At the event, which was held at Rooftop Social Club in Chester last week, Piper associate partner Yasha Estraikh, Barclays relationship director Bob Silk and OakNorth director of debt finance Stewart Haworth, met host Ed Bedington to talk about finding funds.
Bob Silk, who has worked for Barclays for 46 years and been involved in the hospitality sector for 27 of those, with all his customers being multi-site operators in the pubs, restaurants and hotels sphere, said: “Some sectors are finding the hospitality market really tough. The squeezed middle of casual dining is very difficult place to operate at the moment.
“In terms of pubs, we’re blessed with the customers we have. For example, St Austell, Hall & Woodhouse, JD Wetherspoon, Fuller’s, Young’s, these are all businesses that invest for the medium to long term.
“They pay particular attention to the three Ps: people, place and product, and their attention to detail.
“Even though there are varied headwinds in the sector, they pay attention to the basics, such as quality of service.”
OakNorth’s Haworth added: “There’s undoubtedly challenges at macro level. It’s probably higher risk [than other sectors] but with really strong management teams, etc, it’s still really attractive for us.
“As a backer of F1 Arcade, which has sites in St Paul’s London, and Paradise, Birmingham, in the UK, Haworth said demand is big in the US too and the younger demographic of customers – with possibly more alcohol-free wishes – could be being more prevalent in five to 10 years’ time.
“They’re the ones we want to try to back and help them scale.”
Pubs of the future
Pub licensees have been told over the past few years the sector is too fragile for investment. Yasha Estraikh, who has been at Piper for 13 years now and is involved with Hickory’s Smokehouse and Flat Iron, which it is expected to exit from within the next few weeks, said: “We’re much more focused on how the business model stacks so labour costs are higher so where else are you going to make that up?
“For us, it’s about deconstructing that business model alongside thinking about growth.
“We love pubs of the future as we call them such as Loungers and Hickory’s so we’re constantly thinking about ‘what is a pub of the future?’.”
Silk told delegates at the MA Leaders Club: “I was going to say that the bigger the business, maybe the better the risk, but that isn’t necessarily the case, because the bigger your business, the more difficult it becomes to be fleet of foot and to innovate because larger businesses tend to be a bit corporate and they can be a bit clunky, which stifles entrepreneurial flair.
“Lower down the scale, you don’t have mass. There aren’t that many pieces of chess pieces to move around the board.
“Are there sectors we completely avoid and that we do not wish to lend to? No but we’ve got selective about it.”
Meanwhile, Barclays’ Silk talked about the dangers of cutting costs in terms of labour. He said: “There’s only so much you can take out of labour. If you squeeze labour, you affect the guest experience and then guest satisfaction starts to deteriorate and then your business starts to deteriorate and maybe all you’re left with is price and that’s really tough.
“Nando’s has told me they’re just applying plus 4% across all their menus while my pub operators Fuller’s and Young’s are doing a lot of very data-driven work in order to better understand the price elasticity of demand.
“With a plate of fish and chips and a pint on a Friday in one location versus another location, just how sensitive is it and how far they can, for want of a better phrase, push it?
Culture of change
“It forces you to adapt and overcome and embrace things like AI (artificial intelligence). One of my pub customers I was talking to has a piece of AI that answers the phone, takes bookings and you wouldn’t know you were talking to a machine so that’s a saving on labour and there’s more examples of this in hospitality.”
When looking to see what to invest in, Estraikh explained: “When things are tough, it’s easier to see and invest in what’s working and what’s not. And when times are really good, it’s a bit harder to see that. At the moment, it’s quite quick to see where the consumer demand is going.
“In terms of growth, one thing is really important for us and that is whether there’s a culture of change and is there an ability to actually grow… where will the business be in four to five years and it often takes a while for certain businesses to get into that growth mode and to build correctly.”
Haworth said he looks at what the ambition is and what the funding will be used for, then it’s about building together and “the more you engage with each other, the better response you are going to get”.
It’s never going to be perfect all the time so what should the lender and borrower do in such cases? Silk said: “Hope for the best but plan for the worst. One of my restaurant customers had a dire April and May and now has a chunky cash requirement.
“So if things don’t go according to plan. What are ‘we’? Because it’s ‘us’ – you wanted to borrow the money as much as I wanted to lend it. What are ‘we’ going to do about it? How are ‘we’ going to get our chestnuts out of the fire?
Estraikh added: “We often have a rally long-standing relationship [with our customers] for about five to 10 years and when things are not going well, seeing how people respond with resilience is a really good sign for the investors because it shows character.”
