#3 - Are you ready for the unprecedented collision of challenges

Welcome to edition No. 3

Welcome to edition #3 of the Future of Hospitality? weekly newsletter. If you’re a hospitality business leader then you’re in the right place. At the time of publishing, 2333 other hospitality business leaders have subscribed to this newsletter in the last 2 weeks.?

So, if you’ve been following the evolution of this Future of Hospitality? newsletter, you’ll be aware we’re focusing on helping hospitality business leaders like you survive the coming ‘storms’ AND co-create what our industry looks like in the future, based on my 5-Pillars of Success that enable us to have the conversations which will create an industry that’s stronger and better, in the future.

I'm receiving messages like this one almost daily from operators and in this case a very experienced hospitality consultant.

I'm genuinely concerned for not only the businesses that will die but also the leaders who will burn out, get seriously ill (mostly as a result of the stress) and some will die from illness and some from taking their own lives. These are truly unprecedented times.

That's what gets me out of bed in the morning right now. I know first-hand how painful it can be and I'm grateful I'm even here to not only share what I can, but more importantly to share other industry leaders' views too through this newsletter, the monthly live briefings, the upcoming podcast and the strategy development workshops. All are available free. The Universe looked after me a few years ago and I consider this as my 'passion project' and an opportunity to send some good karma back out into the Universe.

Future of Hospitality?

If you want to know more about what the Future of Hospitality? is all about read edition no.1 here and if you want to find out more about the 5-Pillars of Success that our conversations will be based on you can read more about that in edition no.2, here.

In this edition, no.3, I want to give you an overview of the key challenges I believe we will face as an industry in the coming 3-12 months, with some of them already being felt, but likely to get worse before they get better.

I covered these challenges & risks in our monthly live online briefing on Monday 20-June and if you didn’t get to see that and you’d like to, then you are welcome to access the replay here . FYI the next monthly video briefing is on 18-July and you can register for that here .

What are the key challenges that are ‘just around the corner’?

The following challenges are heading our way and we’re clearly feeling pain from some of them already, albeit, we might only be on the edge of the full pain level.

Now, I may be completely overstating the magnitude of some of these challenges. I actually hope I am overstating them. But, I don’t think that’s the case and I don’t want to be the person who later on says I suspected what was coming and I didn’t warn anybody. I want leaders to create strategic conversations which help multi-site groups and individual businesses survive the storm so they can thrive into the future, the Future of Hospitality?.

What concerns me the most isn’t any single issue that’s heading our way, but the fact they all seem to be heading our way at the same time, presenting what could be the biggest ‘car crash’ the industry has ever seen. It’s unlikely governments will bail out the industry because they’ll say the issues aren’t down to them, unlike forced lockdowns etc.

Let’s take a look at some of the challenges coming our way...

I’m highlighting the key challenges with a short overview of each challenge as I see it and I’ll go into more detail for each in future newsletters, video briefings and the next free strategy development workshop that’s being launched to support business leaders wanting to take action now…

Systemic staff shortages

You’re more than likely already feeling the effects of this massive shortfall in the total number of staff required to properly resource the industry. This is a real challenge in Australia, the UK, the US, Canada, NZ and others.

There are some major risks with this challenge beyond the immediate gaps businesses are experiencing in covering weekly shifts.?

First of all, this isn’t a short-term problem and the longer it goes on the more exhausted existing staff will become, and for most, who are earning minimum wage, there are less-exhausting options they can choose for minimum wage work. So, exhaustion, stress and other wellbeing related issues will become an issue for those staff who have remained working in the industry.

Many business leaders are focusing on the problem of gaps in their staff scheduling, with their energy and attention given to covering the gaps. That means energy & attention may be being taken away from actually focusing on the retention of those staff who remained working in the business.

We (and I use the term collectively as an industry, not speaking to any individuals) in my view, are responsible for this problem. We’ve allowed (as with many other industries, but this is ‘ours’) for governments to progressively remove the very ‘rules’ which made our industry a career opportunity with full-time jobs available for those who wanted them. Zero-hour and casual hours contracts seemed like great flexibility when they arrived, but they meant that the people working in our industry didn’t have our commitment to their development and ability to have a secure income and now we complain that they’ve switched industries.?

I suggest that if we want long-term employees in our industry then we’ll need to develop a long-term approach to their careers, and in the short term that means a focus on what strategies we need to implement in our businesses that will ensure we retain our existing staff.

If we think the current staff shortage is a problem, in 3 months' time, when our existing staff are sick and tired of covering extra shifts and their bosses bowing down to less skilled new recruits who ‘fill the gaps’, ignoring the existing staff loyalty and hard work, the problem may be even bigger!

Many of you may not be experiencing this issue and just want to be aware of what’s happening in other businesses but for those who are having major issues right now, the free strategy development workshop will cover some strategies you can implement if this is causing you pain right now.

