Without a working plan, the COVID19 leftovers are a tough eat for hospitality professionals
As we all understand, getting to know your map, before stepping foot on any recovery 0business and personal welfare - isn't it.
Here we are, a year since lockdown began. As we stand, vaccinations are going extremely well, and we have been dealt a roadmap to unlock and to economic recovery by the government. Schools are going back; Professional sport that is being played behind closed doors will slowly allow fans to return; hospitality, pubs and restaurants are set to reopen firstly their gardens and then their doors. Yet, as a consequence of the last year, a large proportion of people in the UK are afraid of venturing out to crowded public areas and shopping centres, which is going to cause a significant drop in business for our hospitality businesses. Worrying times for business leaders, worrying times for shareholders, even more worrying times for their staff. The balance is all out of whack.
By any predicted measure, business levels are going to be a long long way off the levels prior to COVID-19. In my recent experience, I would say a 60% return to normal is ambitious, a 75% return a fairytale.
There is a significant vulnerability in the catering and hospitality industry's ability to respond to crisis, especially epidemics like COVID-19 that spread panic and disrupt the everyday activities of people. This is mainly due to the nature of our business - lots of people crowded together, having a great time, usually accompanied by food and drink, either served to them, or self served at a buffet plate. Depending of course what sector you sit in. As a real stark reminder though, what we saw after the SARS outbreak in Hong Kong was that restaurants where people eat self service buffet style from counters of food in a crowded environment, lost as much as 90% of their business.
Crisis management by common sense
A Crisis:
Defined as a low-probability, high-impact event that threatens the viability of the organisation, an event that damages a firm's reputation or drastically harms the long-term goals of profitability, growth or survival....
Which is all well and good, but how do we breakdown the management of crises to understand impact, and how do we relate COVID-19 to any of it ? It isn't that daunting as long as you think the right way.
THINK! What's the panic?
This is the point where I would classify the crisis I am dealing with - important because it helps me decide the appropriate measures to keep the crisis under control. Rather than the too often used 'shoot from the hip and hope for the best' method.
Environment 1: Physical
As an external factor, physical environmental conditions such as natural disasters and technological failures are the least controllable by any business. The COVID-19 outbreak in 2020 fits naturally into the physical environment category of crises. The origin of the coronavirus is still unknown, so much so, that catering and hospitality businesses are still grappling with the task of dealing with its consequences.
The appropriate strategy to deal with disasters of the physical environment type is to react quickly to minimise the damage. Time is of the essence because the damage could escalate very quickly to a point that threatens the survival of the business.
Environment 2: Social
Crises of the social environment are caused by human acts. Strikes by unions and boycotts of certain goods resulting in damage to organisational reputation or infrastructure, are examples. COVID-19 has indirectly generated crises of the social environment because many hospitality businesses will experience significant liquidity problems. Many companies will have to or indeed have already, lay off thousands of staff or force them to take lesser hours, lesser pay, zero hours contracts, unpaid leave or sabbatical. Undoubtedly, this will lead to some labour unrest, disagreement and court cases - if not tackled correctly.
The strategies for dealing with crises in the social environment involve calming the people and negotiation with the parties affected to achieve a win–win resolution. Legal measures may be necessary if compromise is not possible.... classic restructuring exercises that must be dealt with properly, formally and within the law, and leaders with humility must never forget that these people are fearful for their future and entirely reasonably, sceptical of business intention.
Environment 3: Management failure
Management head room is of utmost importance. The ability of management to react properly, to secure thinking in a balanced, process driven and logical manner. Many crises are caused by skewed management values, deception or misconduct. Budgets and goals that cannot be reached often lead to unethical behaviour on their part. As such, a crisis can utterly destroy the reputation of a business.
Decision failures can rank from minor to catastrophic, and anywhere in between. For example; Remember the Audi emissions scandal ? Somebody in the Audi team, decided that chasing the extra % profit, whilst being less than morally upright using less effective parts was a good idea...
If we look at the retailers that have disappeared from our high streets, each one almost guaranteed to have had leadership without the ‘headroom’ to deal with a crisis, at the time the crisis happened. Mothercare. An iconic brand, probably in the top 10 most recognisable brands in the country. Systematically failed by its leadership failing to react to external market forces, over 2 decades. Sent into administration before COVID-19 came along in 2019.
Back in our own bubble – the catering and hospitality industry is facing serious cash flow problems both during and after the COVID-19 lockdown is eased. There is great temptation for management to engage in unethical conduct to ensure the survival of their business, which may ultimately give rise to crises of the 'management failure' type. The appropriate strategy to deal with these kinds of crises is to enforce a strict code of conduct, revisit budgets, be realistic about targets and follow a process.
Cheers, but why do I need to understand what each crisis type's effect on the World is ? Do we not just raise our trouser legs and wade through the s**t ?
Here's why. Understanding your crisis is useful to catering and hospitality management in two ways. First, the appropriate management and recovery strategies are dependent on the type of crisis in question Second, it can alert managers to subsequent crises that may follow the original one when the wrong approach has been used to deal with the original crisis.
In the COVID-19 pandemic, for example, if business leaders attempt to lay off staff without proper process, thought, communication or compensation to improve the individuals cash flow... this may, no, this will lead to confrontation with the team. This will lead to mistrust of management, and subsequently this will cause an entirely avoidable crisis of the social environment type.
ACCEPT! - What's the damage?
