That’s the view of Tokyo Industries CEO Aaron Mellor who, alongside Arc Inspirations CEO Martin Wolstencroft, spoke at last week’s MA Leaders Club conference.
Mellor also stated Saturday afternoon has become a bigger day part than Friday night as some UK consumers are opting to come out earlier and go home earlier.
Tokyo Industries opened its first site in 1997 and now has 47 venues in the UK plus a further 19 internationally, including in Los Angeles and Palm Springs in California, New York, Croatia and Dubai.
He told the ‘State of the nation’ segment at the conference, which took place at Manahatta in York on Wednesday (19 March): “The past 20 months have been the hardest of the past 20 years.
“We came out of Covid with a boom. And then after that it’s been a steady contraction. We’re finding it harder in midweek but the UK is becoming more of a Saturday night ‘city’.
“Internationally, it’s different. Every night is like a Saturday night. People are there enjoying themselves and spending money.”
Wolstencroft, who founded Arc Inspirations 25 years ago and runs brands including BOX, Manahatta and Banyan, agreed it’s “really tough”.
He added Christmas 2023 was really great but the festive period in 2022 and 2024 were hard. He said the most recent Christmas period didn’t really start until the third week of December.
And added January and February this year have been “very patchy” but admitted it is improving.
He added the UK needs some dry, hot weather because “people soon forget about the recession when good weather comes”.
Wolstencroft also revealed Arc Inspirations is trying to take over a bar company in London and is also possibly targeting Edinburgh, Cardiff and Liverpool but added the sector is “getting tougher”.
April cost hike will ‘kill us all’
The Arc boss argued Millennials are adhering to the reported trend of going out earlier in the day and home earlier but Gen Z are going out later so there is the opportunity to adapt your offer to suit at least two generations.
He added brunches are big for the older generation, beginning at about midday.
Mellor agreed: “More people are going out day clubbing and our second busiest session of the week is Saturday afternoon.”
However, he added there is also a ‘super late’ trade time on Saturday nights and. In days gone by, the afternoon was seen as a “distraction” before Saturday night, it is being treated as two Saturday nights in one day now.
Wolstencroft said of Arc Inspirations’ brunch offer it has changed to suit Gen Z too by offering healthier cocktail options for example – and price has to be considered too.
“It’s about offering a really great experience and elevate it but keep your costs down.”
On the biggest challenge to trading currently, Wolstencroft said: “Probably that costs are increasing. We had about £5.5m profit but the new costs that are being forced upon us will costs about £2.5m so we have to mitigate that somehow.
“We can’t pass it all on to consumers because we know they are having a tough time. We’ve had to make some cutbacks, some redundancies, which is tough.”
He added another challenge is trying to engage the Gen Z audience, who are demanding.
Mellor said the new costs set to come in April will “kill us all” and take £2.8m off Tokyo Industries’ bottom line.
He added a further challenge to the ‘super late’ sector, which he sees as trade lasting until about 4am, is that there are more festivals in the UK than there are nightclubs in the UK and that means big DJ used to charge, say, £5,000 for a 90-minute set, now believe they are worth £30,000.
Mellor added customers want more all the time but for less and less money but you’ve got to create that experience.
He explained: “Telling people via social media that we’re great to come to but that doesn’t count. We need the customer saying that we’re great to come to and then get that reflected value from their friends and their peer groups – that’s quite hard.”
Demand is there
Wolstencroft added: “The new consumer wants it bigger and better and that’s the challenge we need to rise to.
“It’s not enough to have a pint and something to eat, they want to take a photograph of it and share it.”
Conversely, he stated there are opportunities to obtain sites as high street retail and hospitality struggles.
“Even though we’re saying it’s tough and challenging, we still can get very strong returns so the opportunities are there,” Wolstencroft said.
“The demand is there for something to open that’s better than what’s open in that marketplace at the moment and if you can deliver that, the returns are out there – we’re getting above 30% return on investment and we’re getting about £500k profit on each one of our new sites.”
He added operators with struggling sites should “be ruthless” and dispose of them because new cost pressures are creating “depressing” sites and if you plough resources and effort into failing sites, you can end up hurting your flagship venues that are doing well by taking your eye off the ball.
After shedding five venues within the past year, Wolstencroft said Arc Inspirations is only looking at ‘AAA’ sites and operators must not be emotionally attached to those that are producing marginal results.
Mellor said the opportunities are there and landlords are starting to listen because retail is struggling so they are prepared to help.
He said Tokyo Industries is looking into opening a theatre venue in London for its next site.
Mellor said times will get tougher before they get better and the Government’s strategy is the best way for the sector.
Wolstencroft agreed and added operators must cut costs but still deliver that elevated experience and said it is tough to get bank financing because there is a “black mark” against the sector.
However, he said: “We’re quite recession-proof because people still want to go out with their family or have a pint with their mates.”