Rising prices of goods sold

We’re already seeing the memes about lettuce being more expensive than illicit drugs. The reality is that when a chain the size of KFC makes a decision to change an ingredient in its buns from lettuce to cabbage, we might want to pay attention to the overall problem.

McKinsey says food prices to consumers will rise this year between 22% and 44% depending on what happens in Ukraine, the higher increase being greater conflict. Those food price increases are felt in our industry as the wholesale food cost price increases we’re seeing.

It's also worth taking note of the other information in this chart which shows how many humans were put into poverty through food price increases in 2007-08 (GFC) when a 16% increase in food prices put 155 million humans into poverty and in 2010-11 when increases of 11% put 44 million humans into poverty.

This isn’t a one-off, short-term issue and as such, we need a strategic & systematic approach to dealing with what could become the type of annual price increases we’ve seen in recent years taking place on a weekly basis, every week! How do you manage that?

Businesses that don’t address these price rises with a well-thought-out profit AND customer-focused strategy will see short-term cashflow challenges that could indeed be the single reason their business gets wiped out.

From having dish costings up-to-date, carrying out accurate stock counts, identifying cost price increases and acting upon them in a timely manner, the way one changes menu prices and the presentation of menus that may require constant price changes and dishes having ingredients changed, dishes removed and replaced, the free 2-hour workshop offers you some ideas you can implement.?

Rising inflation & interest rates & falling customer discretionary spend

Many hospitality business leaders are telling me they’re experiencing reduced frequency of visits and lower average-spend from existing customers. A few are saying they are as busy or busier, but it’s a few.

McKinsey’s chart below shows discretionary spending decreasing from 35% of income to 26% of income this year. That’s because consumers will be using an additional 14% of their income to pay for essentials. That’s a 25% drop in what they have to spend on things like food & beverages. The sample is from the poorest 20% of European households but provides some context to what’s happening. Interest rates rising, impact those who are better off than the 20% in this sample and have the same overall negative impact on spending in our industry.

Strategies that focus on increasing communication with existing customers, offering bundles and deals that offer perceived greater value may help maintain or certainly reduce the impact of reducing the frequency of visits.?

This RBA chart showing consumer sentiment should be a pretty stark message to anybody relying on consumer spending and especially like our industry, non-essential discretionary spending.

Interest rate rises for home mortgages also mean interest rate rises for small business loans which are already far higher than mortgage loans and more than half of small business loans have the owner's house (home!) as security.

During the pandemic, the banks (did somebody say wolves?) seem to have been told to put on their sheep's clothing. Your guess is as good as mine as to how long those big teeth will continue to be kept in hiding.

This is a big area we cover in the free strategy workshop, so if this is a concern for you please join us.

Supply chain shortages

What could be worse than not having staff to serve customers, having fewer customers who are all spending less and ingredient prices going up in price? Well, you might not get the ingredients you need for your dishes because they’re unavailable!

You couldn’t make this stuff up.

Strategies and systems that enable you to be more dynamic and therefore respond to situations rather than react when things just don’t turn up will help you here. Having alternative dishes already thought through and costed and able to be introduced quickly will help too.?

The big groups can put together project teams with their development chefs, procurement people, operational chefs and general managers to become a little more nimble than they otherwise would be.?

Independent businesses are already under the pump but allocating some time to working out “what if” scenarios might well help deal with potential disasters down the line.?

Again our strategy workshop covers this subject.

Rising energy prices

Could energy costs become more expensive than rent? In the UK energy price inflation is at more than 200% since 2020.?

I predict that in line with staff shortages and rising energy costs many players in the industry will do a complete overhaul of their trading days and times. The objective of the exercise in being in business is to serve customers in such a way as to make a profit and for our industry that means ‘contribution to overhead’ (revenue, less cost of goods less wage costs) needs to be in excess of overheads, at the most basic level.?

For those of you who want to review trading times, the strategy workshop shows you how to consider and calculate the different options you may have.?

Energy blackouts

We are hearing warnings about this, so just be aware that in the middle of dinner service you might end up in the dark. What are you going to do? Keep cooking on gas and use candles? Work out a plan, because it might happen. Know what you’re going to as clearly as what you’d do in the event of evacuating for a fire.?Consider speaking to your 'sparkie' about the best generator for your premises. You can always sell it later.

UK Strikes?

No trains, hospitals and schools closing? Can staff get to work? Will customers in some places be able to get to you? Will deliveries actually happen? I haven’t even got to this one yet, but I’m sure you can see the challenges for you and can prepare for them.

Australian October Budget cuts

In Australia, we’ve been told the cuts are coming in October! Is it ‘cuts’ or is it the Austerity measures we missed out o after the GFC that our UK and US friends felt the impact of?

