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RESTAURANT & CASUAL DINING

INSIGHT REPORT

September 2014


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www.thecaterer.comRestaurant Insight Report| September 2014 2

Restaurants and casual dining: leading

the economy out of recession

It has been a tough few years for the UK economy but theres little doubt thatthings are finally on the up. Restaurants and the casual dining market in par-ticular have been and continue to be a bright spot. Eating out, it seems, is some-

thing the UK population can no longer do without.The picture is not uniform, of course. There are parts of the country and certain

segments of the market that are faring better than others.Thats why we decided it would be a good time to take stock and ask some ques-

tions about where things stand, and where the sector goes from here.In this, our Restaurant and Casual Dining Insight Report, we have done exactly

that. Brought to you by the editorial team at The Caterer, in association with EY, thereport contains exclusive research and analysis of the restaurant and casual diningmarket, looking back over the past months as well as forward to the coming years.

Not only do we look at the performance of various market segments but alsowhat emerging trends and the prevailing economic conditions for the coming yearsmight mean for the restaurant business.

We also take a look at some of the emerging brands that we are likely to see moreof in the future, as well as how the managed pub industry is evolving.

EYs involvement has been key to making this report possible and I am grate-ful to them for their input and support throughout the process.

I hope it will prove to be useful information for restaurant and casual diningoperators, owners and investors across the country, as they help this exciting,vibrant and innovative sector continue to grow.Neil Gerrard

Restaurants EditorThe Caterer

Contents

Welcome message from EY

State of the nation

The economic outlook

New rules of engagement

Managed pubs

businesses to watch

London property: what now?

The Caterer Interview: Eric Bellquist

The view in the US

The way ahead

Contacts


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3www.thecaterer.com September 2014 | Restaurant Insight Report

Bright prospectsT

he combined impact of recession,squeezed incomes, rising foodcosts and the dramatic increase

in the number of branded coffee shopshave resulted in a challenging environ-ment for the UK restaurant and casualdining market in recent years.

However, despite prominent head-lines around the number of pubclosures and the restructuring ofmanaged estates, the restaurantand casual dining sector has weath-ered the recession better than manyconsumer-facing industries. It is nowwell positioned to benefit from theimproving economy, consumer confi-dence and spending power.

Indeed, the Greene King/You-Gov leisure spend tracker for June reported that at %, eating outachieved its greatest share to date oftotal UK leisure spend.

Undoubtedly, considerable chal-lenges remain. On the one hand, withconsumers becoming increasinglydemanding, operators need to stepup their game and be more innovativeand proactive in their efforts to keepestablished brands current, adapt totrends and effectively harness socialmedia. At the same time, many partsof the pub sector in particular arestill suffering from years of under-investment and wage increasesare struggling to keep in pace withinflation.

Nevertheless, we believe that theprospects for the restaurant andcasual dining sector are bright, as

evidenced by the rapid influx of newrestaurant brands and concepts intothe UK in the last year or so, and amarked increase in transactional activ-ity in the sector.

Managed pub operators have rec-ognised the need to diversify, andfood-led estates have dramaticallystrengthened their offerings to com-pete more effectively in the casualdining sector, and in many cases areoffering breakfast and coffee as wellas the more typical lunch and dinneroptions.

Additionally, many prevailingmarket shifts are in the sectors favour for example, the rise of online retailand the resulting shift in shoppinghabits has driven an increase in highstreet retail vacancies. Much of thisspace should be attractive to restaura-teurs and publicans alike, and shouldhelp to create more diversified highstreets, in turn driving greater footfalland spending.

Accordingly, we believe now is theright time to launch this Restaurantand Casual Dining Insight Report, high-lighting how the very best operatorsin the industry are looking to growtheir businesses and are overcomingthe obstacles and challenges posed bysuch a fast-changing environment.

We hope you will find the articleswithin this report both useful andinformative.Cameron Cartmell

Sector Leader, Hospitality & Leisure

EY


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4 www.thecaterer.comRestaurant Insight Report| September 2014

State ofthe nation

SOUTH WEST

WALE

NORTHERN IRELAND

2, 237 2

5,

607

596 1, 421

Casual dining is booming but independents

are losing out, with consumers demandingquality, value for money and consistencyabove all else in 2014.Elly Earlsreports

W

ere eating out more often, averagespend is up in almost every com-mercial restaurant category and,

thanks to our increasing desire for quality,value for money, consistency and social expe-riences, casual dining is the fastest growingsegment in the eating out market.

But its not the only one thats doing well;quick service is growing too, if not quite asfast, while the top end of fine dining hasremained recession-proof, although it hashad to move with the times. Yet, zoom in onthe space in between fine dining and casualdining, and youll find independent restau-rateurs suffering, with sales, average spendand number of visits all on the decline.

Overall, say commentators, its the opera-

tors that are responsive to customers evolv-ing demands that have come out on top, andwill continue to do so.

offers, with the speed and delivery of a quick-

service outlet. Theyre also good familyoptions, something thats top of mind formany consumers in .

Appealing to families has been a key partof the out-of-home markets evolution, saysCyril Lavenant, director of foodservice UK atthe NPD Group. Occasions featuring chil-dren are driving growth completely, withadult-only occasions in decline.

Peter Backman is managing director offoodservice market trends and data providerHorizons, which in contrast to the NPDGroup, includes pubs as well as brandedrestaurants within casual dining, defining

it as the segment where customers spendper meal. He says its the increasingreliability of the branded portion of casualdining that has largely been responsiblefor its growth. They provide good valuefor money but also consistency, he says.

Casual dining: booming

Casual dining is without a doubt the sec-tor that has caused the biggest stir in theeating-out market this year, drawing an extra million visits each year compared withfive years ago, an increase of annual trafficby .%, according to research from analystfirm the NPD Group.

And when compared with the progress offull-service restaurants (defined by the NPDGroup as formal/traditional restaurantsand those serving Greek, Indian, Japanese,French and Italian food, among other typesof cuisine), which have seen traffic declineby .% since year end March , itsclear where much of their business is com-ing from.

So why are diners being pulled away frommore formal establishments to casual din-ing restaurants, which in the NPD Groupsterms include operators such as GourmetBurger Kitchen (GBK), Strada, Carlucciosand Giraffe?

According to the NPD Group, its not justtheir attractive prices. Indeed, despite theaverage bill per visit of around . fora dinner, casual dinings growth has out-paced the cheaper fast-food channel, wherethe average spend per visit is much lower atonly .. Moreover, casual dining is onlyslightly more affordable than the full ser-

vice channel, where bills per visit work outat about ..

Rather, branded operators provide thebest of both worlds, the NPD Group believes the combination of the ambience andquality of food that a full-service restaurant

The concentration of pubs and rest


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You know what youre going to get.Andrew Guy, chief executive of Eds Easy

Diner, agrees. More and more brandedbusinesses are delivering a higher standardof service and quality of product; thereforetheyre more consistent. And theyre grow-ing so quickly simply because the customerfeels theres a sense of guarantee, he says.

On the other hand, independent oper-ators in the mid sector of the market havenot fared so well, with sales, average spendand visits all decreasing. Sadly, independentrestaurants have not been able in the main toidentify a really good reason why customersshould go to them, rather than a casual din-ing restaurant, believes Guy.

Todays consumer: price conscious andtime sensitive

The quick-service sector is also on the up,albeit not quite as fast as casual dining, with.% traffic growth in the last five years,according to the NPD Group. And, says VidaTayebi, founder and director of fast casualPersian restaurant Dindin Kitchen, this isfor many of the same reasons. Todays ever-demanding consumer is price conscious andtime sensitive, so the sector resonates wellwith the modern-day consumer, she says.Fast, casual concepts have a quality propo-sition on food while putting an emphasis on

value for money, which is welcomed in theUKs recessionary climate.

The format is also associated with fresh-ness, with food being prepared freshly orcooked in front of the customer, enablingthem to customise their dishes made to

Almost 50,000 pubs in the UK

The latest research from Horizons showsthere is a total of 23,514 restaurants(excluding pub restaurants) and 49,953 pubs(including pub restaurants) in the UK. Of therestaurants, around 27% are part of groupsand 73% independents, while pubs aresplit more equally between the two with36% of pubs belonging to groups and 64%independent.

Across the UK, the highest concentrationof restaurants is in the capital (nearly 6,500,compared with around 600 in Wales),

while the North is the most popular forpubs, with more than 13,000 comparedwith approximately 7,400 in London.

Source: Horizons

SOUTH EAST

MIDLANDS

NORTH

SCOTLAND

4, 418 13, 100

3, 413 11, 079

6, 468 7, 436

11, 363

9

Pubs

Restaurants

LONDON

Eating out sales up 2%

since 2013

In the year ending June 2014, the eating outmarket, including quick-service restaurants,retail, casual dining, pubs, full-servicerestaurants, travel and leisure, and workplaceand education catering, was worth 50.4baccording to the NPD Group, an increase ofnearly 2% from the 49.4b of the year before.

