I have been asked a number of times over the last few weeks how sustainable I think the current casual dining business model is. That’s because there are real concerns in the marketplace that the model is currently under extreme pressure, and it wouldn’t take very much to tip some businesses over the edge.

One operator said to me this week: “This situation isn’t hard, covid was hard. We could manage it though, act quickly and decisively, be creative, work up solutions and get stuff done. This situation is impossible, we are not in control. Our profits and losses are shot and there is virtually nothing we can do about it. We have run out of answers. It feels like it’s just a matter of time before it all collapses.”

They talked about this situation from a number of different angles

1. Footfall declines of up to 20% versus 2019 in some sites were hitting them hard. Competitors were now reintroducing discounts to encourage visits. Some were heavily promoting generous loyalty schemes to drive frequency. There was feverish marketing activity taking place to inspire bookings.

2. Conversely, spend-per-head was increasing by up to 20%, which was an equal cause of concern. They felt their customers had come to the point of saying: “No more. I am not going out. It’s just too expensive and not value for money.” They also had a definite sense of customers cutting back on eating out in order to save for their holidays.

3. Food costs were incredibly difficult to forecast. In fact, they had told their finance team to stop forecasting because it was, increasingly, a total waste of time. The choice was simple – hold margins or reduce margins – and each had its own pros and cons. They didn’t want to lower margins, but feared it would be a strong possibility if spend-per-head were not to spiral out of control and destroy footfall (look at what happened with Frankie and Benny’s).
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4. Labour costs continued to be a challenge. New recruits were increasingly demanding and vocal about their expected hours, shift patterns and benefits. Chef recruitment was still a nightmare. Labour percentages were now dangerously close to hitting 35%, with each percentage point increase just nibbling away at their profitability.
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5. Utility cost increases were likely to be horrendous. Their current contracts were due to expire in the next 12 months, and the impact of increased utility costs was literally keeping them awake at night. If the potential increases come through as predicted, they would materially and significantly impact their profitability, reducing it by a third.
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6. Central overheads needed to be reduced. The business would simply have to operate with less team members.
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7. Rent and rates appeared to be less of an issue, though they were not finding landlords as eager to do deals as they thought they would be post-covid.
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8. Expansion had slowed considerably. Investment in new sites (or on buying other businesses) was too risky. Their focus had to be on their core estate performance and getting through this uncertainty with an in tact, profitable but probably smaller business with less central overhead.
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9. Selling their business was really not going to be on the agenda in the foreseeable future, despite the wishes of their investors. Venture capital and private equity businesses were becoming increasingly concerned about the hospitality sector and were seeking investments in other markets rather than looking to start again in this one. This position had certainly changed the business dynamics – from one looking to exit and cash in to one that was more concerned with survival with current investors.
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A stagnant sales line, footfall decline, increases in every cost on the profits and losses and a pessimistic view of investment led my friend to conclude that, in the short term, the casual dining model was not viable. A sad but probably realistic scenario for some at the moment.

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Illustration: 48 Savvy Sailors

Author: Ann Elliott