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In Focus: Challenges for the South West’s food and hospitality sector

by Tommy Correa

As we conclude the Easter holidays, a time to reflect and rest – I discuss my recent trip to the South West where I met with a number of businesses in the food and hospitality sector. Over the course of five meetings with owners and managers, who run restaurants, chains of cafés, kitchen equipment suppliers and ‘experience’ businesses, key recurring themes were discussed and debated – changes to the National Minimum Wage, the accessibility and impact of automation and the affect of rising finance costs on already stretched balance sheets.

The hospitality industry has always played a crucial role in the South West of England. Cornwall, Devon, Dorset and Somerset attract millions of tourists from around the world every year and part of the ‘pull’ is the exceptionally high level of service and quality offering of hospitality. The pandemic had a substantial impact on the sector. Beyond the obvious forced shut downs, with turnover crushed in 2020 and to a lesser extent, in 2021, many businesses have been left with debt on the balance sheet, impairing options for growth. Also, like many sectors across the country, businesses are struggling with recruitment as talent has left the sector and, in some cases, the UK all together.

April 2023 has seen the largest increase to the National Minimum Wage since it was introduced – the full rate rose to £10.42 an hour. Whilst many surely favour this given the cost of the living crisis and spiralling inflation, one of the emerging business leaders, actively opening cafe’s and increasing production at his high-end bakery, Sean Hambly of Just Cornish, highlighted the double-edged sword here- Greater support and motivation for employees is a positive but it comes with pressure for higher productivity and particularly, over the winter months will put pressure on lower yielding segments of his business. In Sean’s view, investing the best equipment and deploying Automation, where there is a sufficient ROI, is an essential part of the solution. Sean was very clear that he wanted to invest in his team but “a focus on productivity, a mindset of continuous improvement and minimal waste” was necessary for growth.

In a labour intensive industry, an extra £1,600 per year, per full-time minimum wage worker, adds pressure. This is especially true given the burden of higher energy and food costs. Sean summed it up perfectly when he exclaimed “even for growing businesses like Just Cornish benefiting from a surge in demand for locally sourced produce, margins are being squeezed so complacency should not be allowed to creep in“.

For Sean, the key to adjusting to a higher labour cost, higher raw material cost reality was investment in transformative equipment and automation“Investing in food production equipment will reduce staff labour costs, increase production, efficiency and allow us to make more Cornish pasties in less time”.

From wrapping and packing to water jet cutting, many of the most time consuming tasks can be easily automated so labour can focus on more productive work. However the UK needs to catch up here. According to a recent Accenture report, only 22% of SME’s have adopted automation – the same survey also found that among those SMEs who have adopted automation technology, 85% reported increased efficiency, and 76% reported cost savings. A search on the equipal marketplace reveals a list of the UKs leading providers of automation, many of whom focus on food production and offer national coverage.

Yes, most business leaders realise the benefits shiny new pieces of kit can bring to their production processes and operations, however what surprised our clients was how affordable and agile purchasing new equipment could be when digitally leasing it. On the equipal app, business customers can secure HP financing at rates of just 5.9% APR with everything processed in minutes.

A successful fishing and sea-tour entrepreneur, Jon Dunn of Paddlefish Adventures, explained how such financial products keep his vessels in tip-top condition. “As a business owner, I prefer to use asset finance to acquire new vessels, engines and equipment. It allows me to conserve my cash reserves, which are essential for managing day-to-day operations, investing in new opportunities or dealing with anything unexpected.” Jon has been big plans for the years ahead but is concerned that rising rates could force him to be reign in his ambitions. This is why funding equipment over a multi-funder platform with competitive rates, such as equipal is essential, and why funding assets using asset finance instead of other forms of finance is key.

It’s true – asset finance offers the Customer flexibility and competitiveness that loans, invoice finance or other director linked finance products simply don’t. With traditional loans, businesses need to provide fairly to meet strict lending criteria, which can be particularly challenging and time consuming for the local SME, from restauranteurs, and catering companies to fishing enterprises. Relying on shorter term finance products invoice finance or finance facilities can be extremely expensive with annual APRs usually exceeding 30% ! With asset finance, title of the equipment is retained by the funder, reducing the lender’s risk, allowing for greater flexibility and making it easier to access funding at more competitive rates, with faster pay-outs.

For Sam Etherington of Kernow Catering Equipment, a fast growing equipment vendor providing restaurants and hospitality businesses all over Cornwall and further afield with leading brands of ovens, washers and other equipment, access to competitive finance at an early stage is essential. “As a recently incorporated business, building our reputation and sales pipeline, it is paramount that aren’t burdened by excessively punitive finance costs – asset finance is front and central on the list of options.”

I anticipate we’ll be dealing with many small businesses this Spring and Summer, who face same challenges to those we met, but who will ultimately benefit from Europe’s most advanced equipment leasing market delivered by the leading fintech in asset finance.