Post-Covid, Small Businesses Need to Account for the True Cost of Hospitality

Post-Covid, Small Businesses Need to Account for the True Cost of Hospitality

The management of Crofters Arran, an independent family-run music bar and bistro turned emerging brand on the Isle of Arran, sees the post-Covid environment as a unique opportunity to start with a clean slate and develop a business model that is equitable to staff, employers and customers, while reflecting the true cost of hospitality.

“Our past experience, like that of many small businesses, has been getting squeezed on margins from both directions,” says Dónal Boyle, Managing Director. “We inherited a culture where many of the practices common at our scale of business simply weren’t compliant with legislation. When we began consulting HR experts to put necessary procedures in place, costs went up at once. We want to be a fair employer, so we upped our wages to a living wage. Meanwhile, overheads rose steadily - insurance, electricity, musical entertainment, you name it.”

“At the same time, there is always a downward pressure on margins from competitors. Many businesses like ours don’t have a handle on their actual costs and operate on wafer-thin margins - some on as little as five percent. As we’ve seen in the past year, when the unexpected happens, that’s not sustainable. The small hospitality business formula has been blown out of the water.”

However, Crofters’ answer is not to keep upping prices to cover rising costs, or cut corners or staff benefits to keep the price of menu favourites steady. After all, attracting and retaining quality staff with good employment packages is critical, with 28% fewer people working in hospitality compared to a year ago.

“Small independents need to start thinking like the big boys,” says Dónal. “The seat-of-the-pants approach doesn’t cut it now. The key, for us, is embracing technology and a data-driven, flexible approach to menu creation and pricing that enables us to ensure profitability while maintaining high standards of compliance, HR and customer service.”

As General Manager Ealána Boyle explains further,

“Rather than working top-down to industry-set KPIs, which dictate that gross wages bills should be no more than 35% of overall costs, for instance, we’re building our pricing from the bottom up. We begin with the real cost of everything we ideally need to do the job right, such as fair wages for highly trained staff and fresh, seasonal, local ingredients, then create the best customer experience on the basis of those variables while ensuring a sustainable profit margin.”

The team at Crofters Arran is keen to avoid the fear-ridden mindset that is endemic across hospitality, especially at this critical moment in the industry. For Crofters, accounting for the true cost of hospitality in order to maintain healthy profitability benefits staff, business owners and customers.

“Small businesses need the confidence to take control of costing and invest in systems that will make them sustainable in the long term. It’s about balancing up the actual cost of running the business well, the holistic wellbeing of staff and charging the customer fairly for the experience. We can create a much stronger and more viable industry, while attracting great candidates who live and breathe hospitality,” Ealána concludes.

For more on Crofters’ approach, see part 2: Breaking the Mould: Crofters Arran Disrupts the Restaurant Model

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