In the last six months, food prices have overtaken rent and rates in the list of major overheads facing UK restaurants, and now come second only to staff wages, finds the fourth Livebookings European Dining Index.
The Index, based on interviews with 200 UK restaurants and supported by industry data, reveals that three quarters (74%) of restaurants cite food costs as the factor that has most impacted menu prices in the last six months, followed by tighter consumer budgets and staff costs. Nearly all restaurants interviewed (90%) reported a rise in their food bill over the last two quarters, and said that in the last six months food costs were the single biggest expenditure to increase.
Moreover, food costs rank higher than any other expenditure for nearly a quarter (24%) of restaurateurs, and come second only to staff costs, which remain the principal cost base for roughly one in three (34%) restaurants. Rent and rates have dropped within the list of outgoings, and compared to the number of restaurants whose highest cost is the staff wage bill, only half as many say the same thing about what they spend on utilities (18%).
UK restaurants react
Extreme weather conditions followed by low harvest yields, which for over a year have been impacting the global price of wheat, dairy and meat, have now filtered through to the UK hospitality industry. Knock-on effects reported by UK restaurants include:
- changing their menus more frequently as they react to price changes
- increasing their efforts to source locally as a way to control costs
- procuring seasonal food
- using lesser-known fish and different cuts of meat.
- re-structuring relationships with suppliers to protect against price changes where possible
- and an increased need for communicating changes to customers.
Maintaining a sustainable profit margin
Colin Tenwick, CEO of Livebookings, says, “They have survived the recent economic decline, and are seeing improvement in the number of customers through the door, but many restaurants operating today are still facing a daily mission to maintain a sustainable profit margin. The rising cost of produce creates a need to constantly reassess their supply chain, and what they offer to customers. No doubt the industry will show its characteristic resilience and creativity to overcome the challenge, and it’s likely we’ll see a rise in things like single concept restaurants as restaurant owners aim to tightly control their cost centres, and protect their margin.”
Cost changes necessitate behaviour changes
Industry experts warn that the problem is unlikely to go away. John Dyson, Food Adviser at the British Hospitality Association, explains: “The cost of food is unlikely to stop rising. The hospitality industry is widely aware of the need to constantly scrutinise their menus to find ways to cut out waste and reduce the costs of the raw materials. It’s important to improve training and skills across the industry so that businesses can manage these challenges. Businesses will also need to understand better the expectations of their customers about quality and quantity so that they can deliver a great guest experience at the right price point.”
Digital channels help restaurants meet customer communication challenges
At a time when restaurants need to make frequent changes, communication with customers becomes ever more crucial. It is notable, then, that in this latest snapshot of the industry, the number of restaurants investing time in cost-effective digital communication channels has actually fallen. In H2 2012, 79% of restaurants said they were actively using Facebook to talk to customers, and 62% using Twitter. In H1 2013, however, this has fallen slightly, to 73% and 48% respectively.
Colin Tenwick, CEO of Livebookings, comments: “In an extremely busy industry like this, it’s easy to understand how short-term distractions mean restaurants get side-tracked and invest less time in longer-term strategy. However, one look at the behaviour of most diners shows the need for restaurants not to neglect these channels. Customers expect communication, and restaurants must make sure they are involved in the online discussion. The real winners from a testing time like this will be those who make the most of the latest technology.”
Growth in online and mobile bookings: not all restaurants responding
The H1 2013 Livebookings Dining Index shows the continued rise in mobile bookings across the industry. By the end of 2012, 33% of online bookings were made on smartphone and tablet devices, up from 13% at the end of 2011. Despite the rapid adoption of mobile and smartphone usage, this area remains lower than expected on the list of priorities for restaurants. Only 40% currently optimise their website for mobile, and only 68% take online bookings. Fewer restaurants have made themselves available for mobile bookings (40%) than are active on Twitter (48%) and fewer are open to online bookings (68%) than have a Facebook page (73%).
Across Europe, reservations made through a mobile device increased by 87% in quarter one 2013 compared to the previous year. The UK has seen the biggest boom in this medium, with more than twice as many bookings made through mobile compared to this time last year (105% year-on-year growth in mobile bookings).
In all markets (UK, Germany and Sweden), the rise in mobile reservations exceeds the growth in online bookings. Online bookings have continue to grow but at half the rate of mobile. In the UK alone online bookings have increased by 40% in the last year compared to a 105% year-on-year growth in mobile.
Many consumers rely on mobiles to communicate with restaurants
“A third (33%) of all online restaurant bookings now comes through mobile devices, a figure that will only rise with the introduction of 4G. The fact is, so many consumers now rely entirely on smartphones for communication and interaction with businesses, that restaurants risk cutting themselves off from both new and existing customers if they don’t join in,” concludes Colin Tenwick, CEO of Livebookings.
About the Livebookings European Dining Index
Unless otherwise stated, statistics come from Livebookings Dining Index. The Index is based on Livebookings and Bookatable online and mobile bookings data, which is provided by 9,000 restaurants from 23 countries. The findings also include insights from 200 UK restaurant owners.
About Livebookings
Livebookings makes restaurants and diners click. It operates a global, web-based restaurant reservations and marketing service, delivering up to one and half million diners every month to over 9,000 restaurants including the leading restaurant and hotel chains in Europe.
Livebookings has recently announced a strategic partnership with Michelin, meaning the MICHELIN Restaurants site will offer diners instant table reservations at thousands of restaurants in France and Germany, using Livebookings technology.