Time will tell as start to be fed what’s going to happen in dribs and drabs so we’re not surprised in October.?

QT (quantitative tightening) after QE (quantitative easing)

Whilst we’re not really hearing that this is having a major impact on everything above, it is. We’ll talk more about this in future newsletters.?

It’s worth mentioning that the RBA governor said this week that he doesn’t expect Australia will go into recession. Well, actually he said he didn’t “ see it on the horizon”. He introduced the QT-driven higher interest rate increase in May. I expect he wouldn’t want to be telling the population that the decision he just made a few weeks ago might actually drive the country into recession! Better to say he can’t see it happening. Maybe he was underground when he said he couldn’t see it on the horizon. He may well need to be bunkered when the population feels the full impact of the QT decisions that have just been made.?

Ukraine conflict

The purported 'villain' responsible for all our problems. The Russia/Ukraine conflict. Is it impacting most of what’s mentioned above? Yes. Is it the only reason as we might think, from watching ‘the news’? I don’t think so. If it escalates things will get worse. If it ends things will get better. But many of the issues won't go away quickly if it does.

Taiwan threat of conflict

Australians need to cross our/their fingers that China does not invade Taiwan. Things will get worse in Australia if this happens. We will wait and see. The new Federal government may be able to help avert this. Time will tell.?

Further government restrictions due to other pandemics

I’m going to say the word ‘monkeypox’ and then shut up. We can already see global organisations like the WHO talking this up. Be aware. It will become more of a problem if our media makes populations for leaving their homes for anything other than ‘essentials’. Time will tell.?

Your own burnout

My biggest concern is the impact all of these things are having on you and your people. Your health & wellbeing is actually the most important thing in your life, not your business or your job, but I understand that’s not always how we see it.?

I always thought I was invincible and could get through anything until I wasn’t.?

Having risen the big group career ladder to be CEO of a multi-site group and becoming a self-made multi-millionaire, I reached a point where my wellbeing had all but disappeared. External events, different to the ones above, but having the same impact on my body, mind & spirit put me in hospital 5 times in a 12-month period, cost me millions and almost my life and left me with PTSD. It took me 2-3 years to recover my health & wellbeing. It took me longer to recover from the PTSD and I’m grateful because many don’t.

I want you to look after yourselves better than you probably are at the moment. Living in 'hope' that everything will be ok in a matter of weeks and that you can rest, eat & sleep ‘better’ when you’re not so busy & stressed, might not be a realistic view of what we’re about to go through.

Ask yourself if you can take double or triple the pressure you’re under and deal with 2-3 x the level of stress you’re currently dealing with. The lack of proper exercise, sleep, nutrition; the time you’re giving up spending with your partner, kids, family, friends; doing the things you love doing; how much longer can you actually keep doing those things?

In the strategy workshop, I have an element on wellbeing & life balance that I also consider to be one of the 5-Pillars of Success that our industry needs to get right in the future, for a better Future of Hospitality?. But right now, we need to survive the storms. If you need help, join me in the next strategy development workshop and learn how to develop resilient strategies in uncertain & volatile times. It’s just a 2-hour fast-paced workshop where you will actually consider the strategic options you can then discuss back inside your own business with your own leadership/management team or your dog if you don’t have anybody else. If you don’t have a dog, get one!

Action you can take

I’m committed to building a space where hospitality business leaders like you (and I’ve walked in most of your shoes) can turn the headlights onto ‘main beam’ and see the hazards coming our way and create & share strategies and have strategic conversations that help more people survive so they can thrive, than if I wasn’t doing this.

I’m interested in helping get more people through to the other side safely and using the skills, knowledge and experience that 40 years in this industry has kindly provided me with, both the good stuff and the more challenging stuff.?

Please don’t bury your head in the sand and think this is going to go away. The best economists and commentators in the world tell us that these are unprecedented times and they do not know how things will work out. Become a meerkat and look ahead at what's coming and prepare the best you can. For your business, but most of all for the people around you, from family to team, and from friends to community. Let’s be there for each other and get through whatever is thrown at us.

Next newsletter?

This one has been pretty heavy, so next week I’ll lighten things up a bit… :)

Resources

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Disclaimers!

1. Nothing I have mentioned should be taken as Advice for your individual business. The purpose is to encourage you to ask the questions needed to help you develop strategies to mitigate your risk.
2. Forgive me if the language sounds too complex or too simple as I know I'm speaking to a wide audience of hospitality business leaders from entrepreneurs, independent owners & managers, multi-site group general & area managers as well exec leaders & support functions, hospitality consultants & coaches and suppliers. And from all aspects of hospitality, tourism, leisure, F&B and accommodation & hotels. I'm aiming to pitch the content so everybody gets something from it. Feel free to give me feedback by sending me a direct messge.