In 2019, the Restaurant Conference addressed:
- The restaurant market from an M&A perspective Read more >>
- The evolution of M Restaurants and Gaucho under the new umbrella of Rare Restaurants Read more >>
- Deliveroo’s game-changing plan to supply ingredients to restaurants Read more >>
- How the #Metoo or #Ustoo movements have affected the hospitality industry Read more >>
- Key insights and trends from MCA’s Restaurant Market Report 2019 Read more >>
- Leadership – the key attributes which are more critical, now than ever, for our sector Read more >>
- The evolution of Carluccio’s after the CVA Read more >>
- The big issues impacting the sector Read more >>
- The importance of innovation at Wagamama Read more >>
- Allergens – practices and protocols Read more >>
- CGA Insights’ view on the current opportunities and challenges in the restaurant market Read more >>
- The journey Pizza Hut Restaurants has been on since the MBO Read more >>
The restaurant market from an M&A perspective
Graeme Smith, AlixPartnersDespite the greater prevalence of distress transactions, investors are willing to pay top valuations for businesses that are best in class, according to Graeme Smith, MD at AlixPartners. On top of large deals such as TRG’s acquisition of Wagamama or the Coca Cola deal for Costa, he said there was also bright spots at the smaller end of the market, with younger successful brands attracting investment interest. “This gives us a market which is almost dumbbell-shaped. It is in that mid-market where volumes are much lower than we have been used to.”
In order to achieve higher valuations, Smith highlighted the importance of getting the strategic fit and the business’ growth story across. Put yourself in the shoes of the potential buyer or investor… what is it that is really going to demonstrate that strategic fit? He said.
International expansion, Smith added, had been another prominent theme in the sector. “The strongest UK brands are very much in demand overseas, whether that’s in Europe, the Middle East or Asia,” he explained, with franchising becoming much more of a focus for operators in terms of how they can take advantage of some of those overseas markets.
The evolution of M Restaurants and Gaucho under the new umbrella of Rare Restaurants
Martin Williams, CEO of Rare Restaurants, spoke about the journey of both M Restaurants and Gaucho and how they are being taken forward under the umbrella of Rare Restaurants.
Following the acquisition of Gaucho in 2018, he first brought in a new senior team and took out a layer of middle management in order to cut down head office costs. Next, he worked on a new look for the brand which reflected its history but modernised it, explaining that they “are refurbishing all the restaurants over the next three years. Each one will be 50% common-design DNA and 50% should represent the geography of the restaurant.”
A new menu – focusing on improving quality – was also created. “We reduced the prices by 10% across the à la carte menu at the time, and introduced a set lunch menu which engaged a new demographic,” he said. “Since around November last year we have enjoyed double-digit cover growth.”
As for the future, he said that the next chapter was very much two-pronged: “How do we continue to evolve the look and feel so we become a premium steak house in the UK once more? And at the same time, how do we open at a sensible rate to continue to demonstrate growth and success, and tap into new markets?”
Deliveroo’s game-changing plan to supply ingredients to restaurants
Ajay Lakhwani, Deliveroo’s VP of new business, took delegates through the company’s move into the world of procurement and its plans to supply restaurant operators, both big and small, with ingredients and other essentials. “We are able to create supplier relationships and use economies of scale to negotiate better prices and quality with suppliers. Once we have done that, we introduce these suppliers to our restaurant partners,” he explained.
He admitted that while the impact its food procurement could have in terms of cost savings from larger operators may not hit the figures of c20% that it is suggesting for its restaurant partners overall, it was still seeing a positive effect on savings for national chains.
Lakhwani also revealed that as part of the food procurement service, Deliveroo would be launching a new app within the next couple of months, which aims to make the interaction between its restaurant partners and its suppliers more seamless. Restaurants will then be able to place orders and monitor invoicing through this platform.
How the #Metoo or #Ustoo movements have affected the hospitality industry
“Banter isn’t a get out of jail free defence”, when it comes to sexual harassment, Lydia Christie , legal director at Howard Kennedy told operators. She stressed that reports of sexual misconduct can have a significant impact on a business – even resulting in its closure – as well as the impact of personal reputation.
“If you find yourself facing a claim of sexual harassment, there is a defence called the ‘reasonable steps defence’. Broadly, you will have a defence if you can demonstrate you have taken all reasonable steps to prevent the misconduct and the harassment or the discrimination,” she explained. Reasonable steps included ensuring that policies were accessible and understood by all employees and that there were ongoing training of managers rather than on-off sessions when they joined.
Key insights and trends from MCA’s Restaurant Market Report 2019
Branded restaurants are expected to see modest sales growth of 1.9% in 2019, amid overall market contraction, according to Jill Livesey , managing director of MCA Insight and HIM , who shared the key findings of MCA’s newly-published UK Restaurant Market Report.
