We can get a table inside again – but what’s the long-term future of restaurants? | Restaurants

The top chef: ‘You can’t drop prices to get bums on seats’

Tom Kerridge
The Hand & Flowers, Marlow

Tom Kerridge has spent the pandemic irrepressibly “creating positive vibes”. He threw himself and volunteers from his teams into charitable projects such as Meals From Marlow, which delivered its 100,000th meal in February, and has even taken business decisions for similar motivational reasons. Opening a temporary rooftop garden at Kerridge’s Bar & Grill in London last month created “noise, energy, positivity. It’s definitely not to make money”.

“I’ve tried to take all fear away from the staff,” says Kerridge, discussing the past 14 months. “Filtered all the way through, it’s been, ‘Don’t worry, you’re all safe.’ I’ll be honest, it’s been absolutely exhausting. I’m more tired than if the restaurants are open.”

This week, they will be, and the 47-year-old – fresh from launching Full Time, a collaboration with Marcus Rashford to encourage families to cook cheap, healthy and filling meals – must summon a renewed energy to ensure that his five restaurants and pubs flourish.

Kerridge readily admits he is better positioned than most to work through the “huge debt that small independent businesses, ourselves included, have taken on”. He is a TV regular with a two-Michelin-star flagship, Marlow’s Hand & Flowers. But is he immune from potential closures? Not as he sees it.

If social distancing measures continue past June – a very real fear for owners – all bets are off. Kerridge says that the Coach pub, also in Marlow “is 40 people packed in tight. It has to turn seats three times a day. Reduce capacity by 35% and it doesn’t operate as a profitable business. At the Hand & Flowers, we moved the bar into a temporary flower-filled tent and put more tables in, so we could do the same amount of people – and they’ve been very supportive, but it’s not that complete experience it was built to be. That isn’t sustainable. It could operate at a profit but would slowly die off because, in the end, no one would want to come.”

If that scenario is unlikely (“great, special occasions restaurants will weather the storm”), the issues facing Kerridge’s Bar & Grill in London or Manchester’s Bull & Bear are ones every owner is wrestling with. “They will take the most work,” says Kerridge, as he considers an immediate future of minimal international tourism and fewer office workers in city centres. He is mulling steak nights or BYO wine promotions, if necessary, but: “There’s a particular level we operate at that has an associated cost that we’ll stand firm on.”

Diners should not expect deals this summer. From deferred rents to furlough costs such as national insurance contributions, restaurants have spent more than a year accumulating debt and, says Kerridge: “Because of those debts, I don’t think you can drop prices to get bums on seats.” Many chains work on “minuscule” profit margins, he warns, and: “I’m fearful for even big high street names that try lots of offers. I’m hoping the industry says, ‘this is the true cost of eating out’, and guests are more understanding about it.”

In terms of which venues are most imperilled, Kerridge, presenter of BBC Two’s Saving Britain’s Pubs, puts pubs top of that list. “It’s a difficult sector hugely under pressure before the pandemic. Wet-led pubs, particularly. Many pubs don’t operate at a profit. They’re money pits. There will be closures and quite a few, which is incredibly sad.”

When the “scaffolding” of government support is removed, many restaurants will be similarly stretched. “Hospitality is full of creative people who love the job. It’s an immersive way of life. That’s beautiful. But it’s not cash rich. Can businesses that don’t really make a profit, pay off debt? It won’t be: furlough ends, everywhere shuts, although some will. It’ll be over the next two years that lots of businesses, smaller independents, even bigger names, disappear.”

That “precarious” churn – good sites vacant, deals on rent negotiable – will create, “entrepreneurial opportunity for new businesses. It’s not all gloom.” But beyond opening a very straightforward, 25-seat fish and chip cafe in Harrods food hall next month, Kerridge will not be branching out. “Investing in a new restaurant is not something I’m looking at,” he says, laughing grimly, “most definitely not.”

But he is relishing the fight. Part phlegmatic, part philosophical, he is not brooding on the past year: “It’s been a shit part of owning the business, but it is part of it. I love it all. If we’re back on our feet in 2023, brilliant, but if in 2023 something is going to take a catastrophic loss and we have to shut it, I embrace that. I won’t enjoy it. But it’s part of living life and having a go.”