And, taking into account just the commercialrestaurant sector, every category experiencedgrowth, apart from full-service restaurants,whose sales declined by 0.8%. The mostsignificant increases came in the casual diningsector, where sales were up 5.5% from 2013,

quick-service coffee shops, which experienceda growth rate of 3.7% and pubs, up by 2.9%.

Source: NPD Group

Carluccios

ants around the UK

REXF

EATURES

SOURCE: HORIZONS


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Average spend down for

over-50s, up for youngsters

Although overall average spend on food anddrink has increased since 2013, consumers

arent spending as much as they were during

the evenings, and the over-50s are spendingless, full stop, according to research by the

NPD Group.Overall, average spend per visit when

eating out is up just 0.7%, from 4.54in 2013 to 4.57 this year, but at the

younger end of the market its increasing

much faster; in both the 18-24 and 35-49categories, spend is up 3.8%. However,

those aged 50-64 have cut their spendingby 5% on average, while those over 64 are

spending 6.4% less than they were in 2013.

When it comes to eating out in the evenings,spend is down for everyone except the 35-

49 year olds who are forking out on average6.84 for dinner in 2014 as opposed to

6.58 last year.In terms of different restaurant types,

average spend per visit has risen in every

category except full-service restaurants andtravel and leisure. While its risen relatively

slowly in the quick-service sector, withquick-service food up from 4.38 in 2013 to

.4.41 this year, the most striking growth isagain in casual dining where average spendacross the whole day is up from 9.69 to

9.97 in 2014. Even in this sector, though,spend remained pretty much static in the

evenings at around 11.50.

Source: NPD Group

order and has thrived due to its diverse audi-ence appeal from families, to students,office workers and tourists.

Operators in this space, such as Dindin

Kitchen, as well as the increasing number ofstreet food vans that are popping up acrossthe country everywhere from shoppingcentres to music festivals, also satisfy con-sumers increasing cravings for somethingauthentic and different, Tayebi believes.The market for new concepts continues toexpand with a recent trend in undiscoveredcuisines, such as Persian food, she notes.

Fine dining: doing brilliantly

At the opposite end of the market, fine din-ing continues to do brilliantly, according toBackman. They didnt have a recession;

they just carried on, he says. Yet operatorsin this seemingly evergreen sector have hadto evolve to keep up, says Frances Atkins,co-owner of the Yorke Arms in Yorkshire,which was ranked third in The Sunday TimesTop UK restaurants in .

Casual dining is becoming so good inYorkshire that fine dining has to work a lit-tle harder to produce the same value, sheexplains, adding that the style of service cus-tomers are looking for has also changed.

As a business, you tend to change withyour guests, and the general public is nowlooking for unobtrusive but attentive servicewith probably less formality, she notes. Butthe demand for quality is more prevalentthan ever and eating habits are also becom-ing more exploratory, with people wanting totry new things.

Scott Ashby, group operations director atThe Social Company, agrees: The currentmarket is packed with great competitionand an educated diner seeking to be wowed,which is tremendously exciting for us all.

More meals out but lower spend

Looking at the market purely from theperspective of customer spend, the latestfigures from both the NPD Group and Hori-

zons show average spend across the major-ity of commercial restaurant categories hasincreased over the last two years.

According to Horizons, average food and

The general publicis now looking forunobtrusive butattentive servicewith probably lessformalityFrances Atkins, the Yorke Arms

beverage spend per meal (when taking intoaccount restaurants, quick-service restau-rants, pubs and hotels) went up from .in to . in , while the NPDGroups latest research also shows increasesin all sectors except full-service restaurants.

Says Lavenant: Customer spend isincreasing every year. Aside from the purelyinflationary reasons for this, we have seencustomers treating themselves out of home,

but cutting out non-essential trips.Up until the beginning of , we were

seeing a decrease in the number of visits, butan increase in average spend. Now both areincreasing as consumer confidence and theeconomy are recovering. Average spend onan out-of-home visit (all channels) is .,up from . in .

Horizons latest Eating Out-Look surveyof consumers, which took place in June, and uses a different methodology tothe NPD figures quoted above, however,tells a slightly different story, showing onaverage there has been an increase in meals

eaten out, but a decrease in average spendper meal over the last year.

It shows on average over-s ate out .times in June versus . times in June, but average spend per meal was .in June , compared with . a yearEds Easy Diner

Gourmet Burger Kitchen


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Casual dining traffic

fast on the up

Restaurant and casual dining Restaurant and casual dining

Overall, were eating out more often, with thenumber of visits to restaurants in the UK upby 1.3%. Eating out chains are doing muchbetter than their independent counterparts,while casual dining outlets, again, are seeingthe most significant growth, and not just overthe last 12 months.

According to the NPD Group, while visits tocasual dining restaurants over the last year

are up 2.6%, traffic has increased (as of theyear ending March 2014) by an incredible11.6% compared with five years ago. Thatmeans 47 million more visits to casual diningrestaurants now than in 2009.

Back to the last 12 months, visits to chainsare up from nearly 5.6 billion in 2013 toalmost 5.9 billion in 2014, while visits toindependents are markedly on the decline,a decrease of nearly 3%. In fact, across theboard, excepting full service restaurants,visits to chains have increased, while thenumber of consumers visiting independentoutlets is down in almost every category,

with the only exceptions being quick servicesandwich outlets/bakeries and full servicerestaurants.

Source: NPD Group

their eating out experience, says Lavenant.Value here is not referring to cheap, but acombination of factors such as price, promo-tions and customer experience. We are see-ing customers dropping visits where this isnot provided.

Ashby believes the social aspect of eatingout is also becoming more important. Themodern diner searches for excitement, dif-ference and creativity and feeds off the abilityto uncover something a little bit new. Restau-rants are now both the provider of tasty foodand drinks as well as a social experience.

Jonathan Segal, CEO of international hos-pitality company The ONE Group, agrees:Informality, interaction and sociability areall increasingly important; people are look-ing for an all-encompassing experience, andso the atmosphere, vibe and energy of therestaurant have become as important as themeal and the service.

Its the operators that are nimble and canrespond to these changing priorities, hebelieves, that are succeeding and will con-tinue to succeed in the future for example,casual dining restaurants. Where, histori-cally, concepts have been rigid and less ver-

satile, today the casual dining sector is farmore responsive to providing what custom-ers are seeking, rather than working to a sin-gle classic product, he says. This plays tothe increasing trend for guests to seek highquality but informal dining occasions.

before [June ], says Lavenant.People are eating more meals out but

the average spend is less because the mealstend to be lower priced. This arises because,during the recession, people cut back onimpulse things and reserve eating out for aspecial occasion or a Saturday night. Now,theyre trending back into the idea of letsjust have something.

Responding to customer expectations

Across the entire spectrum, there are a fewaspects of the eating out experience that

todays consumers simply wont accom-modate. Consumers are increasingly look-ing for both value and quality (or at least thesemblance of both) expecting a lot from

0

2

4

6

8

10

Workplace/

Education

Travel&Leisure

TotalNSLFSR

Pubs

CasualDining

Retail/

Supermarket

QSRCoffee

QSRSandwich/

Bakery

QSRFood

YE Jun 13

YE Jun 14

Workplace/

Education

Travel&Leisure

TotalNSLFSR

Pubs

CasualDining

Retail/

Supermarket

QSRCoffee

QSRSandwich/

Bakery

QSRFood

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000 YE Jun 13

YE Jun 14

ALL DAYPARTSAverage individual spend per visit

Total out of home2013 4.542014 4.57

Total out of home2013 49,391,5602014 50,376,670

SALES (000s)

Giraffe


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The economic

outlookThe UK restaurant and casual dining sectoris starting to recover but how will the widereconomic backdrop affect it in the comingmonths and years? Bill Fishlock reports

Restaurants and food-orientated pubshave done nicely from the recovery inBritish consumer confidence over the

past months. After a tough recession,business has been brisk at many eating anddrinking spots as the stronger jobs and hous-ing markets have encouraged families andindividuals to spend more on dining out.

The nature of the recovery is also helpingthe restaurant/pubs sector. Total incomesare rising through growing employment which creates more potential diners anddrinkers rather than rising wages, whileinflation is being kept in check through anexpanding workforce.

Overall employment is up .% on the yearwhile average earnings have risen by just.%. According to the Summer Forecastfrom the EY ITEM Club which uses theTreasurys model of the economy we cur-rently have the best of both worlds: con-

sumption growth, which is financed byincome rather than borrowing, accompaniedby low inflation and interest rates.

