Five ways for the hospitality and leisure industry to adapt to the “new normal”:
Following 6 weeks of lockdown we’ve mastered sourdough (and killed our starter), perfected our cocktail skills, cooked the Pizza Pilgrim’s frying pan pizza and are currently working our way through the Puff school of pastry. Now the narrative in the media has shifted towards “the new normal” that is due to emerge once the current measures are eased, and we all wait with bated breath for the Prime Minister’s address on Sunday outlining the route out of lockdown.
Yet, with a recent poll suggesting that “over half” of Britons would feel uncomfortable returning to bars and restaurants once lockdown has been lifted; hospitality and leisure businesses are going to have to evolve their offering at a rate of knots in order to find their place in the “new normal”.
Below are five ways I’d expect the industry to adapt in order to thrive once measures are lifted:
- Relaxation of Use Classes: As part of the Government’s response to the pandemic planning rules were relaxed to enable pubs and restaurants to operate as hot food takeaways during the outbreak. Post lockdown the expectation is that social distancing will be in place for a while leading to reduced covers in restaurants, when coupled with low levels of consumer confidence operators should consider retaining their new delivery operations. I would also expect the Government to relax a number of planning measures in order to make it easier for businesses to get projects moving as well as future-proofing the system to avoid a repeat scenario. Operators should therefore speak to their landlords to vary the “permitted use” definition in their leases so as to cover the broader range of services they have had to offer over the past 6 weeks in order to survive, and are likely to continue providing.
- Diversification: the necessity to replace lost income has led to the creation of the Pizza Pilgrims Frying Pan Pizza Kit, the Signature Brew Pub in a Box and Bread Ahead bake at home cookie dough together with a host of online quizzes (such as Dabbers Quingo), courses and tutorials. These make-at-home kits and online activities have opened up new markets, and revenue streams to help cushion the impact of reduced on-site sales. Subject to demand the production of the kits could all be managed in house, by existing staff, thereby making use of potentially redundant space and reducing staff downtime.
- Takeaway hatches: restaurant design will need to change as a result of current circumstances with customers increasingly aware of the number of people around them. It will therefore be up to operators to find a way to minimise the number of people entering the site when not dining in, without affecting service. Takeaway hatches would work well in the coffee/to go space but have been trialled successfully by some restaurants, including Patty & Bun and the Holborn Dining Room whose “pie hatch” enables customers to pick up their take away without having to set foot in the main dining room.
- Turnover rent: the fixed overhead of a market rent has led many operators to consider whether this is the best way forward. Whilst turnover rents are frequently seen in the industry, they have not been widely adopted…until now. With turnover rent an operator typically pays a reduced basic/market rent together with a percentage (usually between 7-10%) of turnover as a top up by way of sharing some of the risk with the landlord (i.e. if there’s no turnover then you would only pay the basic rent). Given that landlords also have fixed overheads and mortgage payments it’s unfeasible to expect the industry to move towards a turnover rent only model. However, I would expect turnover rents to become common place potentially replacing a larger proportion of market rent. With this the industry will need to be fully transparent with landlords ensuring turnover data is readily available and shared frequently.
- Pandemic clauses: whilst it’s too early to tell what form these will take, it’s clear that tenants will want to protect themselves against a similar situation in the future. Operators are likely to ask for either a rent free or break clauses, with landlords likely to push for a rent deferment or reduction. Business interruption insurance is also likely to be scrutinised to ensure appropriate cover is in place.
Alex Hutchings is a partner in the commercial property department at CBG Law, and specialises in advising hospitality and leisure operators on all aspects of their property requirements.
If you run as hospitality business and would like to discuss your re-opening options, and the terms of your lease, then please contact Alex at email@example.com or on 020 7462 6961 for an initial discussion.