The restaurateur: ‘I think we’ll trade our socks off’

Nisha Katona
Mowgli, 12 restaurants in England and Wales

For a year, the restaurant industry has existed in a state of nervous exhaustion, clinging on and accumulating debt. In November, identifying restaurants as vulnerable, Deloitte predicted 2021 insolvency rates would top those seen in 2009’s financial crash. But what if that apocalypse doesn’t happen? Or we’re past the worst? Might further hurt be significantly delayed? What if, whisper it, there is reason for optimism?

“I spend my life analysing what any shakeout will look like,” says Nisha Katona, founder and CEO of modern Indian restaurant chain Mowgli, “and those that weren’t going to survive we lost early in the race. Those who’ve survived this far, knackered and out of breath, will find strength because consumers will rally around anyone serving food. I’d love there to be [a new] ‘eat out to help out’ but, from what I’ve seen, I think we’ll trade our socks off.”

Pent-up demand and fewer foreign summer holidays this year will, suggests Katona, boost even seemingly unsustainable restaurants such as neglected chains and over-staffed fine dining spots. Gloomy owners will suddenly see ways of trading out of their debt. “There’s a glorified veil over hospitality,” says Katona, who is opening a 13th Mowgli at Cheshire Oaks retail village in June. “For a year, people are just going to eat out.”

The real crunch point will come in early 2022. Winter is always tough for restaurants, and VAT will return to 20% and business rates kick in again in full that April. According to the ONS, 355,000 people have already left hospitality’s payroll during Covid, but, next winter, says Katona, “is when we see the next tranche of casualties”.

A 49-year-old former barrister, Katona is not naive. To downgrade the current situation from disastrous to difficult, certain conditions and concessions will be essential. The key issue is landlords’ approach to rent arrears accrued during the pandemic. Landlords willing to write off rent are rare – negotiated deferrals or reductions of rent have been more common but some landlords have continued to demand full payment. A lease forfeiture moratorium, which stops landlords pursuing indebted tenants, expires in late June, when hospitality will owe a reported £3bn.

The government is currently relying on landlords to compromise over repayment plans. How many will? Mowgli has paid rent it has been asked to pay and its deferred debts are manageable: “That’s what we model to, realistically. We’re going to be all right.” Many operators will not be so confident.

Despite the prices some landlords are still demanding (“I’m looking for a head office in Liverpool and you would think there hasn’t been a pandemic. It’s unbelievable.”), Katona is nonetheless confident this standoff will resolve itself as, faced with the prospect of mass vacancies, landlords begin to accept they must share the financial hit: “I’d like to think they see how drastic it is. We need a realigned landlord-tenant relationship.”

Would turnover-linked rents be fairer? “It’s an equitable lifeline for many,” says Katona. Instead of a fixed amount, this much-touted solution would see rent charged as a percentage of a business’s turnover – so it fluctuates with that business’s fortunes. But “outside the M25”, where Mowgli has focused its growth and property is cheaper, Katona worries a turnover-rent rate set by the Treasury guided by London businesses could actually increase rental costs.

For now, as Mowgli pushes on to open new sites, Katona is concentrating on negotiating leases with long rent-free periods and long lead-ins, “allowing us to build only when the world is open and liquid”. That openness is crucial to any restaurant recovery. Katona would view an extension of social distancing beyond June, and certainly after the “artificial A&E” of furlough ends in September, as “cataclysmic”. Losing 30% of tables wipes any profit for most operators.

Nationally, but particularly in the capital, Katona is concerned about the many restaurants near travel hubs or business districts which are only viable if staff are encouraged back to offices and to socialise after work. “It’s not enough to draw people in for leisure. The calculation when I put a Mowgli in a city centre, is, ‘Can workers walk to me?’ Not, ‘Where are the theatres, so they can come to me every six months?’”

Overall, however, Katona is unshakeably optimistic, buoyed perhaps because Mowgli had been planning for something like Covid-19 for a while. A “very cautious” CEO, Katona was so spooked by Wahaca’s norovirus crisis in 2016, which temporarily closed nine of the chain’s restaurants, that she accumulated a fund to buffer Mowgli against an emergency shutdown.

In March 2020, she closed her restaurants eight days before she had to and pledged to continue paying her 500 or so staff. “If I wouldn’t want to send my kids to work in a restaurant, I’m not going to put others in that position. The board was absolutely behind me,” says Katona, who, in 2017, sold a “very small” share of the business to investment fund Foresight Group.

