Catering Trade and the Credit Crunch - Value Winning Here Too

Conventional wisdom says that the catering trade performs badly during recession, but just like every other sector this trade is seeing its winners and losers, and the broad message is that those who offer value for money are performing well.

Value for money does not mean cheap. Even the most expensive restaurant will be seen as good value provided food, service, bar bill and general “feel” justify the cost at the end of the meal.

Take Le Gavroche, one of London’s top eateries. According to legendary owner Albert Roux, the restaurant is a full as it has ever been. What has happened though is that instead of ordering wine costing hundreds and in some cases thousands of pounds, customers are trading down to more sensibly priced tipples, a pattern seen in many other up market restaurants, according to a piece in Bloomberg news published last week. The same piece interviewed several other expensive restaurant owners. Most are reporting that business is generally holding up, but all are heavily focussed on service and value for money, as well as keeping a very close eye on costs.

On the other hand, some celebrity chef ventures have not been able to keep going. Anthony Worrall Thompson, has just closed 4 of his 6 restaurants, Aldo Zilli has shut his Brighton café, Raymond Blanc has shut his Manchester restaurant, and Tom Aikens has gone bankrupt, although managed to reopen elsewhere, allegedly leaving a trail of unpaid suppliers in his wake. Even Gordon Ramsey has a reputed £10m overdraft, although he claims overall business is good.

Presumably all these names will be reviewing exactly what they are offering consumers to tempt them to spend when times are so difficult, and why in so many cases their business models have not worked as planned.

But moving out of celebrity chef territory, and into a world more familiar to the average diner, there are sectors of the catering trade performing well.

Fast food businesses are motoring. Domino’s Pizza has grown profits by almost a quarter, they plan to open 50 restaurants this year, and will be creating 1500 new roles. KFC is undergoing a £150million expansion, opening 250 new outlets and creating 9000 new jobs, Subway is adding 600 new stores and 7000 new staff. McDonalds added 2 million new customers a month in 2008, grew sales in the “low double digit” range, and is opening 20 new restaurants. What characterises all these firms is that they offer predictability in taste and price, and are seen as value for money.

Fast food’s performance contrasts alarmingly with what is going on in pubs. According to the British Beer and Pub Association 39 pubs are closing every week, due to a combination of tax hikes on beer prices, the smoking ban, and the recession. But here again, value for money wins out. Wetherspoons, with its focus on cheap food and beer, has grown sales by 2.6% in the quarter to 18th January 2009.

Mid market, mid priced, and middling quality outlets are also struggling. Its these outlets who are promoting heavily with offers more usually associated with Tesco like buy one meal get one free, or “eat early eat cheaper” and set price lunch deals. There has also apparently been a big rise in on line restaurant vouchers.

So in the catering trade, as in every other sector, its value for money which is winning out. If food or drinks are ludicrously priced, with average quality, tiny portions, and surly service, then customers will vote with their wallets, and take advantage of the “Eat in for a tenner” type offers promoted by the likes of Marks and Spencer.

Marcus Wareing who operates from the Berkeley Hotel in London’s Mayfair, summed it up well “The slowdown has made me more aware – conscious of waste, making sure margins are right, seeing what we can do to bring customers in. We are not offering lots of cheaper menus…..but we are ensuring that the customer receives value for money. This slowdown will shake up the industry. In some ways it is a good thing as it makes us all think more.” Wise words.