Spending powerCrucially for the restaurant/pubs sector,consumers are also expected to continuespending more. After a .% rise this year,consumer spending is forecast to grow by.% in , by .% in and .% and.% in the following two years.

A rise in interest rates will act as a brakeon demand as higher mortgage payments,particularly for families, will impact on the

budget available for treats like eating out.Assuming wage rises remain subdued, theEY ITEM Club Forecast expects interest ratesto remain on hold at .% with the first risecoming in the first quarter of . There-after, it sees Bank Rate reaching .% by the

end of and .% by the end of .Yet, the impact of higher rates on the

restaurant and pubs trade will not be uni-form. Elderly people a key market for manyvenues, particularly at lunchtimes will seean increase in income from their savingswhen interest rates start rising. Older con-sumers will also tend to be less indebted andmany will be less exposed to rising mortgagerates. The governments social trends sur-vey shows that % of - year-olds eat outin restaurants, the highest share of any agebracket.

Moreover, even in an era of rising rates,the outlook for the economy remains good.The EY ITEM Club is forecasting UK GDPwill grow by .% this year and .% in and at a similar rate for the next three years.

The prospects for average earnings arealso positive for the dining out sector. The EYITEM Club expects growth in average earn-

ings to gather pace from .% this year to .%by . As this is faster than the expected rateof inflation, it suggests real wages should con-tinue to grow, providing support for the dis-cretionary spending on which the restauranttrade depends. Record levels of employmentand the continuing growth of the populationshould also help the sector.

The growth of branded dining

Many smaller restaurants and food-led pubsfaced leaner times during the recession butthe overall market fared better than expected.Today, some % of UK consumers eat out at

least once a week and comparisons with theUS where spending on eating out is higherper head suggest there is room for furthergrowth in the market.

Dining out has also become more fre-quent. According to Mintels latest UK Eating

Outreview, there has been a slight rise in theshare of restaurant users who eat out once aweek and a dip in the share only eating outevery couple of months. Mintel estimates theUK eating out market will be worth .b in, up from .b last year.

Nam Quach, head of the leisure sector forlead advisory at EY, said: Restaurants on the

whole have proven to be remarkably resilientin the downturn. Discounting has helped butthe challenge now is for the sector to weanitself off this, which will drive up margins.

The market for dining in the largerbranded chains like The Restaurant Group owner of Garfunkels, Frankie & Bennysand Chiquito is thought to be expandingat around % a year as their popularity, par-ticularly among younger consumers, contin-ues to grow. The Restaurant Group is aimingto grow by around / new sites a year.JD Wetherspoon, Prezzo and Dominos havealso been expanding.

The UK market for dining across brandedchains is thought to be worth around

.b currently, but is expected to grow tob over the next five years. Indeed, recenttrading updates from the larger quotedfood and pub groups point to buoyant under-

22bthe predictedrate of growthin consumerspending in 2015

the valuethe branded

dining market is expected toreach within five years2.3%

Byron


9/24


Share prices

Share prices in some of the publicly quotedrestaurant and food-led pub groups havebeen spectacular performers in recent yearsas branded chains such as Dominos Pizzahave established a strong presence and larger

pub and brewery groups, notably Greene Kingand JD Wetherspoon, have taken advantage ofscale economies and the growing fashion foreating out. Share prices across the licensedretail sector rose by an average 37% in 2013and according to broker Numis Securities

some 30% of this was due to a re-rating asinvestors warmed to the sector.

In recent months, fears about higher interestrates have taken some of the shine off thesector although shares prices have risen in

response to positive trading updates over thesummer. Investor enthusiasm for Dominos,for example, peaked in summer last year whenits shares touched 710p (having climbed fromaround 160p towards the end of 2008) andthey currently trade at 589p.

lying demand in the sector.Unveiling annual results showing a %

rise in like-for-like food sales, Greene KingCEO Rooney Anand recently said: Thereare now clear signs that both the UK eco-nomic outlook and consumer confidence are

improving although consumers continue tospend cautiously.

Meanwhile, food sales at Fuller, Smith &Turner rose by more than % in the year toMarch and like-for-like sales at JD Wether-spoon increased by .% over a -week period

to early July, although sales were slightlyweaker during the World Cup.

Independents v groupsToday, there are around eight times moreindependent restaurants than chain out-

lets, providing scope for consolidation inthe sector and deal activity as the largergroups streamline their brands and cut debt.Last November, Gondola sold its upmarketburger chain Byron (pictured above) andTragus is currently selling its Strada chain.

Quach at EY says: There has been andcontinues to be a great deal of activity in thesmall to mid-cap restaurant space, largelydriven by private equity. Investors are look-ing for good management teams and scal-able growth concepts, which can be rolledout across the country and beyond. Banksare also increasingly comfortable with lend-ing to the industry, which has driven dealflow and valuations.

Simmering anger over VAT on foodThe % VAT levied on meals bought inpubs and restaurants and on other food ser-vices is a major bone of contention for therestaurant and food-led pubs sector.

According to the Jacques Borel VAT Club,a group of firms that lobbies for a lowerVAT rate to be applied to the sector, the flatrate puts pubs and restaurants at a disadvan-tage to alternatives like supermarket readymeals. It argues that if the rate on food ser-vices were reduced from % to %, it wouldcreate , to , jobs and wouldactually boost Treasury receipts. A separatecampaign by the British Hospitality Associa-tion is lobbying for a lower VAT rate for hotelaccommodation and tourism.

Supporters of th eJacques Borel VAT Clubinclude Tim Martin, chairman of JD Wether-spoon, and other major pub/brewing groupsincluding Fuller, Smith & Turner, Heinekenand Wadworth. The campaign highlights thesectors potential for creating new jobs, not-ing that licensed hospitality accounted for onein eight new jobs created in and one insix for - year olds. The sector also gener-ated .% of new business start-ups.

The VAT Club also makes its case withcompelling overseas examples. When theVAT rate on restaurant meals in France

was cut from .% to .% in July ,employment in the sector rose by ,over the following two years (although theVAT rate has since risen to %). Ireland, Bel-gium and Finland have all cut their VAT rateon foods services, with positive results ontrade and jobs.

But there seems little likelihood of thecampaigns achieving their goals in the UKany time soon. Despite cross-party supportamong MPs for a reduced rate during aCommons debate on the subject earlier thisyear, Treasury minister David Gauke saidthe government had no plans to introduce

a VAT cut for the sector. He pointed to ONSfigures showing cutting VAT on food inrestaurants, pubs and cafs would cost theExchequer -b a year. The Labour shadowexchequer secretary also declined to committo a VAT cut.

3.8%31%the proportion ofUK consumerswho eat out atleast once a week

the predictedgrowth in

averageearnings by 2018


10/24


New rules of engagementSocial media has revolutionised the way restaurants market their businesses,making engagement rather than discounting a priority. Elly Earls reports

Thanks to the growth of social media andmobile technology, all restaurants nowneed in order to reach potential cus-

tomers is a smartphone.Consumers growing love for all things

social has revolutionised the way businessesmarket themselves, putting start-ups andstreet food vans on an equal footing with thebiggest restaurant chains. Money is no lon-ger the key to success; engagement is.

Yet, although the barriers to entry are low,its not easy to get social media marketingright, particularly with todays customerstiring of their Twitter and Facebook feedsbeing filled with discount vouchers and in-your-face promotions. Its really impor-tant to remember social media platformswerent created for businesses to use; theywere meant to connect people, says SamLynas, marketing and digital account direc-tor at food and drink PR and marketing firmSauce Communications. The most enjoy-able feeds are the ones that are the most hon-est, fun, friendly and informative.

Hashtag to engage customers

Take Shake Shack, which started embrac-ing social media two and a half years ago.Since then, weve experienced double-digitand even triple-digit growth across sev-eral social media platforms including Face-book, Instagram, Twitter, Tumblr, Pinterestand Google+, says the companys direc-tor of communications Edwin Bragg. Thisis largely because the team has used social

media not to push vouchers, but to connectwith its fans.

The most successful parts of our socialmedia strategy have definitely centred

Dont underestimate the

power of the database

Social media is not the only way restaurants

can use technology to engage with andencourage loyalty from their customers.

Chameleon Bar & Dining has found that

maintaining a healthy database of previouscustomers for each site and communicating

with them regularly is invaluable.

Its a great tool for increasing bookingsand the traffic to all six pubs websites hasalso risen so far this year by an average

of 21% compared with 2013, explains

managing director Phil Strong. Eachcampaign sent is linked to Google Analytics

and we closely monitor the stories that aremost popular with readers.

