D&D – Preparing for the Restaurant Renaissance

D&D is one of Britain’s leading high-end restaurant groups, with over 40 restaurants, a hotel, a turnover of £150 million in 2019 and over 2,000 staff. Their business is built on a platform of unique, individual venues, with every restaurant, hotel and café on their books boasting its own personality. It’s been an eventful year in the hospitality sector since we last talked with D&D.

When we spoke to D&D last year business was booming and they were full of exciting plans for the future, but the year since then has brought some unexpected challenges. Most notably, the COVID-19 pandemic which has hit the restaurants and hospitality sectors particularly hard.

“It’s a situation that’s evolving every day. It’s not over and it’s happening in different phases,” says D&D co-founder Des Gunewardena.

D&D London, with its Central London focus, has been particularly vulnerable to the effects of the pandemic.

“Overall we’ve been affected more than most restaurant and pub groups. One issue is we’ve got a big Central London focus. 80% of our UK business is in London and that’s mostly central London. Since lockdown, I have worked increasingly from home and a lot of people are doing that,” Gunewardena admits. “Everyone knows London has had a massive drop in footfall, so our reliance on Central London has been a weakness. We also do a lot of corporate events. Our corporate business, plus weddings and birthday parties, exclusive hires, make up about 20% of our UK business and that’s just gone to zero.”

However, Gunewardena is far from pessimistic, believing that the very qualities that are making things hard for D&D now will ultimately prove to be its redemption.

“Those are two big weaknesses which will also mean we’ll have a stronger bounce back than most restaurant groups,” he points out. “We’ve done okay. We’ve reopened all our restaurants in the UK apart from one venue, which we’re reconfiguring. We reopened Alcazar in Paris in September, but we may be going into another lockdown there soon. In New York the situation there is that restaurants have only been allowed to open indoor space until the beginning of October. And now the rule still is you can only open at 25% capacity. You can’t make any money at 25% capacity, so we’re reopening when the maximum capacity goes up to 50% at the end of the month. We’ve survived thanks to our shareholders and banks, and due to government support with reduced VAT and the furlough scheme for our staff. The Eat Out to Help Out campaign in August where the government covered a £10 discount on all meals was a big success.”

The Changing Face of Work

During our last conversation with D&D, one of their most exciting projects was a concept called “Workroom”. The idea was that while restaurants are busy in the evening and at lunchtimes, during the morning and afternoon they are mainly empty spaces. So D&D proposed renting that space out for meetings in the morning and afternoons when there is demand from office workers. It is a business model that feels particularly prescient when the entire nature and continued existence of “offices” seem to be up for debate.

“That is absolutely now where the world is. There is a new normal for offices without any shadow of a doubt,” Gunewardena tells us. “There are going to be fewer offices occupied. I don’t think they’re going to disappear. There will be a combination of working from home and meeting each other and clients, but you don’t have to do that in an office. So I think that’s what we’ll see. It’s bad news for office owners, not entirely bad news for restaurants. There’ll be fewer people in Central London but when they are there they will want to meet people, and why have an expensive office in Mayfair, if you can just meet in restaurants? Why would you have an office if people can work from home, and just need a meeting space?”

While the changing situation offers opportunities, Gunewardena is critical of the way the government has handled some aspects of the pandemic.

“It hasn’t been helpful of the government to make announcements like ‘Go to work’ almost immediately followed by ‘Don’t go to work’,” he says. “They’ve done some good things, but it’s been a shocker watching them pull the levers to reduce infections, they’re a bit all over the place.”

In particular, Gunewardena argues the focus on the hospitality industry as a source of COVID infections has been ill-advised, with little grounding in the evidence.

“Most of the infections are in universities, schools, care homes, not pubs and restaurants, and they’re using extremely flaky evidence that’s laughable, on the basis of which they’re locking down pubs and restaurants again,” he says.

While D&D itself is in a secure position, they are very aware of the impact government mishandling could have on the sector as a whole.

As David Loewi, Gunewardena’s co-founder points out, “The rent moratorium is a major issue. There are going to be a lot of casualties in the restaurant sector if the government don’t do something about it. I’m chairman of the Restaurant Association, and people want advice on what to do because it’s going to come and bite them. They’ve got March rent, September rent and by December it will be nine months of rent due to pay. So there is massive concern out there. Other countries have done something tangible about it, but in the UK it’s still only conversations going on and the problem won’t just go away.”

Investing in the Future

While the challenges facing the sector are real, both Loewi and Gunewardena are adamant that they are not insurmountable. A testament to that is the fact the company has just opened a new restaurant.

“COVID isn’t going to last forever. It’ll evolve or disappear, and restaurants are long term decisions. Our first week’s trading has proved us completely right. Of course, it’s more difficult to open a restaurant with COVID restrictions,” Gunewardena says. “But when the world is full of misery and you open something new it’s a bit of positive news and that tends to capture people’s imaginations.”

Loewi adds, “It’s a time of stress but also a great time of opportunity. We’ve streamlined the way we work, used COVID as a time to analyse what we do, where we are, and how we do it, so we will come out of this a leaner, fitter organisation. When looking for new properties and sites we’ve always had a lot of offers, but now more than ever. This crisis isn’t going to last forever and we’ll come out the other side in good shape.”

“We just negotiated our landlord deals, reduced our costs and opened to be viable at lower levels of revenue. We have got an excellent reputation with landlords and that counts for a lot, meaning we get plum opportunities especially in the UK and the US,” Gunewardena points out. “The plan is for the company to use this period to secure some great sites for new restaurants which we will work on and hopefully launch, post-COVID, post-vaccine. You’re going to see companies like us, and others who’ve also remained strong emerging as bigger and much more profitable companies this time next year.”

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