The extent and type of damage is assessed. I am a fully paid up Yorkshireman, and so being brutally honest with myself and others, has always helped me move on to step 3 swiftly in the past. If its knackered, just admit its knackered, and plan to repair it - if it's completely goosed - then it needs replacing, so just admit this, and plan for replacing it.... Whatever 'IT' might be
With this in mind, before a recovery plan is devised to rebuild my hospitality business, I would assess the type and extent of damage caused by the crisis. COVID-19, has caused a lot of hospitality businesses sudden cash flow problems - both immediate and in some cases extremely heavy. Hence, the appropriate counter measures must aim at maintaining an adequate liquidity position.
PREPARE! - Stay cool and form a plan.
There's an old phrase that states Prior Planning Prevents Piss-Poor Performance. Tactics are formulated and implemented to combat the crisis in good time. There really is no need to go all Mike Bassett on it ! I would much rather get the tactics right at the outset, and achieve the right result first time, safe and on time - Call me old fashioned, but I want pacey, direct, well planned action... anything other makes me incredibly nervous.
To draw out the appropriate recovery strategies to save their business, managers must consider each process in the business operation, and find out how each step in the service management cycle could be modified and improved to bring the crisis under control. The appropriate tactics in the COVID-19 epidemic should include all measures that could minimise the cost and enhance the revenue of the business.
Cost reduction: We must find ways to minimize the running expenses of our businesses, so that it has a better chance of survival. This could be reduced investment in advertising and promotion, a benefit of reduced offer. It could be a reduction of central overhead costs, achievable through negotiation with suppliers to reduce prices, with landlords to reduce rents, and with staff for pay cuts, temporary reduction of hours or unpaid leave. Operating costs will be minimised and low cost or shareholder loans or investments, will more than likely be sought. Meanwhile, back in the on the ground operational world - sales / ATV improvement and Margin development plans need to be devised to generate more cash. None of this should surprise any half decent leader.
Government support: A time of crisis also warrants the step of government financial support. Our government has taken notice of the trouble businesses are going to be in, and offered benefits beyond anything I think anybody alive has ever seen including: a furlough scheme to protect jobs, Loans, tax relief and cash grants, Employers can apply for staff to get up to 80% pay if they can’t work, Self-employed people can receive up to £2,500 per month in grants for at least 3 months – our government has put in a titanic £355bn package that includes all the above... Furlough alone has cost £54bn up to February 2021. I think our businesses owe it to the people in our businesses, to at least do the right thing at the right time – and most importantly for the right reasons. They also owe it to everybody to get back on their feet, and repay the faith the government and subsequently every single tax payer has put in them.
Revenue enhancement: Those that have read my blogs will know, I never favour a race to the bottom, with one dimensional cutting of costs. Whilst cutting costs will deliver short term result, balanced businesses stay stronger longer. Simultaneous to cost reduction, we must implement revenue enhancement strategies. To combat the pressures resulting from widespread fear of COVID-19, a hospitality business could increase its guest perception of value by adopting a combination of revenue enhancement tactics.
Taking catering and hospitality in isolation, These may well include 1| Improve food quality and service... and as a result price... I call this qualitative pricing - by aligning price to service level, you ensure a friction free price rise, whenever needed. 2| Discounts or other forms of promotion to entice potential customers to visit. I call this sub-prime selling, and always balance my sub-prime cost with expected benefit - usually in driving footfall. 3| Capitalising on the current public obsession with health and strengthening their own immunity, maybe an increased awareness of healthy menus, with items that claim to boost customers’ immune system. Swapping out recipe items in favour of healthier ingredient. 4| Introduce take-away or delivery services to combat the fear of dining out. 5| Thinking about the impact of social media over the last few months, it has been hugely important to families and individuals staying in touch during lockdown. Like it or not, your customers use it, believe it, and are absolutely in the right frame of mind to share great news stories. So maybe set up a community fund whereby a proportion of any sale is donated to COVID-19 related causes, such as NHS Charities, locally affected families or care homes.
REVIEW! - Is it working ?
The last step of the crisis management process is for me to evaluate the effectiveness of the recovery strategies using a feedback loop that enables me to refine the tactics if necessary, until the crisis is brought under control. We have all the modern day tools to do this, in a timely manner - Teams / Zoom / WhatsApp and a buffet of other interaction tools, literally at your fingertips.
The most interesting story as a comparision is this one. After the SARS outbreak, the American restaurant chain Ruby Tuesday reported that it regained 30% extra of its lost revenue through a combination of rigorous personal security measures, including masks, distancing and sanitising - and on top, the offering of a 50% discount on selected products... By the way, that extra 30% equates to $200 million, in case you were wondering. $7800 per week per restaurant... with a labour ratio in the industry of 30% - that is $2574 a week, of extra profit, and jobs saved – by squirting sanitiser and being nice people – unbelievable.
Whilst the COVID-19 crisis is a natural disaster, the methods employed by catering and hospitality management to deal with the challenge, are in a lot of ways unnatural. Unnatural because we haven't had to do this before, there is no manual - and yet they are so crucial. They are crucial not just for now, but for the future, and for us to develop a future proofed functioning strategy for dealing with any upcoming crises. I am absolutely positive, that catering, pubs, restaurants, clubs, stadiums and all hospitality can be adept in responding to the COVID-19 leftovers. Through a combination of the cost reduction and revenue enhancement strategies, along side tough operational management – our incredible industry wide businesses can succeed in turning a profit, even under the adverse influence we are facing.
For me this doesn't have to be daunting - its all about headroom and getting rid of the fat, therefore enabling a lean plan of action... Like cooking the perfect roast dinner, understanding the plan and timing is crucial to success. Follow the plan however, and the rest is just gravy.
