Cedar Dean Group CEO David Abramson advises on how businesses should approach 2019.
How things have changed over the last 60 years in the London restaurant scene!
The end of war rationing sparked a new era where people were ready to start enjoying themselves again. London provided a wonderful place for independents to start building their businesses; with very little tax costs they made bumper profits. Competition was low – so were expectations – and the cash rolled in.
Now, we are living in a very different world. Not only is competition at the highest it has ever been, but expectation from consumers is beyond any level of historic understanding. Not only are a great meal and service non-negotiable, but pricing and an experience are also part of the package.
The collapse of some big roll-out brands and the high number of CVAs in recent times has shown us it is survival of the fittest. Looking ahead, how can operators ensure they can thrive?
Concepts like vegan food, grab-and-go and premium casual are all excelling at the moment. The culture of your concept is also important, and operators need to have a great team with shared values and belief in a vision which involves investing in the right people across the board such as suppliers, employees and landlords. Operators who have it spot on in the premium casual market include The Ivy Café, San Carlo and Granger & Co.
The three biggest costs to an operator are sales, wages and property. Operators historically looked for a 20% profit on their sales, meaning that a fifth of the cake was theirs and four-fifths was their cost base.
Considering the current market, I believe most operators would be happy to set a business plan around 15%. Working on that basis, how can costs be split to keep within an 85% bracket? While gross margin can vary between 25-35%, in today’s climate the key to success is to take all actions necessary to keep this number under 30%. Wages can also vary between 25-30% of sales, but again, we really believe that anything above 30% demonstrates a poorly-run business.
Regarding property costs, historically rent was 10% of turnover. A recent report from CDG Leisure showed nine out of 10 London operators are paying up to 20% of their turnover in rent. Factoring in 17.5% for rent, rates and service charges, at the highest end, this only leaves 7.5% for the likes of utilities, marketing and other incidentals such as repairs. Operators need to be secure in their costings to avoid nasty surprises in the future.
Fundamentally, operators need to be switched on to the market, whether that is through hiring the best advisors or taking time to research locations and trends. It is vital to know which locations are growing and, more importantly, if they fit the ethos of their concept.
Areas such as London Bridge, King’s Cross and Fitzrovia have benefitted from significant investment which has led to demand from retail and leisure operators to. But smart operators will look at cost just as much as location; in this climate, footloose diners and workers will travel to experience the best concepts.
For that reason, operators are also responsible for gaining as much intel on landlords as they can to ensure they don’t fall prey to rent hikes borne out of an outdated system.
Operators need to constantly be thinking about what the next issue is in the sector and to evolve their concept with it. Whether that is the role of technology in the leisure industry, menu updates to reflect changing tastes, or how each site can offer a different dining experience, restaurants are not safe to just churn out the same model for years anymore.
As the expression goes, ‘fortune favours the brave’, and if you believe you have a great product for this industry, now could not be a better time to get into it. There is more real estate availability than ever, with very low premiums, but it is essential all of the other ingredients are there.
In short, if you are looking to succeed in this business, understand what slice of the cake you want and, as Winston Churchill said, “Don’t spend less, earn more” to succeed.
Do you have a burning question for Cedar Dean Group? Email [email protected] or tweet us @casualdiningmag and check the Openings section in the next issue of Casual Dining Magazine to see if they can help!