At Eds Easy Diner, the companys online

Eds Club has been phenomenally successful.It now has nearly 450,000 followers online

and is adding between 5,000 and 7,000people a week, according to chief executive

Andrew Guy, who emphasises that members

of Eds Club receive vouchers only a coupleof times a year. The rest of the time, theyll

get Eds news, which includes new openings,charity events weve held, silly pictures and

our monthly Eds quiz.

around our fans, with one of the best being#ShackFanFriday, where we repost an imageeach week that a customer has shared withShake Shack.

At Chameleon Bar & Dining, which oper-ates six pubs across Yorkshire and Lan-cashire, its been a similar story.

Since changing the way we have usedsocial media, incorporating more visual con-tent and including links back to the websites,weve seen a noticeable increase in traffic tothe websites from social platforms, which wetrack, says managing director Phil Strong.

You can also see far more conversationsunfold between users and the sites, partic-ularly in response to images being posted,whether thats of the food, views, the team oran event, he adds.

A picture is worth a thousand wordsAccording to Alexandra Bertram, senioraccount executive at marketing, PR and com-munications specialists Custard Communi-cations, images should be a key part of anyrestaurants social media strategy. Humansrespond well to visual stimulation, which iswhy were always emphasising the impor-tance of quality images, she stresses.

Research published on eMarketer inApril this year reported photos achieved the

highest rates of engagement on Facebook,accounting for 87% of content shared world-wide, followed by web links at just 4%.

Although, it is important for restau-rants to post a variety of content. Generalnews and events all help spur conversa-tion, which in itself helps sell the restau-rant without being too in your face, saysBertram, adding that, of course, there is atime and place for the hard sell. We recom-mend that for every one promotional tweetor post, there are roughly three non-sales-orientated messages to balance it out.

Money is no longer the key to success;engagement is

3:1Three non-sales-orientated messages forevery one promotionaltweet, message or post

THINKS

TOCK


11/24

11www.thecaterer.com

With pubs accounting for two out of thetop three brands that people would like morelocally, pub foods share of casual diningspend seems secure.

The rise of managed pubsPub food has changed beyond recognition in the past few decades to grab asignificant share of the casual dining market.John Porterreports

It all began with prawn cocktail, steak andchips, and a slice of black forest gateau the classic menu choice at Berni Inn, the

brand that defined the pub restaurant andgave many UK consumers their first taste ofcasual dining in its s and s heyday.

Most of Bernis sites still trade as pub res-taurants, under the names of the brandsthat followed its lead, such as Beefeater,Brewers Fayre, Harvester, Chef & Brewerand Toby Carvery. Far from being upstartsparking their tanks on the lawn of casualdining, managed pub operators have beena driver of the sector since its earliest days.While the range of choice available to con-sumers has expanded, the appeal of the pubhas never faded.

A Mintel report found that pubs arethe first choice when eating out for % ofconsumers. Horizons data shows that man-aged pubs accounted for .% of restaurantmeals in , up from .% in .

What has changed in the past decade hasbeen the number of pubs offering food, asoperators have sought new revenue streamsto compensate for declining beer sales andchanging customer demographics. On-tradeanalyst CGA Peach estimates that as of August, % of managed pubs serve food and that% of people who have visited a pub brand inthe last six months did so for a food occasion.

Smaller managed operators such as PeachPubs and Yummy Pubs find neglected gemssuitable for adding a food trade, while con-cepts such as Mitchells & Butlers Sizzling

Pubs and TCGs Kings Feast have success-fully added branded food to local pubs.

The growth of pub food

However, the growth of food in managedpubs has not been simply a matter of graftingmenus onto previously wet-led businesses.The majority of traditional pubs suitable for apub restaurant operation had been convertedto brands such as Chef & Brewer, Harvesterand Hungry Horse well before the smokingban and recession spotlighted the vulnerabil-ity of the old-fashioned boozer.

For the bigger operators, success now

comes mainly through engineering theirestates. For example, JD Wetherspoon spe-cialises in identifying town centre buildings,most of which were not previously pubs, bigenough to accommodate its through-the-day food offers as well as drinks-only cus-

Casual dining brands consumers

would like more locally

Major managed pub players

Nandos 8.4%JD Wetherspoon 7.6%Harvester 7.0%TGI Fridays 6.6%Wagamama 6.4%Toby Carvery 6.3%Bella Italia 3.8%Pizza Hut 3.6%Pizza Express 3.5%Frankie & Bennys 3.4%Source: CGA Peach Brandtrack April 2014

Greene King1,000 managed pubs includingthe Hungry Horse, Old English Inns and Meet& Eat brandsFood sales41% (up from 36% five years ago)

Marstons500 managed pubs, including theTwo for One, Milestone and Carvery formatsFood sales58% (up from 37%)

Mitchells & Butlers1,700 managed pubs,including Harvester, Toby Carvery and Miller& CarterFood sales51% (up from 41% five years ago)

Spirit Pub Company770 managed pubs,including the Chef & Brewer, Taylor Walkerand Fayre & Square brandsFood sales278m (year to 17 August 2013)

JD Wetherspoon900 pubs. On total sales of1,280m in the year to July 28 2013, like-for-like bar sales grew by 3.8%, compared withfood like-for-likes up 10.9%

Whitbread400 pub restaurants, includingthe Beefeater and Brewers Fayre brands. Inthe year to 27 February 2014 restaurant saleswere 526m, up 3.9% year-on-year

tomers. Marstons has built more than new destination pub restaurants over thepast five years, many in drive-to sites closeto main roads. Whitbread, which once oper-ated one of the UKs biggest pub estates, haspared back to focus on pub restaurants trad-ing alongside its Premier Inn hotels, with itsdisposals including a package of pub res-taurants sold to Mitchells & Butlers in .

Despite vastly increased choice when eat-ing out, when asked by the CGA PeachBrandtrack survey in April this year which eat-ing out brand they would like to be more localto them, % of consumers put a pub res-

taurant at the top of their list, compared with% who wanted a restaurant brand. WhileNandos topped the poll with .% of the vote,pub operator JD Wetherspoon was a close sec-ond with .%, with the Mitchells & Butlers-owned Harvester brand third with %.

September 2014 | Restaurant Insight Report


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brands to watchAcross the country, the UK restaurant and casual dining market is bouncing backand there is a wide variety of brands offering an extensive and diverse rangeof cuisine styles, each hoping to establish themselves as a national presence.TheCatererteam selects 10 brands to keep an eye on in the coming years

BURGER & LOBSTER

Burger & Lobster started life in . An off-shoot of Russian-owned steakhouse groupGoodman, it opened in Mayfair, London. Runby schoolfriends George Bukhov, Ilya Demi-chev and Mikhail Zelman, there are now sixrestaurants in London, with one due to openin New Yorks Flatiron District in November.

The trio were planning a burger restaurantand a separate lobster restaurant concept. Theydecided to combine the two, importing lobsterfrom Nova Scotia in Canada and Nebraskanbeef. The simple format, which allows diners

to choose from a burger, lobster or lobster roll,all at the same price, proved an instant hit. Thebusiness now generates twice as much turn-over and profit as the Goodman steakhousebrand. Bukhov hopes for more overseas open-ings if the New York site goes to plan, whiletargeting UK cities like Manchester, Leeds andBirmingham for expansion.

The best thing about this business is weare able to work with some really great peo-ple, some fun personalities and just enjoy thejourney really, says Bukhov.

Number of sites6

Owners George Bukhov, Ilya Demichev andMikhail ZelmanYear founded2011Turnover 27m (predicted for 2014 calendar year)EBITDAundisclosedAverage spend per head25-27

CAU

Cau is the more casual, accessible little sis-ter of steak restaurant group Gaucho, havingbeen launched in by Gaucho ownersZeev and Patsy Godik.

Although it is still owned by Gaucho Hold-ings and backed by private equity firm ISG,it is operated as a completely separate busi-ness. Taking its inspiration from Argentinecuisine and South American street food withMediterranean touches, the business hasseven sites, six in the UK and one in Amster-dam in Zeev Godiks home country. More

are planned, with a site in Londons Wimble-don Village set to open in autumn this yearand another in Henley-on-Thames also dueto open in .

Next year could see another nine openingsas the company spreads north and opens inLiverpools Castle Street. It is also expectedto open in Bath and Reading as it strength-ens its presence in the West, having alreadyopened a site in Bristol this summer.

We feel the marketplace is there and wecan keep growing, says director RichardHall. There is no reason why this cant be a- site business.

Number of sites7Owners Zeev and Patsy GodikYear founded2011Turnover12m (predicted for 2014 calendar year)EBITDAundisclosed

COMPTOIR LIBANAIS

Still a relatively youngbrand, having onlybeen founded in ,Comptoir Libanaisis far from your aver-age fast, casual diningbusiness. The brain-child of Algerian-bornfounder Tony Kitous, itoffers fresh, colourful, healthy Middle East-ern and Mediterranean food in a relaxedenvironment.

