Guest Blog: Opportunism favours the brave

Myles
Doran
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Posted on
February 1, 2021

With every hospitality sector news update there is further proof that while clearly, we are still underwater, and will be for some time to come, there is also a growing number of start-up vehicles building teams and war chests to capitalise on the inevitable fallout.

As you would expect they are all fronted by industry veterans who have “been here before” so to speak and after a period of inactivity clearly have the appetite to go again, probably with an expedited route to market on improved terms with landlords and investor support.

This is a positive story that will present opportunities for many to recalibrate operating models and formats whilst delivering fresh capital for businesses to develop and respond to the needs of the post pandemic consumer which in many cases will be unrecognisable to the pre pandemic comparable.

There is also an inevitable consolidation journey for the sector to absorb over the next 18 months where “me too” brands morph into one under a larger portfolio business with similar operating brands but with clear geographical gaps in their estate.

There is a potential risk on the horizon however, as such transactions can stifle innovation which historically has been led by the indies and followed by the later adopting national groups and it is also anti-competitive as the sector gets to view performance via fewer lenses, so the consumer loses out and so too potentially does the investor on their returns.

Being a business of scale may not be the right solution for everyone, yes it really helps with efficiencies and procurement advantage but there are challenges around continuing to dial up the consumer experience on scale with relevance and more importantly, consistently.

The same is true for supply chain, survival on wafer thin margins is an art form in the good times so the smaller suppliers, be that route to market or brands who rely on scale to make the P&L work will struggle to see this one out, and the conventional delivery model will need rethinking too with the logistics model already at an unviable structure in its previous guise, so for the market to remain competitive and new brands continue to breakthrough it is vital that support for talented teams who love to operate in the sector is as available.

The on-premise has always led the off-premise in influencing behavioural trends and I don’t foresee that changing anytime soon however a consolidating market will throw up lots of indifferent solutions for businesses with funds and support to grow whilst at the same time will suck a ton of entrepreneurial spirit out of the system as many smaller operators who have been burnt by the experience take time to re build and go again.

The hospitality sector has always been a place where PE houses have “paid to play” with some superb stories on return on investment but there have equally been many that have fell short of the finish line due to brand fatigue, macro events, poor management or the burden of debt through over leveraging.

Buying up assets of brands and businesses that have fell on hard times is in itself not the road to fortune without the talent of the team to evolve the consumer relevance and consistently over deliver on the simple consumer “surprise & delight magic moments” that many takes for granted but in reality, are “retail gold”.

Fasten your seat belts for a changing of the guard.

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Myles Doran is Managing Director of Hospitality Inc. Hospitality Inc is part of Airship's network of Professionals.