The overall restaurant market is expected to see turnover decline by 3.1% in 2019, driven by large falls in both sales and outlet numbers for independent restaurants.
While the branded segment is expected to see sales grow by their lowest level in a decade, there are pockets of growth in a tough market, with the top 50 branded operators expected to grow sales by the slightly higher level of 2.1%. Certain channels in the branded segment are also seeing much stronger growth than others, with fast food channels and food-led pubs outperforming traditional restaurants, on the back of consumer demand for lower-ticket menus and convenience.
The report suggests there are several levers of growth that operators can tap into, including utilising tools such as social media to bring in new customers, setting out menus and training staff in a way that encourages consumers to order multiple courses, and offering a greater range of side dishes to encourage group sharing. The report also found that NPD levels have been at their highest levels than the previous three years, with strong innovation on spring/summer 2019 menus, particularly with vegetable and chicken dishes.
Leadership – the key attributes which are more critical, now than ever, for our sector
One of the most important attributes of a leader is the ability to take decisive action, according to Alasdair Murdoch , chief executive of Burger King UK . He said that as a leader, you need to know exactly who you are and what you stand for. “You have got to have a clear view on the business you are leading. You have got to earn the respect of the team and people that you work with, and build up that trust both ways with your stakeholders,” he said. “Above all, you need to take action. And that doesn’t mean taking action for the sake for it, it means taking action with purpose – no one likes a ditherer,” he added.
“One of the best things I like doing, and I don’t do nearly enough, is go out for the afternoon with someone running a different business and see the way they do things. It doesn’t mean they are right or you are wrong, but I find you can learn stuff and also share things, as leadership can be quite lonely. You can share some of your concerns or your vulnerabilities that you perhaps can’t share with the rest of your organisation,” he explained.
Murdoch also spoke about the importance of creating a purpose for the business. “Out of purpose can come your five-year plan, next year’s budget, your recruitment of people and how you measure them against competencies, for example,” he explained. “It also needs to be able to be distilled down so that everyone in the organisation can enjoy it and it has relevance, and are not just some words stuck up on the wall.”
To conclude, Murdoch said that one of the biggest challenges he has at Burger King at the moment is the fact they have c.500 restaurants, and a lot, from a brand point of view, are not where they would like them to be. “How do you manage, motivate or incentivise your franchisees to move to that?” he said. “We are trying to drive the standards up across all of our restaurants, the look and the feel, the hospitality that is being given,” explained Murdoch, adding that this was a five-year plan, rather than a one-year play.
The evolution of Carluccio’s after the CVA
Carluccio’s has seen a 35% upswing in like for like sales at restaurants that have undergone its Fresca transformation programme, CEO Mark Jones has told MCA’s Restaurant Conference. Jones explained that the programme, which is live in seven sites, not only involved capital investment, but a focus on elevated food and drink and service.
He also discussed details of the brand’s CVA, which he described as a “brutal process”, after 35 sites were closed, 1000 staff were made redundant, and £100m was wiped from the value of the company. “A CVA is a brutal process for your brand, your customers, your teams. It’s the difference between surviving and going bust. It’s particularly bruising for customers, because all that good brand sentiment can get lost,” he said. “It’s not to be used lightly, nor did we use it lightly. We shut 35 restaurants and lost 1000 employees – though the vast majority ended up in other hospitality roles, and we tried to help as many as we could. Having come through that, we’re in a much more positive place now.”
Jones told the Restaurant Conference that following the CVA, the Fresca programme was a chance to bring the brand in line with how Antonio Carluccio might have made it had he founded it today. “We decided that we needed something that elevated service and food quality, and drove the customer experience back into premium casual dining, because I think we slipped. We’ve seen some fantastic results.”
The big issues impacting the sector
Despite the challenges seen in the casual dining sector, “if you get your proposition right, you are going to win”, according to James Spragg, CEO of Casual Dining Group. He said he had been encouraged by the statistics from MCA’s Restaurant Market Report around the expected growth of the branded restaurant sector. “If you read the papers, you’d think it was absolute Armageddon out there, and people were just going to street food festivals and having Deliveroo at home. The reality of the market is that it is a strong and stable market which has been growing for years. And if you do the right things, you are going to win,” he said. He pointed out that the current situation was no different to what happened with the pub market 10-15 years ago: “It is cyclical – it’s not that people have given up on restaurants.”
