Running two businesses under one roof?

From coffee shop-come-wine bars to restaurant-come-event spaces, the hybrid venue has become a common response for hospitality businesses under financial pressure. Here’s how to make hybridisation work financially.

Venue hybridisation is increasingly described as a trend in hospitality coverage, but the reality is that for many it’s simply a cost-driven survival response. More and more F&B micro-operators are thinking creatively, utilising the space they already pay for to tap into potential new revenue streams. But as Henry Poultney, public affairs consultant at the Nationwide Caterers Association (NCASS), puts it, hybridisation is “not a lifestyle choice”.

“You’ve got bookshops now doing coffee shops, coffee shops now doing wine bars. It’s all a way of reducing the pressure,” he explains. Rising rents, business rates and energy costs have made a single-stream revenue model far harder to sustain. Adding a second income stream like a weekend sublet or pop-up residency can be extra work but also an effective response to rising costs.

Recent Zempler Bank research data backs this up with 62% of F&B operators surveyed actively exploring new revenue streams to ease financial pressure, making it the most common strategic response ahead of technology investment. But what talk of trends rarely addresses is the financial management and discipline a business needs to make it work sustainably.

Track each income stream separately from day one

A coffee shop and a wine bar inhabit the same premises and share the same staff, but they’re financially distinct operations. Their peak periods and gross margins differ. Their stock and licensing requirements and average transaction values are also different. Pooling both revenue streams into a single bank account makes it almost impossible to know which is pulling its weight.

To make meaningful financial decisions about both aspects of a business, you need to track their incomes and revenues separately. That could be through dedicated bank accounts, accounting software or clearly labelled transaction categories. It undoubtedly requires some financial admin to set up and manage, but it will also be the foundation for every future finance decision you’ll make about each.

Katie Linstead, head of services and compliance of tipping and tronc platform Grateful, which works with hundreds of hospitality businesses from independent operators to large multi-site groups, sees hybridisation across her client base. “A lot of our clients are all-day eateries,” she says. “They’ll have a breakfast, there’ll be an option for people to go and work for the day, options for lunch, dinner, drinks – the full spectrum, so that they never really have one focus that could drop.” It makes sense. Focusing on a single revenue stream is a risk in a market where any one format can have a bad season. Spreading your focus across multiple streams reduces that exposure.

It is, however, as Linstead notes, “a lot of work to maintain”. On top of the long hours and extra admin, there are other factors to consider. Menu redesigns, for example, are becoming standard among Linstead’s clients two or three times a year not just to keep things fresh, but to keep prices and margins aligned as the revenue mix shifts.

Know which part of the model is profitable

The first question you should ask is which operations are covering their costs or being subsidised by the other. Without clear financial data, that answer isn’t always as obvious as it might appear.

A coffee shop with high volume might be generating foot traffic but come with low margins. An evening wine bar on the same premises may be quieter but with a better per-head margin. The wine bar might be generating enough revenue to mask the fact that the café would be loss-making in isolation. Lots of scenarios are manageable, but only if you know what’s happening and can act accordingly.

Poultney notes that the “hybrid mentality” of subletting space and hosting pop-ups during hard times is a growing trend among NCASS members as a way to extract yield from fixed costs that exist whether the doors are open or not. A sublet arrangement generates income from a cost – the lease – that needs to be paid anyway. “If you have to pay business rates and the bill's gone up £30,000, then hybridisation is a way of trying to fill that deficit,’ he explains.

That logic is sound, but it’s not always as simple as inviting a pop-up eatery to cover a quiet Sunday. Pop-ups and sublets have different cash flow rhythms. For example, sublet income arrives in payment blocks whereas a pop-up kitchen has daily takings. The timing relative to rent payments, staffing costs and (where applicable) VAT obligations needs to be modelled before you commit.

Price on margins rather than instinct

Moving into a new area with a hybrid business brings inevitable questions around pricing. Typically, operators may look sideways at what competitors charge as a basis for their own prices. Competitive awareness has a place, but the starting point for any new revenue stream should be the margin required to make it worth running. This is never truer than in the hybrid model, driven in most situations specifically as a way to improve margins against fixed costs.

What does the product cost to deliver, including the proportion of fixed costs it carries? What price does that imply? If that price is out of step with the market, the question becomes whether your hybrid model is viable or if it will serve its intended purpose.

In the face of rising costs, the pricing problem is one the hospitality sector has already been forced to confront. Survey data from Zempler shows that a sobering 75% of F&B operators have increased menu prices in the last twelve months in an already price-sensitive market. Maintaining margin discipline for a new hybrid offering rather than relying on greater footfall will determine whether it adds value to an existing business or dilutes it.

Visibility is your best strategy

Finding two operations that can work effectively under one roof is a good start, but it’s how you approach managing them as separate entities that will determine whether the model holds.

Linstead’s observation that menu redesigns happen two or three times a year among well-run hybrid clients is an interesting marker. The businesses keeping margin in focus treat the hybrid model as a dynamic operation rather than a set-and-forget decision. What the offer looks like in March may need to shift by September, and the data to make that call only exists if each income stream is being managed diligently.

A hybrid model adds revenue potential and operational complexity in equal measure. Having the financial discipline to track operations separately, review the numbers regularly, price based on margins and model cashflow for each income stream is what converts that potential into something durable.

Zempler Bank works with hospitality businesses across the UK. We support restaurants, cafes, pubs, food trucks, and more. Our business accounts come with built in tools to help you stay on top of cashflow — from £0 per month. 

What to do before you hybridise

• Set up separate tracking for each income stream from day one.
• Calculate the gross margin for each business independently so you know how each is performing.
• Price new offerings from margin up, not from competitor prices down.
• Before committing to a sublet or pop-up arrangement, model the cash flow timing.
• Review each income stream weekly rather than monthly to stay on top of cashflow.