The Olympics and beyond

YOU COULD BE forgiven for thinking the streets in London will be paved with gold this summer. The Olympic Games seem to be a silver lining for businesses in the current gloom, as many companies rest their hopes on increased revenue throughout the two-and-a-bit- week period.

With the confidence of a Jamaican sprint relay team, the major retailers, media and leisure companies are unanimous in their belief that profits will pick up in July and August.

However, they are not the only ones hoping for a podium finish come year-end. A recent study conducted by The Telegraph found that 80 companies have already made stock market announcements indicating that they expect the Games to affect revenues; of these, 72 forecast a positive effect.

Interestingly, half of those expecting an uplift are not official suppliers to the Games. Rather, they are expecting more indirect benefits. So what can finance chiefs do to maximise revenue at a one-off event like the Olympics? And – unfortunately a more pertinent question for many FDs – what can be done to minimise losses?

There are lessons to be learned from previous Games. BT surveyed Vancouver businesses following the 2010 Winter Olympics. It found that 40% of businesses reported an increase in sales during the event. Even more encouragingly, two-thirds of organisations prospered during the Games and 60% of businesses reported lasting benefits resulting from investments made in the run-up to the event.

But on the negative side, 38% of private sector companies said they should have taken fuller advantage of the opportunities and, unsurprisingly, the survey found businesses that spent longer preparing for the event saw the most benefits.

For Richard Sumray, chairman of the London 2012 Sports Forum, this last point is vital. “Anything like this needs planning and if you want to make the benefits from trading opportunities, then you don’t do this with a couple of months’ notice,” he tells Financial Director.

Tearing up the textbook
One company that has planned very well for the Olympic Games is H Forman & Son, whose core business is smoked salmon production. Its owner, Lance Forman, a PwC-trained accountant, says that the company’s original premises were located “slap-bang where they wanted to locate the Olympic stadium”. Following a five-year battle, the company moved, but it did not move very far – its new premises are located closer than any building unrelated to the event has ever been to an Olympic stadium.

This could have caused a problem. However, as Forman puts it: “If you read any textbook on how to run a business, it says you should focus on your strengths
and not get diverted. We have done the opposite. We read the textbook and threw it in the bin.”

Instead, the company invested heavily in three brand new businesses, well outside Forman’s core: a restaurant, a hospitality venue and an art gallery. “The fact is that you cannot just expect this thing to arrive and shower everybody with gold. You have to invest to make it happen. So that is what we have done,” explains Forman.

The decision to build a hospitality venue is already paying off. The Olympics organisers’ official hospitality packages start at £7,500. In view of that, Forman’s decided to base price on the cost of the venue, which allows people to bring 200 guests for the same price as it would two, and the company is expecting 8,000 people to use at least one of their businesses during the 17-day period.

“People have been scared off – thinking that unless they are an Olympic sponsor, they are not allowed to do anything. The Games came to London on the basis that it was supposed to be bringing business opportunities to London,” adds Forman.

This level of transformation takes years of planning to accomplish successfuly. However, there will still be a bigger customer base, even for the most unprepared business-to-consumer companies. Oxford Economics has calculated there will be 5.5 million more day visitors during the course of the Games, 294,000 extra overseas visitors and 587,000 extra domestic visitors staying in London. The benefits extend to the rest of the UK, with Visit Britain estimating a record 30.7 million visitors in 2012.

Ed Ainsworth, managing director at consultancy 4C, says that there are issues to consider which can allow FDs to make the most of the bigger consumer base during a major one-off event. “Have you got the competitive offers – such as price promotions – in place, do you understand what your competitors are doing, and are you resourced up? Have you got the stock or the product to make sure you can supply your product?” he asks.

Fool’s gold
Importantly, the benefits can go beyond the period of the Games. “Business organisations are hosting seminars and conferences during the Games because the corporate packages will be bringing people from all over the world, bringing future business benefits,” says Sumray.

In a broader economic sense, a significant number of local jobs have been created, both on the Olympic site and in Westfield, Sumray adds.

For many businesses, however, minimising the disruption caused is the number-one priority – but for Essex Flour and Grain, the damage has already been done. Michael Spinks, the owner of the business, stood for Parliament in protest against the Olympics. “I’d rather have a tsunami,” he says.

Like Forman’s, Essex Flour and Grain was affected by its location next to the Olympic stadium. But, unlike Forman’s, it is a delivery firm, and, as such, it is in a sector that is likely to suffer from a big event such as the Olympics.

“The police will be shutting down roads and we’ll struggle to get our lorries in our premises,” says Spinks. “Your customers need the stuff. If you fail to supply, they’ll buy elsewhere and they have long memories. They may want to have more stuff delivered during the Olympics. Life for foods distribution services is going to be difficult.”

For Spinks, there was only one option – to move the premises further away from the stadium. “I need to put money in the business to equip for another site,” he says.

“There is no hope that the Olympics will bring in more business,” adds Spinks. “It is all tied up with the global giants. All this stuff about giving it to small businesses – we have gained nothing.”

Logistics nightmare
Like Forman’s, Essex Flour and Grain is an exceptional case. But other businesses will face diluted versions of many of the risks encountered by Spinks.

“The cost of logistics is going to go up,” explains 4C’s Ainsworth. “It is going to be harder for trucks to get around.”

