Challenges to Scale & Sale

Hospitality is a sector of great size, diversity and capacity to scale. In the UK alone, eating and drinking out generates a turnover of approximately £63 billion a year, and the landscape of the industry is constantly changing. It is perhaps the industry’s innovation and ability to adapt that has allowed it to thrive in spite of the recession, with new and exciting businesses emerging all the time.

However, while there are many avenues to growth and success, it is a competitive industry coming under pressures from all sides, leaving many businesses carefully navigating their path. Challenges are presented by a number of branding, legal and financial issues.

We recently gathered a group of industry heavyweights at Gill Jennings & Every to discuss these challenges, and their experiences of managing growth and taking advantage of the opportunities available to them.

Challenges facing the hospitality industry

What was most evident from the discussion was that the hospitality industry is facing some new challenges due to external factors. On a macroeconomic scale, Brexit poses a threat to businesses on a number of fronts. Notably on the operational side as many businesses in the hospitality industry are reliant, or at least strongly dependent, on a European workforce.

There is also the complex issue of the legal framework once the UK leaves the EU. It remains to be seen how exactly the EU laws that we currently operate under will be translated into UK law, and the implications of this are far-ranging – from compliance with the impending EU General Data Protection Regulation (GDPR), to food standards and safety.

Closer to home, many businesses are facing narrowing margins due to increasing business rates, the cost of regulatory compliance and rising wages. In response, the industry is evolving through innovation. The traditional British pub, for example, has diversified dramatically over the past ten years. Many pubs have moved into food, where there is a higher margin; others have focused on offering premium products such as craft beer or cocktails; others still have moved down the entertainment route and made themselves destination venues.

Trade marks and international growth

For businesses that have successfully overcome these challenges within the UK, scaling through international expansion often becomes an attractive option. A large number of chains look at franchising abroad, and the horizons are spreading further than ever before for UK businesses. The USA is still a popular route, but within the industry there is a noticeable interest in other markets, including China, India, and the United Arab Emirates.

Every move for a business is a risk, and few are bigger than international expansion. More than anything, success in new markets requires in-depth knowledge of the new region, including how the brand will translate and that it does not carry any negative connotations in the local language. While many brands will have considered their freedom to operate in their home market, they may not have done so overseas – where other businesses might have conflicting IP.

Under no circumstances should a company assume that simply registering a domain name, social media handle, or even a company name guarantees their freedom to operate. They have to make sure they conduct searches prior to launch to ensure there are no conflicting earlier registered or unregistered trade mark rights.

A conflicting right can result in a “brand clash”.  For example a restaurant chain in the UK may not have considered that their recognisable brand name has already been registered in a new market by another business. This will make it much harder to create a niche amongst consumers in the new market.  Over and above this, the significant threat posed by a conflicting earlier right is of an incoming expensive infringement action, which could enforce a brand change that terminates the hope of growth in that market.

This is why trade marks should be high on the agenda when it comes to planning for international expansion. Being aware of the risks and taking pre-emptive action is preferable than lengthy disputes with third parties, which can be extremely complicated, costly, and in the very worst case scenario, ultimately fruitless, not to mention the negative publicity.

Protecting the brand

Consumers are extremely brand-sensitive when it comes to the hospitality industry. Think of any successful international chain – it is evident that their name, as much as their products, décor, or business model, is a vital part of their identity and therefore of great intrinsic value. For the strongest brands it is the name alone that carries weight amongst consumers.

Assuming no earlier marks are located by a search, the next stage would be to secure registered protection, which serves as a strong deterrent to third parties thinking of a similar name.  In many countries around the world it is very difficult, and sometimes impossible, to prevent a third party using a similar mark in the absence of a registration.  A trade mark is also an asset against which an investment can be made and that can also add value to the business in an eventual sale.

Planning for scale and sale

In order to be best prepared to scale, internationally or otherwise, it is imperative that businesses in the hospitality industry keep revisiting their IP protection strategy as their business plan evolves and new markets come in to view.

While there are many challenges facing the hospitality industry, there is also a great consensus that there are many new opportunities – not least in part to those provided by the prevalence of social media and data. The tools for marketing and PR are now largely free, the opportunity for innovation is larger than ever before, with a channel to speak directly to the customer and data to tailor your service to each audience.

As digitally-savvy companies come to the fore, brands will become even more important. By taking advantage of this opportunity, and ensuring their business model is matched by IP due diligence, operators in the hospitality industry can give themselves every chance for success in this competitive and exciting industry.

If you have any questions about this article, or would like to find out more about our event and how trade mark protection can protect and grow your hospitality business in times of uncertainty, please contact Ed Carstairs or call 020 7655 8622.


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