It was awarded the title of best meal inLondon by Time Outmagazine, and has alsobeen named by the BBC as one of the top healthiest restaurants in the UK. With anaverage unit size of - seats, the major-ity of the meals the business serves are con-sumed in the restaurants, although around% of the business is take-out.

Kitous is convinced there is room for aComptoir on every major UK high street andplans to open four to five new sites in ,and is targeting growth to sites over thenext five to six years.

Number of sites 10FounderTony KitousManaging director Chaker HannaYear founded 2008Turnover 12.5m (2013)Average spend per head 10-12 (lunch)


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CTEMention Cte to your average restaurateurand the French brasserie brand is likely toprompt either outpourings of admiration orexpressions of jealousy possibly both.

Vaunted throughout the sector for its abil-ity to offer high-quality food and service at akeen price point, its co-founder Andy Bas-sadone, who started the business alongsideChris Benians and Nick Fiddler in withthe backing of restaurateur Richard Caring,was last year recognised for its success whenhe won the Group Restaurateur of the YearCatey at a glittering ceremony at LondonsGrosvenor House.

Since then, Caring has sold his % staketo private equity company CBPE Capital.

CBPE is backing joint managers HaraldSamuelsson (above right) and Alex Scrim-geour (above left) to expand the chain, whichnow has in excess of sites.

With growth of sites a year planned,Cte is now moving beyond its heartlandsin London and the South East. Havingacquired its first site in the North in York lastyear, and having opened its first site in Man-chester earlier this year, it is well on the wayto becoming a brand with a truly nationalpresence.

Number of sites 54

Owner CBPE CapitalManaging directors Harald Samuelsson andAlex ScrimgeourYear founded 2007Turnover64.7m (year to 28 July 2013)EBITDA12.8m (year to 28 July 2013)

GIGGLING SQUIDGiggling Squid, founded by husband andwife team Andy Laurillard and Thai-bornbusiness graduate Pranee Laurillard, is oneof a number of burgeoning Thai restaurantgroups on a mission to create a scaleablebrand.

The company started life in and hassince grown to sites, as far south as Brigh-ton and as far north as Stratford-upon-Avon.The Laurillards hope to hit by the end ofnext year and have recently switched banksfrom HSBC to Barclays and doubled thebrands loan facility to m to support itspipeline for the next months.

While not as mainstream as Spanish orItalian food, there are still estimated to be, Thai restaurants in the UK. Almost allof these are independents, but Andy Lauril-lard, believes there is space for one or twonational operators in the future this despitethe fact it is admittedly harder to hit decentgross profit with Thai food, due to its com-

plexity and use of imported ingredients.Restrictions on immigration, making it hardto recruit the number of Thai chefs neededto sustain growth, may also act as a businessconstraint.

However, the Laurillards are not alone intheir quest to create a national brand. Amongother growing groups are: Busaba Eathai,founded by Alan Yau and Jale Erentok; KohThai Tapas; Rosas; and Thai Leisure Group,owner of Chaophraya, which has big plans forits nascent casual-dining brand Thaikhun.

Number of sites10

Year founded 2009Founders Andy and Pranee LaurillardAverage spend per head25 evenings, 12-13lunchTurnover +93% on 2013 (amount undisclosed)Profits +123% on 2013 (amount undisclosed)

LOUNGERSLoungers is one of hospitalitys real successstories of recent years. Founded by friendsAlex Reilley, Jake Bishop and Dave Reid in, the business started life as one smallBristol restaurant with just tables.

Fast forward just years and Loungershas now hit sites thanks to a clever busi-ness model that involves opening sites indensely populated suburbs and secondaryhigh streets.

These locations often unfancied by otheroperators have become hubs of the localcommunity and Loungers is careful to cre-ate venues that feel unique to their local area,giving each a different name.

The businesses are also hard to pigeon-

hole. Trading all day, they retain aspectsof what could be described as a pub or bar,but also function as a caf and restaurant,with trained baristas, alcohol and food froma daily rolling menu all on offer. It was thisinnovative, flexible approach that earnedReilley the title of winner of the Pub and BarAward at the Cateys. Along with its pre-mium Cosy Club brand, Loungers alreadyhas sites spread across the country.

With the backing of private equity firmPiper, Reilley has ambitious plans for thebrand, claiming recently that it can easilygrow from its current base of sites to .

Number of sites 50Managing director Alex ReilleyYear founded 2002Turnover 33.7m (year to 27 April 2014)EBITDA 4.4m (year to 27 April 2014)


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SAN CARLO

Founded in by veteran restaurateurCarlo Distefano, San Carlo has quietly grownto be a formidable force on the UK restau-rant scene with UK sites and a numberof international franchises in locations likeKuwait City and Bangkok. Distefano, , stillhas the energy of a much younger man andcan boast proudly that he still works sevendays a week. He jointly runs the businesswith his son, managing director MarcelloDistefano.

The group comprises several differentbrands. Perhaps best known for its originallarge-scale San Carlo restaurants that inhabitmajor UK cities including Birmingham,Bristol, Leicester, Liverpool, Manchesterand Leeds, the business has more recentlydiversified into smaller, more flexible offerslike Fumo in Birmingham (which has anemphasis on high-quality drinks, cocktailsand small plates), and Cicchetti, which alsooffers small plates and operates in Manches-ter, Londons Piccadilly and Bangkok.

And thats before you mention the likes of

the iconic Flying Pizza restaurant in Leeds,acquired by San Carlo in , or the venera-ble Signor Sassi in Knightsbridge, which hastwo sister sites in Kuwait.

Another Fumo site is scheduled to open inManchester the business fifth site in thecity but it is London that the group has nowset its focus.

This month sees the opening of Cicchettiin Wellington Street in Covent Garden andthe company is on the lookout for more sitesin the capital, as well as looking at the pos-sibility of external investment to expand theCicchetti brand.

Turnover 60mUK sites 16Founded 1992Managing directorMarcello DistefanoFounder Carlo Distefano

THE STABLE

The Stable is another young and relativelysmall brand that has grown quickly andtapped into the shifts in the pub marketto offer a concept that is part pub and partcasual-dining restaurant.

Founded in Bridport, Dorset, in byhusband and wife Richard and Nikki Coo-per and Nikkis brother-in-law Andy Briggs,it offers freshly-made sourdough pizzastopped with locally sourced ingredients,alongside a wide range of ciders.

Although the business has so far lim-ited itself largely to the South West, withits most recent opening in Falmouth, it hasambitions to move beyond its heartland intoLondon and the South East. That aim lookscloser to being realised after Chiswick-basedbrewer and pub company Fullers paid .mfor a % stake in the business in June.

Number of sites 7Year founded 2009FoundersRichard Cooper, Nikki Cooper andAndy BriggsTurnover5-6mAverage profit margin per dish 68%

SUCHEF

A very new brand, having opened its firstsite in Londons St Pauls in July this year,Suchef is set to launch three more sites later

this year. It also plans significant expansionin London next year and has enough invest-ment behind it to target growth across thepond. The brainchild of Anastasia Danilovaand backed by a consortium of private inves-tors, the concept claims to be the first to offer

sous vide-cooked food on the high street.

The brand places a major emphasis on thehealth benefits of sous vide-cooked meals,claiming the process seals in flavour with-out damaging the nutritional element ofthe food. In charge of menu development ishead of food Bernhard Engelhardt, the for-mer executive chef at Barclays Capital andthen the Kia Oval for contract catering giantCompass. He is joined by nutritional thera-pist Charlotte Watts.

Offering a price point of between and, and squarely targeted at the busy officeworker, Suchef is set to roll out sitesin .

Number of sites 1Owner Private investorsManaging director Anastasia DanilovaYear founded 2014Turnover n/aEBITDA n/aAverage spend 6-9

TORTILLA

Tortilla, the UKs largest Mexican fast-casualrestaurant business, with a total of sites,was founded in by American-born Bran-don Stephens. New sites are set to open inLondon Victoria station as well as Richmond,and it is starting to expand outside the M

with sites in Leeds, Brighton, Southamptonand Watford. It has also secured a site at Bir-mingham Grand Central due to open in .

Tortilla, which counts YO! Sushi chairmanRobin Rowland among its non-executivedirectors, is backed by private equity busi-ness and YO! Sushi investor Quilvest andClapham House Group founder Paul Camp-bell is also an investor. As a result, Stephenshas previously indicated the investors wouldlike to see Tortilla grow to a size roughlyequivalent to that of the YO! Sushi businessor GBK around - units.

Number of sites 18FounderBrandon StephensYear founded2007Turnovercirca 10m (2013)EBITDAundisclosedAverage spend per head 7


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Price increases in pub

freeholds in the year to date

London property: what now?As optimism in the economy rises, so do pub and restaurant property prices.