She remains prudent. At time of writing, Mowgli was not planning to push indoor bookings for 17 May onwards until the government officially reconfirms the date. At that point, says Katona, bullishly, she could jump on social media and “take 1,000 bookings in the next hour. I’ve faith people will book.”

The street food team: ‘Waiting for passing trade is the past’

Jules and Jason Bailey
Grub, Manchester

On 12 April, hospitality’s grand reopening day in England, Jason Bailey, co-owner of Manchester street food complex Grub, is counting his luck. “It’s only a scrappy car park,” he says, looking at their colourful yard, “but we feel blessed to have outdoor space.”

It seats just 150, where Grub can feed another 250 indoors, but operating one of the city centre’s “biggest beer gardens” has been a lifeline. Less than 40% of licensed venues across Britain have outdoor space, reports analyst CGA, but Grub, based in an old industrial unit, was able to trade last summer and capitalise on the latest restriction-easing enthusiasm. On this April Monday, Manchester is buzzing. There is a queue for walk-ins. Bookable tables are in demand for weeks ahead. “That’s unheard of,” says Jules Bailey, Grub’s co-owner and Jason’s wife. “It’s not just food, it’s human interaction people enjoy. You hope that feeling continues.”

Hopeful is very different to how the couple felt in spring 2020. “We thought that it was all gone, 100%,” says Jason, 40. Helped by government-backed business loans and a sympathetic landlord (Grub uses temporary spaces awaiting development), the business should now survive, if not thrive. Albeit saddled with £100,000 of debt which will leave it “scrabbling back to where we were two years ago”.

The Baileys’ new dilemma, one shared with many growing food businesses, is the necessity to act quickly to secure Grub’s future, at such an unpredictable time. “If people say they know what’s going to happen, they’re lying. Everyone needs to accept uncertainty,” says Jason. “But there’s a lead time to moving out of, or bulking up, in the city centre. You have to start making bets now.”

Grub’s roll of the dice will, ideally, take it in two directions at once. In March, a Lumina Intelligence survey found 86% of hospitality operators think city centre footfall will drop post-Covid. Blame failing retail, lower office occupancy, fewer big events, quieter travel hubs, new homeworkers socialising near home. Even a marginal shift, says Jason, is scary.

He frets about possible long-term decline in Manchester city centre, accelerating an exodus to its suburbs and satellite towns. Ideally, he argues, this summer it would be alive with events, above and beyond existing attractions such as the returning Manchester international festival, with the aim of celebrating the city’s strengths in live music and “vibrant independence”. “Manchester needs a PR campaign,” says Jason, “that says ‘the city isn’t dead’ before it starts to happen.”

But will Grub abandon the city centre? Paradoxically, no. Instead, it is looking at bigger sites, hoping to create a destination attraction. Jason imagines Manchester could support three venues on the scale of 2,500-capacity food and music complex, Escape To Freight Island: “As the crowd dissipates, you need to take a bigger chunk of it. Waiting for passing trade is the past.”

Simultaneously, Grub is searching for suburban spaces, empty MOT garages and the like, where it hopes to operate family-friendly spin-offs, with food traders, a local brewery-led bar, a live music or cinema room. “Give us a car park,” says Jules, 35, “and we can do something.”

In February, real estate consultancy P-Three predicted a post-pandemic boom in such combined food hall and entertainment spaces, as a resilient, low-cost way for councils and landlords to repurpose empty high-street retail units. How many of these will feature high-quality independent traders of the kind Grub showcases remains to be seen. Given the number of street-food traders forced to quit last year (30%, reckons Jason, anecdotally), finding talent could be tricky. Struck by the quality of CVs it is receiving, Grub recently launched a free service, School of Grub, to mentor newly unemployed hospitality professionals keen to start street-food businesses: 209 people signed up to its first session.

Back at Grub HQ, even as the pints flow, Jason remains acutely aware that street-food events will only properly come back to life and economic viability (“last summer, we ran at a third of the income and triple the staff costs”), if the government’s plan in England succeeds and, by June, social distancing ends. No more rule of six. No more table service. No more one-way systems and policing occasional rule-breakers: “Genuinely, one of our biggest personal stresses.”

Only then, when you can turn up, grab a seat, queue at the bar and table hop among friends, will many venues, from Grub to your local pub, recover their magic. A sceptical Jason finds it “unbelievable … that everything’s going back to normal this year”. Everyone, including Jason, hopes he is wrong.