Fully booked? ……a cautious way forward…

As much of the Leisure, Hospitality & Travel sector was preparing for an imminent re-opening of some kind, it seemed timely for Hoggett Bowers to host a discussion. We held this discussion with 14 Chairs and NEDs from some of the sector’s most prominent brands, operators and investors. 

In the build-up to our online discussion, it was publicised that c30% of the reduction of UK GDP originated from this sector and as such, it is a vital component to getting the economy moving again.  Against a background of the imminent relaxing of restrictions, especially pertaining to this sector, “fully booked again“ is a welcome signal of what is hopefully to come. 

With the challenge of the previous 100 days of lockdown omnipresent, we encouraged our participants to take this opportunity to share their experiences of the crisis and importantly, explore the opportunities and challenges which lie ahead. As they say, never waste a good crisis. 

 All of our guests have significant experience in the sector and whether it is in travel, hotels, leisure or restaurants, the same issues are being met by leadership teams. As Chairs and NEDs, our guests have a uniquely different perspective on what is going on, compared to those senior executives who are on the front line and in the thick of it. Not surprisingly, many of the comments during our discussion were common to many businesses and so below, we have highlighted the main themes. 

 When a business gets close to zero % revenues, it doesn’t get much worse, so the focus at that point had to be all about “liquidity, liquidity, liquidity”. How a business preserved cash and minimised costs was the central focus in the early weeks of the lockdown. This included not paying rent, not paying tax and other bills, and taking full advantage of every scheme the government had made available. Salary sacrifices and furlough schemes are in place, with some businesses in the sector reporting 99% of the workforce on furlough. Then came the conversations with banks and shareholders to ensure financial resources were available to manage the business in the medium term. 
 
Once banking and liquidity issues were out of the way, it was a case of focusing on what the business is going to look like. A unique opportunity presented itself – to reset the pieces on the chessboard. How can a business reorganise itself to become more efficient? What inefficiencies have we tolerated in the past that can now be addressed? For some it had been an opportunity to address some fondly held beliefs.  

“Can headwinds be converted into tailwinds?” 

During lockdown, businesses have reported an acceleration in technology and digital projects that had previously been put to one side, e.g. in one case the creation of an app which had been discussed for 7 years, was turned around and delivered in 8 weeks. 

 
One thing is clear, digital and technology transformation will accelerate as we go forwards and therefore organisational structures will need to change in order to be fit for purpose. Many businesses are now in consultation; employees will lose their jobs to make way for different skill sets.  

Over the last 3 or 4 weeks, Chairs have re-introduced the concept of the “big hairy audacious goal” in an attempt to stimulate forward thinking by the executive team. 

 The exciting challenge is whether opportunities that present themselves can be taken advantage of – this will include acquisitions, product extensions, diversification and overseas expansion. Many of our contributors supported the ideal of strong businesses having a fantastic opportunity for both organic and inorganic growth. 

 At the bottom end of the market in terms of size, SMEs have demonstrated amazing resilience. However, there are some businesses who are immensely frustrated through little or no government guidance e.g. Gyms, Go-karting and Bowling. These businesses just don’t know when they can restart and there is nobody to communicate with as some appear to fall outside the main categories. This sector is expecting an early 2021 restart but if there was a second wave of the virus then they will be in big trouble. 

At the time of our roundtable, many businesses were absolutely focused on July 4 and the reopening of many establishments in their sectors. Many reported extremely positive numbers in terms of bookings for the opening weekend and short-term booking trends for staycations. However, the conversation needs to move forward with the big unknown being “will consumer behaviour patterns change?” 

It is quite clear innovation will be vital and some have observed small independent companies have done a great job in innovation whilst being closed, finding ways to take advantage of home delivery and takeaway options. Even some of the larger organisations have demonstrated an ability to innovate e.g. betting brands found ping-pong matches in Russia still going ahead and therefore offered an opportunity to bet on them, which was highly successful. 
 
Of concern is the pattern of working in cities and major conurbations. If there is a major shift to more flexible working, this could seriously impact city-based pubs, casual dining and restaurants. 

 There is real evidence that towns are far more robust than cities, where the cautious consumer is starting to come back, and this will take time to play out. 

“Why are rents so high?” 

Rent is one of the biggest outlays for a business and it would appear that about 70% of landlords are being very helpful, with 10% being extremely unreasonable. Surprisingly, the remainder have been unbelievably quiet and have made no contact with tenants whatsoever. 

Should the landlords be more involved, perhaps tied into the trading performance of the tenant’s business and everyone shares the risk? Will the tenanted pub model finally have its day? Should it be turn-over based rent? One size wouldn’t fit all as businesses with very slim margins but high turnovers such as pubs, have tried several methods in the past. Some kind of half-way house to create a true win-win for both parties has got to be the aim.  