David Harristakes the temperature of the market and asks if London is overheating

For UK property prices there is Londonand then there is everywhere else. It isno different for pubs and restaurants,

where the last year has seen London pricesoutstrip the provinces on every measure.

But it is hard to make simple compari-sons. In London, almost no restaurateursown their premises freehold. Its true thatsome pubs remain historic freeholds, butmost restaurants are leasehold. The pricesfor both freeholds and leaseholds are sharplyup, although the greater number of freeholdpubs makes them easier to measure. In thecapital, price rises are easily into double dig-its in percentage terms. For freehold pubs,Simon Chaplin, director at Christie & Co,says that prices are up % year on year.

Outside London, price rises are less sharpand less widespread. Just as in the residentialmarket, London is not only more expensive,but the gap is widening. Against Londons% increase, Chaplin puts increases at any-thing from under % in Scotland to % inthe South generally.

Prices for leaseholds are harder to mea-sure because there are so many variables.

Graham Campbell, head of restaurants atFleurets, says: There is a bit of a bubble inLondon (see panel), but everywhere else is abit flat with very little growth in prices.

The price rises outside London arein exactly the places you would expect:Brighton, the wealthy South East generallyand the centre of the big cities, like Man-

chester, but not in secondary locations like

Is London overheating?

Asking whether the London restaurant and pub

market is overheating is not quite the samething as asking whether prices have reached

their peak. Property agents in the sector tendto hedge their bets. Graham Campbell, head of

restaurants at Fleurets, says he understandssuggestions that London is overheating but

immediately adds the proviso that the capital

is an extremely difficult market to predict,

underlining the fact that many agents thinkLondon prices have got a little way to rise yet.He says: A lot of people are chasing a lesser

amount of sites so thats driving up prices.For restaurateurs it is not just rents. In central

London, they typically pay a premium over and

above rent just to get into their building. In one

case, which Campbell recently dealt with, theCity of Londons Madison restaurant, the newowner paid 4m of this key money to take

over the remaining 21 years of a 25-year lease.

This is no game for shallow pockets.

Ross Kirton, director of licensed and leisure

at Colliers International, adds that London

restaurant prices continue to go up becauseLondon offers a unique proposition to

operators in terms of affluence and diversitymeaning operators need to be particularly

innovative in the capital.

Source: Christie + Co

road sites which can do between ,and , of business a week. These pubshave seen an increase in price.

Less upwardly mobile have been the ten-anted pubs leased to individuals by compa-nies such as Punch and Enterprise. Punchalone has sold , pubs since , manyof which have been converted to residentialor alternative use.

Not all though. Hall points out there areactually more freehold pubs in the countrynow than there were five years ago, partlybecause many formerly tenanted pubs arenow owned by their landlords who boughtthem from the pub companies that offloadedthem. Local operators who concentrate ontheir locality are also important in pushingup prices, say agents.

Ross Kirton, director of licensed and lei-sure at Colliers International, points torecent freehold deals such as Fullers buy-ing the Harp in Chandos Place in the mid-dle of London and Youngs buying the Fox &Anchor in Clerkenwell for .m.

Kirton says: All of these are high prices asa result of London brewers bidding competi-tively for sites in their tight target areas.

These are prices that the North of thecountry cannot match, but that doesnt meanthat prices wont rise soon. One of the rea-sons for the cheapness of pubs in the Mid-lands and the North is the large number ofreceiverships and pub company disposals,but with the recovery well under way, those

prices wont last forever.

SOUTH OF ENGLAND

SOUTH WEST

THE MIDLANDS, EAST ANGLIA,THE NORTH AND SCOTLAND

LONDON

UNDER+2%

+9%

+15%

+29%

Ipswich or Sunderland or Carlisle.Simon Hall, Campbells colleague at

Fleurets who heads up the pubs markets,describes pub prices as all over the place.Its a hot market for some sites, such as themanaged food-led pubs that companiessuch as Whitbread, Greene King, Marstonsand Mitchells & Butlers are looking for. By

and large, the requirement here is for main


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16

THE CATERER INTERVIEW

EricBellquist

Eric Bellquist is part of the investment team at

private equity firm Hutton Collins and sits on the

board of Byron, Wagamama and Novus Leisure.He tells Neil Gerrardhow he rates the appetite for

restaurant businesses among investors

www.thecaterer.comRestaurant Insight Report| September 2014


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I look for highercover turns, loweraverage spend,generating a healthygross profit marginwith a concept thatis replicable and thatgenerates a goodreturn on capital forits equity investors

How easy or difficult is it currently for

restaurants to raise money?There is a lot of interest from people gener-ally at the moment to invest in restaurantsin all parts of the capital structure. Banks arelending to restaurants, the bond market islending to restaurants, and there are inter-ested equity parties who want to own restau-rants and provide equity capital. Right now, Ithink it is a pretty good time for restaurantsto be raising capital.

How does the situation now compare with ayear or two ago?It has been that way for some time. We investedin Wagamama back in 2011 and there was a lotof interest, and in the past year or so there havebeen a lot of restaurant chains that have traded.We also invested in Byron last year.

Over the last couple of years people havecaught onto the fact that every week approxi-mately 30 pubs close in the UK, that the pop-ulation is increasing and that the populationis going to go somewhere. They are increas-ingly spending more time in coffee shops,gastropubs with good food offerings andcasual-dining restaurant chains, as opposedto just going to a more wet-led pub.

Are we likely to see more of the type of

private equity deals that you havementioned in the coming months?PizzaExpress has just completed. My under-standing is that Ask and Zizzi are going tobe on the market at some point so I dont seewhy not. There is also interest in the vari-ous Tragus assets like Strada and there werepress rumours of one or two others.

We have talked about the backdrop that iscreating the demand for restaurants and themarket is big enough. The branded segment ofthe market has been growing straight throughthe recession, while the unbranded segmentdidnt do so well. So, if there are concepts out

there where the average spend per head isnttoo high and you are generating decent growththen there could be a lot of interest.

As an investor, what do you look for in arestaurant business when you areconsidering making an investment?My rule of thumb is that it has got to be dif-ferentiated in some way, whether it is Waga-mama, which really owns its niche, or maybethe locations, or whatever it is. I prefer not tobe at the high average spend end of the mar-ket as I tend to think a lower average spendis a more defensible place to be. So I look for

higher cover turns, lower average spend, gen-erating a healthy gross profit margin with aconcept that is replicable and that generates agood return on capital for its equity investors.You build all those things together and that isa recipe for an attractive investment.

using social media more and being exposed

to global cuisines and tastes. I think therewas a trend that involved these gastropubsfor a while and Rupert Clevely with Geron-imo Inns was one of the first ones to do thatwith scale. He and his wife [Jo Clevely] areclearly a great example of people who cameearly to the market to innovate in the pubsector and I think there will be others whobuild on that.

People fundamentally like pubs and wantto go to pubs. Pubs are cosy and nice to goto but they are a lot nicer to go to when theyhave more capex invested in them and whenthe food is of a higher standard.

What do you make of these alternativemethods of raising finance like BrewDogwith its Equity for Punks scheme or Chilangowith the burrito bond that it issued? Isthere a potential shift to businesses fundingthemselves in different ways?I am not too familiar with the exact schemes,however, I understand that some small con-cepts have raised funds via crowdfunding,which I am not in favour of. From an inves-tor point of view, I think a very attractiveway to invest in start-ups is through theEnterprise Investment Scheme (EIS)and Seed Enterprise Investment Scheme(SEIS). I know there are a lot of young,burgeoning restaurant chains that haveraised capital in this sort of tax-efficient wayfor investors.

I think crowdfunding, at what are veryhigh valuations, could potentially be veryrisky from a less-experienced investors pointof view. From a start-up or early stage pointof view, I would be much more in favourof EIS or SEIS investment schemes to getthings going and then after that, once busi-nesses are cashflow positive, they can look atraising some seed private equity capital.

Why dont we see more publicly listedrestaurant companies in this country? Willthat change in the future?Yes, I think so. In the US, you have brandedchains that are public but then you also havemaster franchise companies that might run200 McDonalds and 200 Subway storesand they float. Over here, weve got TRG andPrezzo and Patisserie Valerie and I thinkthere is probably quite a lot of demand frompublic equity investors to invest in these.

Fundamentally, the branded restaurantbusinesses have been growing at a pacethat has been outstripping GDP for quite

some time and that is going to be attrac-tive for public equity investors. There is alsothe potential of some of these brandedchains expanding on an international leveland that may be attractive for public equityinvestors as well.

When you invest in a business, do you lookto make specific changes? Are there thingsyou routinely do when you become involvedin the business?We initially identify good concepts with man-agement teams that we can back. The mostimportant thing is the management. I pre-fer not to change anything; I would prefer tohave a great concept that is being executed bya great management team that needs capitalto expand and possibly some of our expertise.

