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New Normal - I believe the post covid reality is going to change that

  • Category : Horeca Community
  • Date : 09-06-2020
  • By : Abhi Tripathi

The term ‘partnership’ is the not part of the HoReCa operators’ . Unlike other industries, where joint-ventures and partnerships between independent companies are part of business strategy, this is certainly not the case in HoReCa.

The reluctance of the many HoReCa operators to make partnerships have three main sources. The first reason is industry specific. Most owners and chefs believe to have created proprietary concept with unique recipes. Making partnerships with any other restaurant will have the high ‘cost’ of  revealing their ‘trade secrets’. This fear is so strong, that prevails over issues like profitability or neighbor’s co-operation.  The second one is business related. Not many HoReCa operators realize to what extend the HoReCa business benefits from clusters. The best model to understand the logic behind that is known as Hotelling’s model of spatial competition. To have a restaurant within a geographical cluster (food court/high street) is more beneficial for all operators than having each restaurant away from each other. Therefore, against the instinct of restaurant owners’, ‘competing neighbors are in fact helping them to make business. So why not to reinforce that? The third is explained by the lack of crisis. Economic prosperity do not lead to partnership but rather to wild competition or self- content. 

Time of crisis is a time of partnerships. The three main reasons blocking partnerships among seemingly competing operations are not relevant anymore. First of all, there is not such a thing as proprietary concept or recipes. Neither of them are trademarked and the industry benefits for improving the ‘neighbors’ recipe. Moreover, the concept of clusters gets another dimension these days. With the lockdown operators suddenly realized that without joining forces with their  ‘competitors’, they won’t be able to re-negotiate a better lease terms with the shopping mall or the city council. They feel even nostalgic of seeing the queue of guests in front of their neighbors’ restaurant. Ways of co-operation that we unthinkable before the crisis become a tangible reality afterwards.

Business partnerships of any kind, are hardly the first choice or ideal scenario for business owners of any field. Why should you share profits and know-how if you can do it by yourself? However, circumstances like lack of capital, need for new technologies, cost reduction, defense against competitors or crisis are catalysers that bring us into business partnerships. It doesn’t matter how well their business did before the crisis. There is no guarantee that their will continue doing well. This is the moment to seriously considering partnership.  

Fortunately, the lockdown for the HoReCa business is being lifted in most countries during the upcoming weeks. However, the end of the lockdown is not the end of the crisis but the beginning of  its’ second stage. Lockdown meant no business for most players. Lifting lockdown means a new business reality. How this reality will look like, time will tell. It is clear, however that it will not look the same.

Legal regulations are going to force HoReCa operators to have less customers per shift and higher costs with sanitary procedures. This is going to make the HoReCa industry even less profitable. To survived, HoReCa operators will need to do two things right away: implement a selling strategy and do partnerships. With less guests on premise, operators need to maximize the value per table.  Partnerships are going to be done with the goal of reducing costs and gaining priceless time.   
Types of partnerships to consider:

Staff- HoReCa is a people’s business. If you don’t have the right qualified staff  you are not able to have a sustainable business. Certainly not in post-Covid era. Guests will be more demanding, staff will have further working constrains (mask, disinfection, etc) with less guests and less tips. It is wishful to assume that higher unemployment rates will solve the staff issue in the near future. It takes a couple of months of on-the- job- training to move a new member of staff, from the ‘zombie’ newcomer stage to a valuable teammate. Therefore, is key to retain best staff members by taking care of them. HoReCa operators should speak open about the current situation of their enterprise, listen to the staff’s opinion and try to keep them employed even at a minimal wage during the lockdown. Staff should keep busy in activities for re-opening (training, new menu, stock taking, etc). 

Neighboring restaurants – Time to think in making co-operation with neighbors. Various type of joint-ventures come to mind. From joint marketing actions to organized purchasing groups. In the last couple of weeks, there have been a number of grassroots initiatives, by restaurant operators, to offer an alternative to large food aggregators.  Time will tell how successful such initiatives are going to be in themselves or as a way to re-negotiate fees with aggregators. A number of buying co-operatives of neighboring restaurants are sometimes the best way to negotiate with suppliers, and to optimize material purchasing costs. Dare to explore such opportunities and to see what others operators are doing.

Suppliers- remember that they also need to reach their sale targets for the year. FMCG companies serving the HoReCa segment also expect to make their selling targets this year (after a slight correction). This is a huge challenge, taking into account that 20-30%  HoReCa operators are at high risk to be out of business. For an unique moment in history HoReCa operators and suppliers are in the same boat, and this is an mutual opportunity which demands partnership approach. HoReCa operators should focus on stock, payments and training support. They should make sure to have  fresh (within due date) stock and to propose repayment plan if they have due invoices. Operators should share their business ideas for the upcoming months. At the same time, they should demand support from suppliers including staff training (selling skills and product knowledge).

Landlords-  decades of high demand for prime locations and rising the rents seem to be over. Premium locations are not a guarantee of high traffic as they used to be before Covid. Therefore, time to re-negotiate lease terms. City councils offer rent reduction programs, and shopping centers tend to agree for reductions/special plans only after tenants get organized in their joint demands. An interesting initiative is to create a ‘traffic success fee’ for shopping centers. If the public traffic returns to pre-Covid levels, then tenants pay contractual rent, until then they have a discount. This might force shopping centers to do their outmost in bringing people in, while keeping sanitary rules.

 In sum, partnerships are becoming now part of business reality in the HoReCa. This should be highly welcome and it will benefit the HoReCa industry as a whole. Before the crisis, to discuss about partnership with neighbors or suppliers, could have been considered a signed of business weakness. Nowadays, however, when almost every stakeholder is struggling there are amazing opportunities for partnerships. In those circumstances partnership is the most business rational way for everyone to play. Even if those partnerships have limited time span.  Speak with your staff, neighboring restaurants, suppliers and landlord.
Crisis give this unique opportunity to try what was unthinkable not long ago. You have little to lose, just try! You won’t get an ‘yes’ if you don’t ask…
By Matias

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