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Coronavirus: Hospitality Industry’s Path Back to Profitability

Table of Contents:

  1. Outbreak and recession
  2. Survive and Thrive
  3. Reduction in Costs
  4. Increase in Revenues
  5. Summary

 

Outbreak and Recession

Having ravaged most of the East, Coronavirus or COVID19 is now in full swing across the UK and the cases are set to increase massively in the next few weeks. It is an unprecedented event having caught most governments off guard, however it looks like we are slowly regaining control after China’s cases have slowed down and there are prospects of vaccines cropping up across the globe from Japan to Germany to the US.

 

Regardless of when the situation turns for the better, the massive shock it has had on the global economy will mean we are very likely going to experience a recession in 2020. This was kickstarted by the lack of supply from China to now the lack of demand due to most countries going into lockdown. In the UK, almost every sector has been negatively affected, the hardest hit being the airline and hospitality industries.

 

Streets of London are empty of people after the full lockdown

Before the forced closure of restaurants, bars and pubs, there was high uncertainty as to what would happen to the staff and the venues themselves. Many locations we spoke to were taking each day at a time, with revenues dropping from tens of thousands a day to under £100, making it unsustainable to keep the doors open and staff employed.

“Everyone has been sent home. The owner has left me in charge but I don’t know how many more days I will be able to come in” – Salvatore, waiter at Meathouse Restaurant London

The chancellor has made great strides in providing some sort of lifeline to these venues including halt in business rates for 12 months, grants of up to £25,000 and most importantly paying 80% of wages if venues keep staff on payroll.

 

London pubs before full closure ban came into effect

The reality however is that once the ban has been lifted many locations will struggle regardless to keep the doors open in the following months, operating with razor thin margins. The drop in customers from the virus and the ensuing recession will mean thousands of locations will have to close up shop. This creates an undesirable feedback loop, intensifying the recession with jobs lost and reduced spending power.

“Our parent company owns 5 bars on this road alone and they will be closing down 2 of those after what has happened. We had just broken even after 3 years in this location and with this virus there is no way to keep the place open.” – Luke, GM at The Ladybird

After the financial crisis of 2008, nearly 4000 venues went into bankruptcy due to the reduced demand, eating out and takeaways being the first expenses cut by consumers across the UK. The industry needs to be prepared for a similar outcome from the coronavirus outbreak.

 

Survive and Thrive

Technology has come a long way since 2008, back then the iPhone had just launched and there was no App Store yet. Over the last 12 years we have taken big leaps in mobile development and for the first time in history, we have the technology to battle this downturn.

There are 2 ways for venues to survive this difficult period and then thrive once everything has been stabilized in the next few years:

  • Reduction in costs
  • Increase in revenue

We have the ability to address both of these with truly disruptive technology.

 

Reduction in Costs

In the short term, with the halt in business rates and mortgage freezes, the biggest cost remaining will be labour costs for owners.

50% sales through the app

Traditionally venues needed staff who would take orders, payments and serve customers. We are now at a point where two thirds of this work can be taken care of by an app. The user has at their fingertips their very own waiter, being served at any point without having to wait. This creates a seamless user experience leading to increased reorders and revisits from customers.

 

We find that many venues worry about how this shift would affect the customer experience and if it might be a turn off. Large chains have already proven that the shift only enhances the customer experience. For example, Wetherspoons pub chains have seen up to 50% of orders come through the app in some locations. McDonalds have started to expand on their initial trials, implementing their next step of table service. Slug and Lettuce have seen more than 10% of sales come through their app after a 6 week launch in two sites.

 

“We find that it gives customers choice. If they want to order at the bar, the bar is still there or if they like the convenience of ordering from their phone, they have that choice too.” – Georgina, GM at Slug and Lettuce Manchester

There are 3 ways to have an app put in place:

  1. Custom built app
  2. White labeled app
  3. Marketplace (Butlr)

App ordering allows customers a better experience

Custom Built App

Pros:

  • Visually the same as the venue’s other marketing material
  • Can have custom functionality per venue

Cons:

  • Very high upfront cost
  • Very low utilization rate
  • Maintenance costs
  • Long setup time

There are many companies who can create an app from scratch. The costs are usually astronomical (well above £30k for a simple app) completely outweighing any benefits that an app may have in a venue.

This route is only appropriate for the biggest enterprises who have multimillion pound budgets with long lead times. The venue will also have to keep the developer on a retainer to ensure all bugs are fixed and if there are outages there is someone there to fix the issues.

