Written by Charlie Grant, Head of Profit4 Operations, OGL Software
Companies that distribute catering and leisure products, including equipment, packaging, appliances, display units and more, were all under pressure during the recently pandemic but a survey that we commissioned recently has revealed that Brexit and supply chain issues join Covid-19 as being the greatest factors affecting profitability for those distribution businesses in 2022.
The catering industry in the UK is valued at £4.7 billion while the leisure services industry generates over £111 billion of revenue per year. In total the catering and leisure supply business market is significant but this particular combined sector is one that was adversely affected by Brexit. As the end of the transition period coincided with the start of the latest lockdown, it was hard to separate the effects of the two.
Both the Covid pandemic and Brexit hit supply chains hard and necessitated many catering and leisure supply businesses pivoting to online sales. Indeed, he five main factors affecting catering and leisure companies’ profitability in 2022 were cited as the Covid 19 pandemic 53%, Brexit 49%, stock availability 45%, inaccurate data and errors 30%, and manual processes 23%. Events being cancelled or put on hold significantly affected catering businesses.
Digging deeper into coronavirus and its effects, respondents’ business priorities were to improve sales strategy and route to market 85%, a crisis plan in place 81% and effectively manage cashflow 81%.
Back in 2019, when OGL conducted the same survey, respondents cited employee costs 73% as the main factor affecting profitability, followed by inaccurate data 47%, and manual processes and outdated technology – both 40%.
Brexit and manual processes are still in the top five, but unsurprisingly Covid is the top factor affecting catering and leisure businesses this year. Employee cost and outdated technology have been ousted by the pandemic and stock availability.
Insecurity around Brexit is still affecting company profitability at almost half of respondents (49%), which is significantly up from pre-pandemic figures which saw over a quarter (27% of respondents citing it as a key factor in 2019.
The short-term impact of Brexit on the hospitality market overall meant the loss of a great number of employees due to changes in the law. As we moved through the pandemic, the hospitality sector adapted to the changing restrictions, with the proportion of businesses temporarily closed falling from 81% in the spring 2020 lockdown to 54% in the early 2021 lockdown. Consumer spending on hospitality started to increase in May 2021 but remains at less than 70% of pre-pandemic levels. Spending by businesses in the hospitality sector has seen smaller increases compared with consumer spending in May 2021; payments to suppliers from food and drink businesses have remained around half of pre-pandemic levels.
Confidence of business survival in the hospitality sector started to increase in May 2021 but remains below the all-sector level. The pandemic has led to supply chain shortages and a threat as some catering and leisure businesses are stockpiling products and parts to ensure supply to clients. Manual processes are still plaguing businesses leaving them behind the curve with regards to digital transformation, since almost a quarter (23%) cited them as a problem that can lead to potential loss of revenue, and inability to correctly assess performance and sales.
Entering another potentially uncertain economic period with continuing supply-chain issues, the Ukraine-Russia war, cost of living and fuel price rises, catering and leisure efforts to increase profitability are critical. Technology is at the heart of this. 87% of respondents agreed that technology is vital to the efficient running of their business, an increase on 67% three years ago, while 79% agreed that automating business processes helps their companies stay competitive, up from 53% pre-pandemic.
A key finding of the research was the wide spread of technologies used and the disparate nature of systems that are not necessarily “talking to each other” to provide a full view of operations. In the catering and leisure sector more than 95% of respondents use one or more software systems to run their business, from inventory/stock control to accounting software, CRM (customer relationship management) and ERP (enterprise resource planning).
Cater 4 You, a stockist of food packaging, baking, decorating and partyware supplies, glasses and tableware, implemented a new ERP system to manage their processes and help them improve customer service and manage customer expectations, as the Director explains: “We can instantly see if an item is out of stock and we can tell the customer from the beginning and offer alternatives, whether they’d prefer an alternative product, a part delivery or to wait for the next delivery date. The system allows us to avoid disappointment. The demand for products during lockdown put a huge strain on the supply chain – in the first few months of the year our suppliers had done 6-9 months of stock already. This has been tricky for us, but the system has allowed us to manage that.”
62% of respondents saw benefits from integrating disparate systems. 40% listing the main reason to use a single system as reduced administration time, followed by 0% citing integration with third party software and 36% wanting to future proof their business using the latest technologies.
Survey respondents confirmed that eCommerce has grown exponentially, with 87% stating that being able to sell products online easily is really important to them. Additionally, 85% of respondents stated that using an eCommerce platform was an effective tool for managing business operations. This comes as little surprise as businesses shifted online en masse to ensure continued supply.
As the pandemic accelerated digital transformation, cloud computing has been a driver for change, with 77% of respondents agreeing that hosting applications and data in the cloud have improved efficiencies and productivity (or would improve them if cloud were implemented).
Critically ERP systems are a key technology with 70% agreeing that they give greater availability and control of stock. ERP refers to a suite of integrated software that businesses use to manage day-to-day business activities, such as sales order management, stock control, warehouse management, CRM and more.
When breaking down technologies that can make up an ERP solution, inventory/stock control (83%), sales order and enquiry management (83%) and accounting software (83%) were seen as the most effective elements when managing business processes. In a time when eCommerce has grown exponentially, integration with third party software, especially eCommerce, online shopping channels, route planning and online payment methods is key, with 40% citing this as a benefit of using a single central ERP system.
Lifestyle Appliances, a company that sells outdoor hearers, cookers, coolers, lights and much more, implemented a single ERP system, which brought immediate but also ongoing benefits. Director, Frank Spencer, comments: “As we transit out of the pandemic and return to what you might call the “new normal”, practices implemented during the pandemic and lockdown will be maintained as standard working practice as a result of them being recognised as a far more efficient way of conducting our business.”
The main barriers to deploying an integrated software solution were cost, with 47% citing it as a factor, down from 67% in 2019, followed by 34% with business disruption, finding a solution right for their business 30% and 25% with data security. Cost is often associated with the misconception that ERP systems are only for larger businesses, and the lack of information about affordable subscription-based models.
This year’s findings reflect the huge impact the pandemic has had across any business that holds stock. Supply chain uncertainties exacerbated by Brexit and the pandemic have impacted companies’ profitability.
Many smaller businesses just don’t have the ability or money to stockpile products to meet pent up demand, and now with the fuel crisis and war, they are having to take a pragmatic approach to supply customers.
Positively there is a greater degree of acceptance of cloud technology and understanding that ERP systems are not just for larger companies. Manual processes are still a hindrance as are disparate systems, both of which lead to inefficiencies. A single view of a business, especially of inventory levels, and integrated technologies will lead to better profitability, increased productivity and accurate data for planning. Retailers, caters and leisure facilities need to streamline their businesses like never before to ensure that they efficiently and quickly meet demand.”
Access to the full report is here: https://www.ogl.co.uk/profitability-in-uk-wholesale-businesses
OGL Software’s top 5 tips for a successful ERP implementation for catering and leisure businesses
1. Conduct a Business Process Review
2. Review and clean data – take the time to review and clean your customer, supplier and product data to ensure that only quality data is transferred to avoid further complication and data errors.
3. Select an ERP platform based on your future strategy and goals – choose a software solution that will grow with your business and support your needs in the future.
4. Don’t underestimate training – identify super users for each department so they can help to train staff moving forward, while taking ownership of business processes for their department.
5. Choose the right partner – invest in a software provider that can support you and help you to achieve maximum potential from your investment.
NB: survey was conducted in March 2022 and any comparison is to the same questions in September 2019. Respondents were given a number of options for each question.