Many of the problems are industry-based issues. There must be some recognition that it is the property owners who take the risk and the costs in building the real estate in the first place. Tenants effectively set the rent. When supply of prime sites is tight, tenants are willing to pay more rent. Over the last few years there has been a land grab, this was very evident in the casual dining sector which pushed rents upwards.  There is consensus that at the time of signing the lease agreement, both sides must have felt the rent was fair. 
 
It was hoped that the sector would be given some kind of special treatment by the government in order to get over the current short-term problems, but many agreed the revised Code of Practice which had been written was of little or no benefit. There is no doubt a fairer way forward needs to be formulated and it was generally felt that there will be a lot of pain before such a resolution can be found. 

 “There are not many Eddie Izzards around who can run 20+ consecutive marathons “ 

There is real evidence of executive fatigue and many need a break. In addition to the stretch of their executive role, leaders are wrestling with lots of issues such as working from home whilst home-schooling children and others with extended family around them. It has become more important to understand what’s going on in the leader’s personal life and to be mindful of the additional pressures of carrying the workload of those who have been furloughed. 
 
Many of us have had to learn new skills and re-orientate ourselves in this 2-D world. Two to three hours on a Teams or Zoom conference call is simply too much, so many have decided to break such meetings down into half hour/45 minute chunks and have a break. People have become far more open, patient and tolerant; our social skills have improved, there is an awkwardness in speaking over someone on a video conference which we have all learned to overcome. 

“Authenticity is the word being used regularly when describing successful leaders especially during this lockdown.” 

 Digital transformation is not something that is new, but it has been an uphill battle certainly for the last decade or so, with ignorance of everything digital often worn as a badge of honour. What this period has presented is an opportunity to break away from Victorian ways of working and the light at the end of the tunnel is not a train approaching but a clear gateway to the 21st-century! 
 
The worst experience schoolchildren have to endure is when a teacher tries to deliver a physical lesson using virtual technology – it is the same with business. We simply cannot replicate old ways of working with new technology.  It will require cultural development and many executives will need coaching on how to become truly effective in this way. Remote working is a new way of working and a culture which relies on empowerment and engagement. 

There is no room in this new world for a command and control style management and in this context, middle managers should not be overlooked in this context. They are probably the least confident and therefore the most likely group to exert a command and control style. They are the ones who are likely to need most help. Equally, they are also the generation who is most willing to embrace digital ways of working and technology, this must be harnessed. 

 Conclusion 

The intensity of the activities required to protect businesses in the early days and to ensure longevity beyond the crisis was palpable on the day. It was particularly endearing to hear such candid and open insights across the board and especially comforting that optimism, resilience and innovation are still hallmarks of this great industry. 

There are a few words of warning; not to waste this crisis and more importantly, look after people at all levels of the organisation. The mental wellbeing of the executives and their teams will be vital as we begin a return to some kind of normal. Regardless of the business, re-opening will be slow and difficult.  

We must also retain the new and better ways of working. The speed at which businesses have adapted and embraced technology is impressive and must remain as the new way of working. This will not be easy but reverting to how we all used to work is not an option.  

‘What lies ahead now for most organisations is how we explore the longer-term implications of the cultural and technological change we have experienced in order to help our organisations stay relevant to both customers and employees in what is expected to be a very different world’.  

Dave Coplin, NED at Mitchells & Butlers Plc & former Chief Envisioner @ Microsoft 

Our next event:  

The Rise of the Humans: Dialling into the Future of Work – hosted by Dave Coplin: 

In this session, we will explore how organisations need to rethink our collective definition of “work” in order not just to survive the pandemic, but in order to thrive in all that the 21st century has to offer.  We’ll look at the problems we face, and the mistakes and assumptions we make and how we should be using such technology to reimagine how we live, work and do business. 

If you would like to participate in the Q&A of this live stream, please email us on events@hogget-bowers.com and we will share more details in due course.  

Acknowledgements:

Hoggett Bowers are very grateful to all our contributors and a special thank you to:

Dave Coplin, Independent Non-executive Director, Mitchells & Butlers plc

Ian Bull, Senior Independent Director, Domino’s Pizza Group plc

Imelda Walsh, Independent Non-executive Director, Mitchells & Butlers plc

Jemima Bird, Senior Independent Director, Revolution Bars Group plc

Lynne Weedall, Independent Non-executive Director, William Hill plc

Neil Griffiths, Non-executive Director, City Pub Group plc

Nick Basing, Chair, Ten Entertainment Group plc

Peter Boddy, Chair, Hollywood Bowl Group plc

Peter Roberts, Chair, TeamSport

Richard Segal, Chair, Direct Ferries

Robin Sheppard, Chair, Bespoke Hotels

Robin Rowland, Non-executive Director, Caffe Nero

Susan Hooper, Non-executive Director, Rank Group plc Tony Wheble, Non-executive Director, Feefo