METRO Xcel (Accelerator) alumni, tsenso test their solution with METRO
tsenso tests their solution in METRO CC in Dussledorf
In the first article of his analysis column, digital analyst Joel Kaczmarek questions the relevance of the METRO Accelerator and looks at its chosen field of action: what are the developments in the gastronomy and hospitality sector, and why are these industries relevant to the METRO Accelerator?
What is the need for another corporate accelerator? Does the accelerator implemented by METRO and Techstars follow a consistent strategy with added value for the participating companies? Or is the venture rather opportunistically driven by the generally widespread trend of corporate accelerators right now? A meaningful concept or a case of “give every CEO his/her sandbox”?
The way to answer this question leads to different strategy questions, the first of which revolves around the chosen section of the accelerator: the target group of restaurants, hotels and other hospitality providers. Gastronomy operators represent an important customer segment for the wholesaler, which is gradually becoming more and more relevant as industrialization of the markets increases. As soon as large B2C vendors, such as Walmart or Carrefour, enter growth markets, such as Eastern Europe, the focus for the METRO is likely to shift more and more towards gastronomy. But what challenges arise in the gastronomy sector that are attractive to solve?
The economic impact of the segment is enormous anyway: a study by Ernst & Young from 2013 (PDF) estimates that the hospitality industry (hotels, restaurants, cafes, catering, etc.) in Europe supports 16.6 million jobs and builds a turnover of more than one trillion euros. Thus, 3.7% of Europe’s gross domestic product and 7.8% of all employees depend on the hospitality industry. Every 13th job in Europe is settled in this segment, and every euro spent here leads to further expenses of €1.16 in other fields. In the individual countries, these percentages are often even more significant.
At the same time, the industry does not have such oligarchic structures as, for instance, the car industry. Instead of few large players, a mixture is in place, where several mid-size system gastronomy chains and thousands of individual restaurants represent a significant economic power with millions of jobs. In one of his presentations, Clipperton Finance estimates that there are 800.000 restaurants across Europe that form one of the largest sub-digitized markets still in existence.
Looking at the large number of independent restaurateurs, it is obvious that they often rather burn than earn money. They often cannot compete with the profit-oriented planning of system restaurateurs. Already in 2005, the Cornell University’s study “Why Restaurants Fail” (PDF) surveyed 21 reasons for the failure of restaurants, which illustrates the complexity of the business segment. Some of the main factors:
All in all, therefore, the operator of a restaurant is too often the operational bottleneck. If the restaurateur fails, the business will be in dire straits. In conjunction with a lack of marketing expertise and poor planning (one of the central cost drivers in the segment is the spoilage rate of food), independently run restaurants can thus very easily burn a lot of money.
And at the same time, the gastronomy and hotel industry is massively cost-sensitive. Above all, the variable costs, such as personnel or raw materials, are significant cost drivers which is why the industry reacts directly to different impacts, be it bad harvests, pay shifts or tax adjustments. At the same time, there are only few levers to save costs, actually only in personnel, material or infrastructure. Consequently, every cost saving leads to a deteriorating product. As a result, the sector has little influence on its own pricing and is hit hard by economic transitions.
Different social developments add up to these economic-organizational factors which further complicate the work of independent restaurateurs:
While the economic crisis in 2008 caused the development of independent restaurateurs to be flattened, a different kind of supplier is gaining market share. The well-organized and cost-optimized system gastronomy has managed to make the restaurant business extremely profitable. The basis for this development is mainly standardized procedures, a uniform offer in many branches, exact employee requirements and intensive training courses. In this way, a massive scalability can be generated, which is spread mainly in urban areas.
Thanks to its high systematization, system gastronomy can also significantly better react to the increased awareness about food contents: allergenic, lactose-free or vegan food are factors that can be handled in a planable manner. The German Hotel and Catering Association (DEHOGA), in its Annual Report on System Gastronomy (PDF), estimates that the Top 100 players in the segment achieved a net sales volume of EUR 12.6 billion in 2015.
And these highly organized chains are also beginning to expand into new gastronomic sub-segments. In addition to burger chains like McDonalds, Hans im Glück, Burger King or Jim Block and pizza stores like Joey’s Pizza, Pizza Hut or Domino’s, there are a lot of specialists, such as Vapiano (Italian), Sausalitos (Mexican), Schweinske (German), Block House (steak), Sushi Factory (sushi), North Sea (fish) or Coa (asian), to name but a few.
Summarizing these developments into a strategic vision, it is quite easy to infer why METRO chose for itself to try to become the “champion of independent businesses”. In the more developed markets, independent restaurateurs provide the bulk of the market but are increasingly displaced by large chains and are often no longer competitive due to different process and structural factors. With a low digitalization, there is a lot of potential, maybe even a need for action.
Food and hospitality therefore represent an investment case which is sensible for the METRO, since the company wants to help those who are fighting hard in this area. Whether this is more than just the indirect rescue of its own target group, which strategy is applied to this segment now by the accelerator and to what extent this is evident will be part of the next contribution.
In his next column contribution, Joel Kaczmarek considers what derivations arise from this systemic approach for digital providers in the gastro area and to what extent the strategy chosen by the METRO Accelerator appears plausible.