has been used, but are instead required to provide clear information about the food allergens on each of their menu items. Verbal information can then be provided by the staff, but backup written confirmation of the specific allergy details can be requested by the customer at any time.
As Ben Hood, chief executive of hospitality software provider Fourth, warns: “The challenge for operators is to navigate the implementation of this legislation – which we see as one of the key hurdles facing hospitality businesses this year – with as little complication and expense as possible.
“There are no exceptions so myriad food and beverage businesses will be caught by the new law. It doesn’t come into force until December but the work must start now, to minimise any business risk.
“It is also a headache for suppliers and upstream foodservice businesses involved in creating or providing dishes for food operators, with some of the 14 allergens affected including cereals, eggs, milk, nuts, fish and celery.”
For more information on this, take a look through our recent series of allergen-related articles, guides and multimedia content.
The next generation...
Hospitality is and always will be a people-driven industry, but more sophisticated advancements in technology - especially those based around smartphones - will find themselves integrated further into restaurants, hotels and pubs as operators look for a USP and to attract the tech-savvy customer.
A number of pre-ordering apps launched at the tail end of 2013 will pick up momentum during 2014 and, as more providers and banks offer customers the chance to pay for goods via their mobile phones, this area will also see growth.
Hawkley from KPMG says pub and restaurant operators must embrace these new technologies in order to be successful in 2014 and beyond, as the pace of change in the sector is going to accelerate even further.
“As consumers become increasingly comfortable with cashless payment such as Oyster, people will wish to pay via their mobile devices without having to use an app to do so," he says. "The major mobile phone companies have joined together to develop a universal mobile payment platform and the major banks will be launching their mobile payment platform, Zapp, in 2014.
"Operators who want to succeed need to be ready to accept mobile payments sooner rather than later."
Meanwhile, online marketing services company Livebookings believes the key to success in 2014 will be using digital marketing tools to build closer relationships with diners; to encourage repeat bookings rather than short-term discounts.
“A new generation of loyalty apps for smartphones simplifies the process and opens up a new marketing channel at the same time,” explains a spokesperson for Livebookings. “There are many to choose from, all vying for a slice of the market. So until a winner emerges, we recommend trying out a few in January to see which looks set to be popular with your diners in 2014.
Mobile ordering systems, used by staff and diners alike, will continue to infiltrate restaurants next year. This will likely be driven by smartphone apps that enable diners to order drinks and dishes, and even split the bill. Deciding whether to automate the dining experience is a decision restaurants will soon have to make
Livebookings also believes 2014 will see the rise of ‘short-form’ social media marketing, with the spokesperson adding: “The shift to social networking on smartphones means that people are consuming content in spare moments throughout the day, rather than sitting at their laptops. So if you want to be ahead of the game, it’s a good idea to add tools like Twitter Vine, Snapchat and Instagram to your restaurant marketing arsenal in 2014."
So, will 2014 be a success for hospitality? Last year was a good one - restaurants benefitted from a steady improvement in consumer confidence; hotels seem to have turned a corner after a sluggish start to the year; and pubs successfully campaigned for that all-important beer tax cut. Let's hope that all of these positive developments continue into 2014... Here's to a happy and prosperous year.