The panel, which also featured Richard Morris, managing director, Tortilla; Nisha Katona, founder, Mowgli Street Food; and Matt Snell, managing director, Gusto Italian, discussed some of the challenges faced by operators, such as Jamie’s Italian, and agreed that sensible property decisions were key to a sustainable business. “Jamie’s was a prime example of the issues in the sector,” said Morris. “They took such massive sites and opened with silly numbers. If you actually dig deep, the numbers they were doing at the end were still reasonable but they got themselves into a lot of trouble financially.” To that, Snell added that “landlords are starting to be much more realistic in terms of the deals they are wanting to do.” Katona, who had just signed Mowgli’s 19th lease, explained that its recent University Green site in Manchester “is dead” at the moment. However, they know that with those kinds of sites, it will take a year before they get to where they want to be.
The importance of innovation at Wagamama
Innovation is not just about developing new things, it’s about developing things that customers actually want – and there is a big difference, according to Emma Woods, chief executive of Wagamama. She told delegates that her educational studies and her work in marketing at Unilever had helped form her belief that “proper innovation can be a game-changer for growth”. Woods said she was lucky enough to work for an organisation that over-committed to innovation.
Woods explained that while she sees almost all businesses in the sector being “extraordinarily innovative” when they start off, it’s the businesses that manage to maintain a drumbeat of innovation that stand the test of time. For her, it starts with leadership. Leaders need to be really passionate about innovation and live it on a day-to-day basis. After leadership, Woods highlighted the need to create and nurture an innovation culture. “Truly successful businesses don’t confine the prerogative of innovation to the marketing team,” she said. “This really struck me joining Wagamama. I realised I didn’t need to push the innovation agenda, I needed to nurture a concept called Kaizen. Every day in simple ways we strive to be better than the day before.” She then gave an example of Wagamama’s innovation culture, explaining that some of the best ideas for their vegan offerings had come from involving its team.
Allergens – practices and protocols
“Ultimately, keeping customers safe and providing informed choice should continue to be about two-way communication,” said Jamie Cartwright, partner at law firm Charles Russell Speechlys, on the hot topic of allergens. He said the focus has moved squarely from the food-to-go sector to the restaurant sector and that a campaign requiring full allergen labelling – similar to Natasha’s Law – should be expected for restaurants in the near future.
However, Cartwright added there needs to be wider recognition, particularly from the mainstream media, that allergen information and notifications are just one part of best practice allergens protocol. “There is an inherent danger in viewing a requirement for labelling, whether on packaging or menus, as a one-stop solution to dealing with the issue of allergens,” he said. He pointed out that the adding of full allergen information to existing menus, which already contain a wealth of information, could create confusion and risk information being missed by the consumer. One solution, he suggested, could be to revise menus and make them more standardised across the sector, but questioned how that would impact brand identity and whether it is what consumers really want.
CGA Insights’ view on the current opportunities and challenges in the restaurant market
Consumers are increasingly looking to try new cuisines as we become a nation of foodies, Karl Chessell, business unit director at CGA, told delegates. To illustrate, he highlighted its recent BrandTrack survey that revealed 50% of JD Wetherspoons’ customers consider themselves to be a foodie. People are looking for fresh flavours, he said. “We are seeing quite a large proportion of the population (40%) that would like to try flavours such as pan-Asian (Malaysian, Sri Lankan and Indonesian), Nordic, and Caribbean,” he
explained. In these areas of the market, there is less of an issue around supply, with half the population saying they find these difficult to find, “which suggests there is untapped demand. Therefore if you are in that area of the market, there is arguably more potential for you to perform and to roll out”, said Chessell.
The journey Pizza Hut Restaurants has been on since the MBO
Pizza Hut Restaurants‘ CEO Jens Hofma took the stage for the last presentation of the day and discussed the problems with fast rollouts and how it is possible to over-innovate.
“The moment you start accelerating rollouts unreasonably”, Hofma said, “you inevitably make the wrong decisions on sites, overstretch people capacity and execution starts to suffer.” He highlighted that “breathlessly pursuing new openings” prevents the business from learning from each one, adding that “the larger you get, the more you become a hamster wheel.” However, he conceded that he hadn’t met “too many patient investors out there, who want to take things step by step.” Hofma recognised that one of the easiest ways to grow revenue in the short term was to open more sites, but that this strategy can “become tricky if [it] starts to become a cover for weak underlying performance”. He explained that in the early 2000s, Pizza Hut was opening new sites at a tremendous pace, making sales and profit growth look very attractive. However, he admitted, “digging underneath at like for like performance, the initial signs of weaknesses were starting to show.”
Three years ago, Pizza Hut implemented a system which reviewed 220 practices in the restaurants on a quarterly basis. “We’ve never had more data about our execution,” Hofma said, “and one thing it taught me is that any change takes far longer to embed and sink in than I ever thought before.” He then encouraged operators to be realistic about the level of change their business can absorb. “It’s dangerous when innovation is decoupled from the day-to-day running of the business, as is the case when innovation is done at the top level and the execution is left to others,” he concluded.
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