 

White Labeled App

Pros:

  • Cheap
  • Visually similar to the venue’s other marketing material
  • Fast deployment

Cons:

  • Monthly fixed cost regardless of utilization
  • Very low utilization

A few market entrants allow their product to be white labeled such as App4 or Wi5. These products allow a venue to quickly and cheaply try out how an app would work in their venue. The problem with a Software As A Service system is that the company providing the system will only be looking to receive their monthly payments, there is no incentive to increase utilization so that the venue can reduce their labour costs.

On the customer side, each venue will have their own individual app forcing the customer to download many apps for every venue they want to visit. The customers find this process tedious if they have to download an app everywhere they go so they simply end up ordering from the staff. This drops the utilization rate for the venue, in turn eliminating the labour cost savings they would expect from the system.

 

Marketplace (Butlr)

Pros:

  • Free to try
  • Extremely high utilization
  • Fast deployment
  • No ongoing costs
  • In-venue centric

Cons:

  • Visually the same across venues

The marketplace model is an innovation by the Butlr team that looks to truly disrupt the industry. From the weaknesses observed in the hospitality app industry, the Butlr platform was born to truly help venues become profitable with less resources and in less time.

The marketplace means that Butlr has both venues and customers on the same platform. This allows venues to go online in a matter of hours and gain access to thousands of customers on the platform. On the customers’ side, they will only ever need one app on their phone to be able to order across all venues, be it restaurants, bars, pubs, hotels or cinemas. This creates a virtuous cycle where venues have a much higher utilization because customers can use the same app across multiple venues.

Butlr allows easy transition for venues into the digital age

App ordering is the next evolution in the hospitality industry as we’ve seen over the past 4 years with the launch of the Wetherspoons app. Most larger brands are scrambling to put a digital ordering strategy in place leaving behind the smaller and independent locations across the nation. Butlr allows such venues to be ahead of the curve and to make use of economies of scale without the large budget of the corporations. Now is a pivotal time to do so, being a matter of survival for many locations with the coronavirus ravaging through the industry.

 

Increase in Revenue

The second route to profitability is naturally to increase revenue. After the ban to visit venues has been lifted, we expect a sudden surge in visits as people leave their house and want to socialize after isolation and then a sharp drop in the proceeding months as the effects of a recession kick into place.

This is the most likely killer of many venues in the next year since there will be fewer customers and competition for those customers will be fierce in every locale. Companies with the bigger budgets are likely the ones who can sustain the marketing costs it takes to guarantee these inflows.

 

As an independent location there a few things that you can do to be able to compete:

  1. Digital ads
  2. Local ads
  3. App Exposure

Instagram ads are a great way to create brand awareness in your area

Digital Ads

Facebook and Google allow venues to advertise to the billions of people on their platforms. By using detailed demographic targeting, venues can efficiently target potential customers who would be interested in their offering.

The downside of these platforms is that it takes many hours to become familiar with and many more hours to become proficient in. This is time many owners and GMs just can’t spare. If not done properly, a lot of money can be wasted on these platforms therefore it’s important to make sure it is not an after thought if there is going to be a digital ad strategy in place.

 

Local Ads

Setting up local ads is relatively easy and cost effective. The best way to do so is through flyering in the local area and making sure potential customers get exposure to your offerings.

This again can be time consuming for an owner or GM. It is important the message being sent out is tested and improved on to increase efficiency. New offers should be sent out periodically to gain the interest of new customers and keep bringing customers into the venue.

 

App Exposure

App marketing is a relatively new phenomenon that has been shaping with the introduction of UberEats and Deliveroo in the UK market. By appearing on these platforms, venues expose themselves to the customers these apps have on board. This works well for venues who provide a takeaway service, however for bars, pubs and restaurants where it is all about the in-venue experience they don’t offer any benefits.

 

Our Venue Partners enjoy increased sales and reduced labour costs with Butlr fully implemented (Brickhouse Social)

Butlr allows these venues to have the same access to it’s customer base on the platform. As a marketplace, Butlr operates by having both venues and customers on board. We use our expertise to run national marketing campaigns. We then push these customers across to all venues on the platform based on location algorithms and customer interests. This means the venues who operate as a Butlr partner have increased traffic simply by being on the platform. All venues need to do is sign up to Butlr and from day 1 they gain automatic access to the large database of customers.

 

Summary

Unfortunately, there are difficult times ahead for both the UK economy and the global economy as a whole. The hospitality industry will most likely take the biggest hit. For those venues who knuckle down and ensure they operate on a lean method, there is bright light at the end of the tunnel. They can come out stronger and more profitable than others. 

 

Butlr aims to be the partner for venues to create an improved customer experience, lower costs and increased revenues resulting in a strong venue brand and stable long term profits.

If you are interested to find out more about how we can help your business in these uncertain times, please fill out the form below and a member of our staff will be in touch within 24 hours.




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