Is there a typical return you look to generatewhen you invest and how long does it taketo realise that return?I would like to generate equity returns ashigh as possible for our investors given mar-ket conditions and the growth potential of agiven concept. That said, when we are sittingat board level and approving new sites, wewant to see sites that have on average arounda 30% simple return on capital.

And how long would you expect it to take tohold a given investment?I think a five-year hold is not unreasonable.

The truth is that all these private equity fundstructures require you to sell at some point.But I really like what the shareholders of Patis-serie Valerie just did with that business. I donot believe they took much money out. Theseroll-out concepts are great businesses, gener-ating high returns on capital and I would loveto hold them forever but we have fund struc-tures that require an exit at some point.

You mentioned the number of closures in thepub market and the fact that the dining-outmarket is changing, but we have also seen arise in the number of food-led managed

pubs as businesses have adapted to thechanging demands of the consumer. Howhas this changed the eating out landscape?I think the market has changed a lot. Thatis partly due to so many pubs closing everyweek but also due to people travelling more,


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The US view

Technomics latest forecast shows salesgrowing 1% after inflation in 2014, justas they did in 2013. Its no wonder US

chains are no longer showing significantincreases in unit counts. American consum-ers are cautious about spending disposableincome on non-necessities. Rising fuel pricesand sluggish employment rates have restau-rant-goers feeling skittish about spending dol-

lars on dining out. And, in many cases, theysee little differentiation between restaurantswithin a competitive set; as a result, more andmore consumers are turning to other formsof foodservice in search of something new.Fresh-prepared foods and ready-to-heat mealsfrom grocers and other retailers are increasingin quality, variety and consumer acceptance.

So for the US restaurant industry, the boomyears before the economic recession may notbe coming back any time soon. Succeeding asa restaurant supplier or operator today is trulya take-share game. And taking share requiresbeing creative to stand out from the crowd.

Five hot trends to watch

Restaurant operators in the US are push-ing creativity and innovation in ways that aregeared towards freshness, uniqueness andindulgence, bigger and bolder flavours, and

service elements, which are interactive andconvenient within the consumer lifestyle.The fresh factorFresh foods communicatea quality message, which is highly appeal-ing to a growing proportion of Americanrestaurant-goers. Fresh ingredients are easyfor operators and suppliers to position asbeing better for you, which conveys healthand wellness to consumers. Additionally,

presenting an array of fresh ingredients forguests to customise their own made-to-ordermeal heightens the perception of uniqueness.Local and/or all-natural produce, never-fro-zen beef for burgers, artisan breads for sand-wiches all emphasise freshness and quality. Barbecue flavours Regional Ameri-can interpretations of slow-cooked barbe-cue continue to have broad appeal. Thelatest tendency calls for barbecue sauces andflavours applied to sandwiches and pizzas,often with barbecue pulled pork as the coreprotein. Conventional barbecue chains arealso exploring the appeal of barbecue fla-

vours in non-traditional handhelds that falloutside their typical menu spectrum, likethe BBQ Chicken Lettuce Wrap at LucillesSmokehouse Bar-B-Que.Customer-facing technologiesRestaurantsare employing new technology to speed

Succeeding as a

restaurant supplier oroperator today is trulya take-share game. Andtaking share requiresbeing creative to standout from the crowdAimee Harvey

The UK restaurant industry still looks across the pond for developments and

new trends. Aimee Harvey, editor of global content at US-based foodserviceanalyst Technomic, assesses the best US brands and biggest trends

service and wow guests who expect therestaurants they visit to keep pace with a tech-integrated lifestyle centered on smartphones,apps, internet connectivity and social media.

More and more restaurant chains are roll-ing out mobile payment. Others (usually full-service restaurants) have invested in tabletoptablets, which allow patrons to order and paywithout help from a server; still others (usu-

ally limited-service places) have installed on-site kiosks for ordering and payment to speedup counter service. Some restaurants areexperimenting with multiple systems. Hot, peppery and spicy ingredientsFirst,jalapeo peppers were all the rage on USmenus, which led to chipotle (a smoked jala-peo pepper) becoming a hot trend. Nowthat chipotle has fully matured into the main-stream, Sriracha, Thailands chile and vinegarcondiment, has steppedinto the limelight. Amer-ican customers areseeking newer and

bolder tastesi m p a r t e dby peppersand saucesfrom Asia,Latin Amer-


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An Englishman in the US

English-born Jonathan Segal grew his

group of STK restaurants in the US beforeimporting the brand to London. He assesses

the state of the US market and why hethinks UK operators shouldnt necessarily

assume their US counterparts ideas are

any better

The US economy doesnt know which way it isgoing. We have a bizarre situation where thestock market is doing crazily well the otherday the Dow went through 17,000. Peoples401Ks, the pension plans that operate inAmerica for most Americans, are getting backto where they were pre-2008, and, in addition,recently house prices have continued to rise.

A lot of the household economies thatwere suffering terribly have bottomed out. Soconsistent with the way we are in England, wehave the feelgood factor. There is no questionthat over the last couple of years we have seena rise in America in discretionary spending andthat has filtered into the restaurant business.But the market now is reporting a s lowingdown in discretionary spending, despite therising stock market. Another thing, which isvery alarming and really affects us, is that

credit card debt is also on the way up.The recovery is fragile and every time

we see a major economy issue arise likesetbacks in Congresss attempts to approvethe debt ceiling we just see a completeshutdown in our revenues because everyonepanics for five minutes and we then begin thatwhole process of rebuilding.

When it comes to trends, it is a fallacy thatAmerica is any better than the UK in creating

concepts or coming up with ideas. I believesome of the best concepts created come outof the UK. However, the US seems to excel atgrowing businesses at alarming rates, especiallyin the fast-casual market like Noodles, ZoesKitchen, Chipotle, Potbelly Sandwich Works andPanera Bread. Incidentally, America is also reallygreat on buzzwords like fresh and farm totable. Fresh and freshly prepared seems to bethe way forward.

When it comes to fine dining, there arevarious concepts that expand by city, butthere are very few that grow nationally orinternationally. Take Hakkasan, Zuma, Roka,STK, and Mortons for example.

Whether or not it is a byproduct of the

recession, people are nervous about high-priced meals so all the fine dining, multipleexpansionary group businesses are creatingan underbrand. So, for example, STK hascreated STK Rebel and Del Frisco has createdDel Friscos Grille. We are going to see anexpansion in casual dining before we see arapid expansion in fine dining and it is going tobe in that $40-50 range, which translates toaround 25-30 per head.

ica and North Africa: habanero, serrano,harissa, shishito, togarashi, sweet chili, ghostpepper and spicy mayos and aolis. Fun, novelty foodsChef Dominique Ansellast year trademarked the term cronut,whichrefers to the croissant-doughnut hybrid thatshook up the dessert world from his bakery inManhattan in 2013. Since then, thousands ofcronut imitations have popped up across the

US, as the hybrid-food trend goes on, for bothsweet and savoury foods.

Best-in-class brandsSo, which emerging US chains are winning atshowcasing the latest trends? There are a fewbrands that are succeeding with consumers,particularly fast-casual concepts that are mar-keting towards contemporary, quality charac-teristics, health and wellness, better-for-youfoods and social responsibility. Theres also aplethora of emerging chains with fast-casual/pick-your-own/assembly-line service formats la Chipotle, which are expanding and find-

ing their niche.

Healthy conceptsHannahs Bretzel boasts that its the first fast-casual sandwich concept to focus on organicingredients, whole grains and green business

produce is sourced from local organic farmswhen possible.

Chipotle-style chains

Eco-friendly Mediterranean specialist CavaMezze Grillhas patrons choose a bowl, pittaor salad, then add a protein, toppings and aspread of hummus or sauce.Piada Italian Street Foodserves customizablepiadas (Italian-style flatbreads), pasta bowlsand salads. The service style is nearly identicalto that of Chipotle, but Piadas unique mealoptions, along with its slightly warmer dcor,prove this concept has its own distinctive posi-tioning.PizzaRevis taking Los Angeles by storm. The

brainchild of former Clear Channel Music co-CEOs Rodney Eckerman and Irv Zuckerman,it invites patrons to design their own pizzas from the sauce to the toppings then bakesthem fresh in under three minutes in giantwood-fired ovens.

practices. With the slogan ber sandwichmakers, the Chicago chain offers a variety

of made-to-order sandwiches with premiumingredients like grass-fed steak, all served onorganic, house-baked pretzel bread.Fast-casual chain Modmarketoffers healthyoptions made with grilled proteins, seasonalproduce and housemade sauces served upfast in a clean, modern environment.And at fast-casualSweetgreen, units are madefrom reclaimed materials, all proteins served

are antibiotic- and hor-m o n e -

f ree ,a n d


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www.thecaterer.comRestaurant Insight Report| September 2014

Charles BanksCo-founder,

The Food People

Food trendsWe are moving in a

neo-global era wherechefs and operatorshave greater levels ofpermissibility thanever before. The con-

strains are gone, the shackles are off, theboundaries are no more.

