Winners and losers in hospitality right now – and what can SMEs learn from them

No industry is immune from the ongoing impact of the economic headwinds that reverberate around the globe.  For the hospitality sector this manifests itself in the cost of living crisis that is causing serious ructions. But this does not mean it is all doom and gloom for the industry because there are invariably winners and losers within any scenario.

The winners take it all

Despite the transport and travel industries largely coming to a standstill during COVID-19, one of the most buoyant parts of the hospitality industry post-pandemic has been within transport hubs. The return of travel has resulted in a clamour for exposure to travel sites including airports and rail stations. Among the operators recently announcing expanded presences in such locations are the likes of Puccino’s, FCB Coffee, Pret A Manger, Wagamama and Vagabond wine bars. 

High flyers

The latter opened its first travel unit in Heathrow airport last year and such has been its success that a prime site is due to open in Gatwick this year. Such is the confidence in travel that Vagabond founder Stephen Finch predicts annual turnover at the airport will hit £15 million and he has described the Heathrow opening as a “game-changer” for the business. Meanwhile, JD Wetherspoon is set to open another new site at Heathrow Airport in October. 

The success of these operators is leading to various newcomers into the space. These include Breakfast Club that has recently partnered with travel specialist SSP to open a number of units in the UK, which will begin with the brand’s first restaurant in Gatwick airport later this year. An interesting move involves Time Out Market that is working with Lagardére Travel Retail to develop a model suitable for airports and train stations that will seek to incorporate its ‘best of the city’ curated food offer that echoes its model in other locations.

Hitting the road

The success of travel sites has also extended into roadside locations where there has been the high profile launch of the Brightside roadside diner concept, which is reminiscent of Little Chef that disappeared in 2007. It is a sister brand to Loungers and Cosy Club that are both proving to be winners by focusing on opening up in suburban locations rather than major city centres. 

In suburbia

The post-pandemic shift to working from home has pushed a lot of hospitality trade from city centres to locations where people live – namely, in the suburbs. This shifting dynamic has been very clear to David Page, chairman of Fulham Shore – that operates Franco Manca and The Real Greek, who has seen a change in the fortunes of his estate since COVID-19.

Some of the suburban restaurants have broken trading records whereas the previous high flyers in the West End of London and central Manchester have proven to be slower to recover – although there has been something of a recent tourist-driven bounce-back in the capital.

“Our policy of opening in London villages has borne fruit, as many commuters are now working from home. These Franco Manca sites are busier than they have ever been,” Page says. It is a similar story at Peach Pub Company and Bob & Berts that are each focusing on non-urban locations where there is a strong demand for their offerings.

Driving success

There has also been massive post-pandemic demand for drive-thrus, with an impressive £500 million increase in sales through such outlets since 2019, according to NPD Group, which calculated consumers spent £2.9 billion through the channel for the year to the end of August 2022 versus £2.4 billion three years previously. 

This trend is continuing through 2023 and demand is very high for the best locations. Among those battling for sites is Costa Coffee, which opened its 300th drive-thru in late-2022 and is committing £20 million to build more such sites and Starbucks, which is also approaching 300 drive-thru locations.

These big name brands, along with the likes of KFC’s and McDonald’s, are now competing against relative newcomers such as Indian chain Chaiwala Tim Horton’s and Greggs, which has been accelerating its opening of drive-thrus. 

The losers standing small

Where it has been toughest is in those areas where there has been an over-saturation of competition and where maybe the hype has been running too far ahead of customer demand?

Stuck in the middle

In the former camp are the mid-market brands such as Prezzo that only recently announced the closure of 46 sites, which follows the demise of 22 of its restaurants two years ago that leaves it with a current 97 units.

One of the major mid-market failures before the pandemic was the Jamie’s Italian chain and Barbecoa that collapsed into administration with a combined 25 outlets shutting up shop. The recent announcement by Jamie Oliver that he is to return to running restaurants will involve him moving more upmarket this time.

Kevin Styles, CEO at The Jamie Oliver Group, says: “We’re going to be very strategic and targeted about what we do in the UK restaurant space. We’re not trying to execute a 30-40 site restaurant chain. There’s going to be huge pressures in the mid-market, there always is when an economy is flagging.”

All tapped out

Competition has also been extremely strong in the craft brewery and tap room market. In June as many as 45 small brewers had gone into liquidation – while many more have either been sold or swallowed by rivals – according to accountancy firm Mazars. This has contributed to a tripling in the number of UK breweries going out of business in the past year.

Paul Maloney, associate director at Mazars, suggests further breweries are likely to go bust as the competitive market and the squeeze on consumer spending continue to affect sales. The insolvencies were largely of smaller craft breweries, which are operating in an oversaturated market and have rising overheads, and drinkers are choosing to buy cheaper beers.

Craft beer has certainly come well off its peak levels of hype and has been followed by the plant-based, vegan category that had been the recipient of some serious hype in the past few years. Recently a number of operators have come unstuck, including Stem & Glory, which has recently been bought by its founder in a pre-pack administration for a mere £15,000. 

This follows burger chain Vurger Co that was also bought out of administration by its founders following the closure of one of its restaurants. The three remaining sites continue to trade. Maybe the experience of Honest Burgers should be telling because its vegan-only restaurant, V Honest, closed shortly after its opening last year with management preferring to incorporate decent meat-free options onto its regular restaurants’ offerings.

Fun failure

There has also been some serious hype around competitive socialising operators offering hospitality concepts around the likes of darts, crazy golf, trampolines, shuffleboard, ping pong, clay pigeon shooting, axe throwing, and F1 simulations. Many of these businesses have benefited from an availability of large spaces in town centres and shopping malls vacated by large retailers and landlords desperately trying to fill them. The experiential leisure model has been a solution ideally suited to these distressed assets.

Many businesses have raised serious amounts of money as it has been seen as the next big thing in hospitality. But could competitive socialising simply be a short-term trend or fad? Will consumers keep moving onto the next new thing or, in an increasingly competitive marketplace, go to a rival’s newer venue. Where there appears to be some longevity among the myriad concepts launching are those involving darts, with Red Engine’s Flight Club enjoying great success as it expands globally. In contrast, the potential to roll-out axe throwing venues might be more challenging.

Glynn Davis

Glynn Davis is a business journalist specialising in the retail and food and drink sectors. As well as writing for publications including Retail Week, Ecommerce Age, Propel, Caterer and Retail Bulletin, he’s also the founder and editor of Retail Insider and Beer Insider.