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11 August 2022

Opinion from Adrian Leopard & Co

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To discount or not to discount – that is the question
Adrian Leopard 327

To discount or not to discount – that is the question

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Eating out always has been a caveat emptor issue but more so than ever at the moment!

The chancellor’s eat out to help out scheme is now closed. Considering the novelty of the idea when it was announced, it does appear to have been an incredible success with some restaurants saying they have never had a busier August than this one. The scheme has cost a great deal of money with well over 64 million meals being sold.

However, today is the day when serious decisions need to be made – should the scheme be continued by restaurants of their own volition and, if so, on what terms? This topic has excited a great deal of discussion amongst restaurateurs and there are very diverse opinions. Some groups are continuing the scheme on the same basis for a month; some are continuing with a scheme which is “similar”, perhaps with a watered down discount and there are others who are not only refusing to do so themselves but are very forcibly saying that other restaurants should not be doing it either because they are developing a discounting culture which is going to be difficult to stop. Some of the rationale given for differing views is pretty sensible whilst some have views which look a bit more like just shooting from the hip.

Discounting as a form of promotion has been around since time immemorial. Probably it all started in stuffier days in the fifties when shops – yes there were real High Street shops then - had their January sales to get rid of the excess of goods which they had taken into stock for Christmas. This was “the big event of the year” and would bring people queuing up outside notable shops, like those in Oxford Street. Things have moved on considerably since then during the past sixty or so years and the psychology of retailing policies has also been developed to a much finer pitch.

What did the chancellor succeed in doing? Well, he got people out of their houses back into restaurants which was the major aim. He did it by saying he would go halves with them over their meal and, the British people being what they are and liking a freebie, they have lapped it up. The scheme has certainly poured a great deal of money into the hospitality field during August and of course this alongside the other big move, to reduce VAT in the hospitality industry, excluding on alcohol, to 5% from 20%. This is only a six month measure but there is hope and anticipation that the chancellor will decide to extend this, possibly for ever as this would then align the UK with much of Europe where restaurants and hotels enjoy much lower rates of VAT. If that is to happen, I suspect that the autumn budget will be the time when future policy, whether to revert or stay the same, will be made clear.

But I think one thing is probably clear, whilst the plan may have been to tempt people back out and regain their confidence, I suspect that had little or nothing to do with it in reality.

For restaurants, there will always be a need to be competitive and cunning operators will always come up with good ideas for promotions, often on special menu items, or “cheap steak deals” for mid-week days and the like. None of these ideas are new but they are all there to try and drum up trade, just like “Happy Hour” at the bar – and these schemes generally work because everyone likes a good deal! Caveat though because some restaurants also reduced the sizes of portions to optimise their good fortune. Where this happened it did not enamour their customers towards them!

So now that the government scheme has ended, consumers will need to revert to their normal canny view of what value their restaurants and pubs are providing. Things will be different – the reduction in VAT will probably not be noticed as prices rise because the owners of these businesses have a great deal of lost revenue to recover. Of course it will be the customer who ultimately pays the bill and that is pretty much de rigueur because if traders do not get themselves solvent again, they run the risk of going bust.

So for all the fine rhetoric, new normal in this field will probably be no different to old normal. People either will or will not be comfortable in eating out given the problems of Covid-19 and the continuing needs for social distancing and there will be a period of time during which the market will have to settle down to show patterns of trade for the future. But probably there is a high chance that trade levels will not return to pre-Covid-19 levels for a significant time and let’s face it, could restaurants afford to continue to offer £10 per head off the bill on a day to day basis? It is a business with narrow enough margins anyway when you take into account the overheads.

The moral of the story is that if you are running a restaurant or pub, don’t discount just because that is the current vogue – think your costings and your strategy through carefully before you act.

Adrian Leopard 01-09-20

Photo Spencer Davis

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Adrian Leopard & Co is represented in the UK by 3CL (UK) Ltd trading as Adrian Leopard Associates.

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