We started to see the hybrid food move-ment develop in and expect to see itdevelop further into . Cuisines, food for-mats, service style all mashed together. Takea cuisine, fuse it with an alternative conven-tional food format, serve it in a semi-casualenvironment and voil, a few examples are

Penkul & Banks, Asia meets London, Kim-chinary Korean Burritos and Galbi Bros Korean rice burgers.

British cuisine will still ride high butits becoming more ingredient-led, ber-seasonal and local all overlaid with a splash

of Scandi more rawness on the plate anda refreshed flavour palette acids, sours,bitters and smoke. Carrots are the newpork belly, cauliflower the new steak, kalethe new burger. Vegetables turn from sup-

Theway

aheadThe Restaurant and CasualDining Insight Reporthas aimedto provide a comprehensive

overview of how the market

looks currently, but what of the

future? We ask four experts to

talk about how they see thenext few years in four key areas

20


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Vegetables turn

from supportingplayers to centre-of-the-plate stars is one ofthe most salient menutrends of the futureCharles Banks

Apps represent oneof the biggest areas ofgrowth and operators

need to ensure theyare part of thisdevelopment Peter Backman

Peter Backman

Managing director,Horizons

Technology

The speed of changein technology, forboth consumer-endand business-enduse, represents a

massive challenge to food service operators.Not only do businesses need to keep up to

date, but they need to continue to adapt toconsumers ever-changing demand for tech-nological advances, and operators also needto find ways to incorporate technology inways that will enhance their business.

One of the biggest areas of technologi-cal change over the next few years will be inbooking, ordering and paying, all of whichwill move towards mobile technology as con-sumers look to do all these things quickly,efficiently and securely through phones andtablets and even watches.

Mobile technology is already being usedby many (but not yet enough) operators formessaging news on deals, menu changes,

availability and opening hours, as well asconveying information like nutritional con-tent, food provenance and seasonality.

Wine lists and menus are being presentedin tablet form too providing the opportu-nity to move away from printed menus andoffer more information as well as being eas-ily updated.

These advances will continue to be rolledout and perhaps there will come a timewhen well all look at the menu before we goto a restaurant, choose and book our table,like we do cinema tickets, and order pre-din-ner drinks ready for our arrival.

Apps represent one of the biggest areasof growth and operators need to ensurethey are part of this development. Like it orloathe it, online reviews will become increas-ingly important as will apps appealing toparticular audiences. Apps will offer restau-

rants with free tables tonight, with particu-lar dishes, with special deals, where you cantake the kids, or pay under a certain price perhead the opportunities are endless.

The continuing emergence of a youngergeneration, which is coming into the mar-ket, will change the technological goal posts.Operators must keep up with this as todaysteenagers become tomorrows high-spendingconsumers. As these people come throughthe pipeline they bring with them a wholenew way of working. Establishments mustcommunicate and build a direct relationshipwith them on these terms and keep up withthe fast pace of change they will bring.

Mobile communication, particularly inpubs and casual dining, will also extendto table-to-table communication devicesin eating-out establishments. How manytimes have you wondered what someone onanother table has ordered? Or wanted to askwhether theyd recommend their dish? Soonwell be able to do just that.

Restaurants and pubs will have to staketheir place in the mobile world. This is asphere through which they can convey theirbusiness principles, personality and role in

the wider community.Online is becoming the window through

which the eating-out audience views yourbusiness and its a way to create and mouldthe image you want your business to have.Its also a platform that operators cannotafford to ignore.

porting players to centre-of-the-plate starsis one of the most salient menu trends ofthe future, across foodservice industry seg-ments. In fine-dining restaurants and casualdiners alike, vegetable centric choices willrise in prominence.

The next time you try to grab a tablefor two at your towns chicest restau-rant, be prepared for a new greetingfrom the matre d: Tickets, please! Weexpect to see more fine-dining estab-lishments to eschew traditional reserva-tions for ticketing systems. By employingall-inclusive prix-fixe meal passes to sellout dining rooms months in advance itwill circumvent the no-shows, which costbusinesses and pressurise establishmentsto raise prices for other diners to recouptheir costs.

With regard to trending cuisines, Ameri-can continues its march with no sign of abat-ing, also Korean together with other SouthEast Asian cuisines as well as Modern Medi-terranean. Also look out for Persian, Israeli,German and Austrian expect to see con-temporary schnitzel on menus in .


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We must find ways

of sourcing the rightpeople to mould into

our future chefsJulie Proctor

Julie ProctorHead of Hospitality,

Lifetime Training

The workforceFor some time nowthe hospitality sectorhas suffered from alack of talented chefswho possess the rightskills and attitudes to

deliver what todays consumer demands. Wemust find ways of sourcing the right peopleto mould into our future chefs.

The reason chef recruitment proves par-ticularly elusive is that chefs need to havesuch a wide array of technical skills to suitall the latest food trends as well as possess-ing the softer skills, like creativity, to satisfypresentation requirements which help to re-engage consumers with the food they areeating. Its not easy finding someone withthe necessary skills and passion to fill sucha role.

Its for this very reason that we are cur-rently working with a number of clients in

the sector, delivering chef apprenticeshipacademies. In addition to the standard qual-ification, we invest time in engaging them inworkplace culture, mission and values andoperate technical masterclasses and work-shadowing initiatives to ensure these teammembers have the best foundation possiblefor future career success.

Weve also identified specific skills thatrequire some attention IT and socialmedia is becoming the norm in the restau-

Andy Fyffe

Executive Director,EY

The last wordThrough the difficulttrading conditions ofthe last five years, therestaurant and man-aged pub sector hasproven to be resilient

and is now benefiting from the upturn in theUK economy. At EY, we are confident we areseeing a sustainable recovery, and, with con-sumers showing willingness to spend largerproportions of disposable incomes on eatingout, we predict the sector is entering a poten-tially exciting period of growth.

In order to respond to rising demands andexpectations of consumers, the industry hasbecome innovation-rich. Driven by a needto differentiate, there has been significantfocus on refining the customer experience,using technology in increasingly differentand effective ways and implementation ofnew service models, with a range of new con-cepts and brands entering the market.

While the casual and fast-casual diningcategories in particular appear to be enteringa vibrant phase with a plethora of new con-cepts and cuisines, the steady encroachmentof major managed pub companies into thecasual-dining space continues, with theseoperators introducing restaurant conceptsand/or quality food in many of their outlets.

We expect London to remain a hothousefor emerging eating-out brands. However,increasing competition may mean that tacti-cal expansion outside the M needs to be akey part of any growth strategy. In order to berelevant nationally, it will be critical to under-stand what matters to customer groups inspecific locations, and have offerings thatcan be flexed to local requirements.

So what else might happen in the years tocome? Could we see a further overhaul of thedining experience as our world and high streetchanges? What new developments will cap-ture customers imagination? Will the focuson healthy eating accelerate and how will thisimpact what, where and when we eat? Howmuch time will customers have for mealoccasions and how will this impact servicedelivery? How will operators embrace newtechnology in response to this? Or, as we beginto suffer from technology and sensory over-load, will we see the sector go back to basics?

One thing is for certain, operators that are

able to adapt to changing market dynamicsand customer preferences will be among themost successful.

A clear lesson from many sector develop-ments in recent years is that standing still isa recipe for failure.

rant environment particularly with regardsconsumer communication and promotionso upskilling teams in their IT and digitalcapabilities should be seen as a must-have tostay ahead of the competition. Its no longergood enough to hold your hands up and sayI dont understand it.

For a sector that sees so much change itsinevitable that teams also need strong lead-ers at the helm of any business.

Its therefore critical that hospitality com-

panies invest in the next generation ofmanagers and leaders who will steer thesebusinesses for years to come. Covering top-ics like how to communicate across gener-ations and strategic thinking and planningwill remain a priority.

We expect London toremain a hothouse for

emerging brands andeating-out trends

Andy Fyffe


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Contacts

Cameron CartmellSector Leader,

Hospitality & Leisure+44 20 7951 [email protected]

Nam QuachLead Advisory+44 20 7760 9264

[email protected]

Richard HarrisonRestructuring+44 20 7951 7295

[email protected]

Stephen HeathTax+44 20 7951 0035

[email protected]

Christian MoleTransaction Support

+44 20 7951 [email protected]

Andy FyffeTransaction Support

+44 131 777 [email protected]

Neil GerrardRestaurants Editor

The Caterer+44 20 7881 4807

[email protected]


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