London’s already congested traffic will have to contend with the so-called Special Olympic Route Networks throughout the duration of the Games. There will also be limited access to roads, kerbside restrictions, planning conditions and noise abatement measures in place, adds Ainsworth. These actions will not just affect London, as there are Games venues across the country.

Aware of the threat the Olympics could pose to supply chains, some businesses have started preparing for the expected logistics nightmare well in advance. Sainsbury’s started planning in November last year, setting up the correct governance and agreeing the key issues and risks.

“This led to the creation of cross- functional teams, ensuring our suppliers and our internal depot network and stores have robust plans in place,” it says.

“We also engaged with our supplier base and shared with them our plans on a time frame that allows them to plan, prepare, and source the products.”

This creates opportunities for those in the supply chain, and not just for big-ticket items. Banner Business Services, which supplies essential office items, says it has seen an increase in orders as customers start stocking on office essentials in order to avoid shortages or expensive courier costs.

Andrew Macfarlane, chief financial officer of Aer Lingus, says the Games will also affect air traffic.

“As there will be so many visiting heads of state, they will get preferential treatment and exclusion corridors around their flights. It could be that there will be more delays into Heathrow,” he says. And again, this will create supply chain issues.

But for Aer Lingus, the biggest threat to profits is more surprising. “We are expecting business demand to go down. We expect that businesspeople are trying to avoid London because of the congestion – it is hard to get hotel rooms and all that sort of stuff,” says Macfarlane.

Macfarlane has implemented two major changes to mitigate losses: first, to maintain the same timetable but use smaller aircraft; and second, to change its marketing at the time of the Games. “We will be launching marketing campaigns aimed at London residents who want out of London as a result of the congestion caused by the Olympics, and they might want to have a holiday in Ireland,” he adds.

Staffing issues
This highlights another conundrum for FDs: global events invariably create staffing issues. Employees may want to go to London to sample the atmosphere and watch the Games, or they may want to leave London to get away from it all.

Neil Crockett, managing director of Cisco’s London 2012 team, says that managers should turn this into a positive.

“The Olympics should be more fun as well – people should enjoy it. There is a real opportunity,” he says. “People are going to be inspired and motivated by the Games. We found in our survey that only 14% of businesses in London thought about how to inspire staff and not make it a problem. Businesses could consider a television in the workplace, for example.”

As well as short-term inspiration, there are potential long-term staffing benefits. According to the BT survey, 27% of Vancouver businesses are still benefiting from flexible working arrangements introduced to help staff avoid congestion caused by the influx of visitors at the 2010 Winter Games, a trend that stretches all the way back to Atlanta in 1996. “This could be a catalyst for flexible working in London,” says Crockett.

This view was mirrored in a round-table White Paper produced by London-based workplace consultants, AOS Studley.

John Symes, AOS Studley’s workplace director, argues the inevitable commuting problems, instead of posing a massive headache for businesses, provide an opportunity to change working culture and not just in the short term. “The adoption of flexible policies now will bring massive advantages in the future,” he says. “Put simply, employers need to get the best from their most precious asset – people.”

Many businesses have begun planning. Up to 100 London companies took a “stress test” in May, organised by the Canary Wharf Group and Deloitte. Employees worked from home, chose flexible working hours, and changed their travel habits. Companies were advised to estimate their information technology and communications, and transport requirements during the Games.

Again, this is more likely to affect London businesses and, to a lesser extent, businesses in other venue cities. Inevitably, the effect of the Olympics and similar major events will mainly depend on sector and location. Businesses faced with transformational opportunities, in the case of Forman’s, and risks, such as Essex Flour and Grain, will already be aware of them.

But those FDs who will be affected to a lesser extent will need to focus on the basics, aiming for the flexibility of gymnast Nadia Comaneci, the preparation of rower Sir Steve Redgrave and the calculated risk- taking of Dame Kelly Holmes. By exercising these skills, you can ensure that, unlike during the men’s 100m final, the benefits won’t be over in 9.52 seconds.

The Olympic effect

The Bank of England has been talking up the potential economic benefits of the Games, even if the language is subdued.

The UK’s struggling economy, which has slipped back into technical recession, according to ONS figures, is expected to receive a much-needed boost from increased tourism and public spending.

According to the BoE, output is expected to be about 0.2% higher in the first quarter, which could help the UK avoid a fourth consecutive quarter of negative growth.

Unsurprisingly, it is businesses in the capital that are expecting the biggest boost, with 38% expecting a benefit from the Olympics, according to research conducted by Close Invoice Finance.

British tailors Cad & the Dandy have already seen a significant increase in sales, due to tourists arriving in London early for the Games and wanting to buy British.

Across the rest of the country, optimism has been tempered as between a quarter and a fifth of businesses in most regions
are expecting some upturn from the Games. As far afield as Yorkshire, 24% were confident on increased revenue, while those in the South East were the most positive outside of London.

Some benefits will have come from direct involvement with Games infrastructure and supports services. More than 220 Yorkshire and Humber businesses have been awarded Games- related contracts – If is making the official London 2012 bookmarks; Cohen and Wilkes International is supplying children’s clothes; and Stagecoach is supplying buses from depots in Yorkshire.

Businesses around the country not directly involved with the Games should be able to bask in the afterglow of the Olympic Torch relay, which will travel to areas within an hour of 95% of people in the UK on its way to London.

For instance, one Barbican restaurant in Plymouth claimed it had its “best day ever”, thanks to the relay.

Richard Crump