Restaurateurs to expand beyond the capital

A mixed bag of results in the restaurant sector as independents struggle to compete with larger chains.

26 March 2014, Words by Savills Research

 

The restaurant market has been reasonably robust throughout the downturn, which highlights both the strength and depth of the market, together with the UK consumer’s desire to eat and drink out on a more regular basis. Like for likes have increased across the board, with The Restaurant Group being one of the sectors star performers, as highlighted by their recent results for the 52 weeks ended 29 December 2013 whereby the Group’s revenues grew by 9% to £580m, EBITDA has increased by 13% to £108m and like-for-like sales were 3.5% ahead of the previous years which has continued in the eight weeks to 23 February 2014, 3.5% ahead of the same period in the previous year.

Due to such positive financial figures, private equity activity throughout 2013 was significant with the likes of Byron Burger and Côte capturing the biggest headlines. Byron was sold by the Gondola Group to Hutton Collins Partners in a £100m deal whilst Côte’s Richard Caring sold his stake in the chain in a deal with CPBE Capital worth £100m, further to the company reporting a 28% increase in EBITDA to £12.8m. We believe this renewed interest will continue at pace during 2014, with a number of potential targets already being circled.

Whilst there have been undoubted winners in the sector, there have also been some losers, with the individual/ local restaurants struggling to compete with their larger branded competitors. There has been a trend in recent years where restaurants are seen as the saviour of the high streets, and to a certain extent this is true. But it is not the case that one size fits all! Yes, the likes of Zizzi, Pizza Express, Costa and Starbucks have been active in growing a significant presence in our town centres, however their requirements in terms of property fundamentals haven’t changed. All, for example still place a large importance on size, configuration and a location that offers day and night time trade, limiting options to certain pitches within often already thriving UK high streets, such as Friary Street, Guildford, where Five Guys have taken prime retail space at over £63/sq. ft.

With some traditional high streets still struggling, retail and leisure parks together with shopping centres have become the new destinations of choice for both operators and investors. These schemes can offer open plan, well configured units to the operators’ standard shell specifications. Despite the attractions of the UK’s major shopping centres, the trade in such markets can be disappointing and only in the best schemes can operators’ overcome the limitations of daytime trading. As a consequence, the cinema anchored, mixed-use schemes continues to cement their position as the top A3 trading locations.

In terms of new brands/trends in the restaurant sector, unsurprisingly London has provided the main focus in what can only be described as a booming A3 market. We are seeing a plethora of new independents and pop-up brands emerge, especially throughout the more dynamic, “edgy,” locations in the West End and The City. Much of this activity is centred around affordable, quick service bites in casual ‘back-to-basics’ environments. Notable cuisine trends are Mexican offers such as Chipotle, Chilango and Tortilla and pan-Asian concepts such as Pho, Rosa’s and Thai Pad, together with outfits offering authentic American burgers & steaks, such as Bubbledogs, Pitt Cue, Burger & Lobster and Honest Burger.

As we look into 2014, we believe the restaurant sector is well placed to provide similar good news stories in the regions, with cathedral cities and strong market towns being priority locations. Ordinarily, London is the catalyst for operators looking to expand further afield and with a number of operators now being private equity backed, the need to expand their relevant portfolios has never been greater.

Detailed below are operators currently on the acquisition trail, which we believe will be ones to watch for 2014:

■ Benito's Hat

Mexican kitchen Benito’s Hat have secured private equity backing to grow its four strong London estate to 10 sites by the end of 2015. The group received an investment of £1.4m with the majority of the funds coming from the UK based private-equity firm Calculus Capital.

■ Giggling Squid

Small Thai restaurants have been particularly active with Giggling Squid, Koh Thai Tapas, Thai Pad and Rosa’s amongst those operators looking to add more to their portfolios throughout 2014. Giggling Squid have recently opened in Reigate and Marlow and have their sights set on 80 sites over the next seven years.

■ Five Guys

The popular US burger chain has opened its first three sites in Long Acre, Islington and Reading and has recently secured new units in Guildford & Kingston. Five Guys have aggressive expansion targets and so far have not shied away from paying hefty premiums to secure prime sites.

■ Côte

The CBPE-backed group saw turnover climb 31.2% to £64.7m in the year to 28 July 2013, while pre-tax profit increased from £6.9m to £8.9m. With a strong focus on Central London, Côte are beginning to press further into the south east and affluent towns.

■ Living Ventures

With the ambition of becoming a £100m turnover company, recent figures suggest Living Ventures is halfway there. In the 53 weeks to 31 March 2013, total revenue increased by 23% to £47.3m, while EBITDA rose 39% to £4.1m. Living Ventures operate 32 venues across 11 different brands. The New World Trading Company brand has secured a new bank facility of £2.2m and will open five further sites in 2014 in London, Birmingham, Glasgow and Manchester. The Alchemist has also recently secured a site in the City, which will be the fourth under the brand, with the most recent being the highly acclaimed opening at Trinity Leeds in 2013.

■ Cleaver

The brand, who fall under the Prezzo group, is on the acquisition trail in 2014 after a successful four openings in Cobham, Wokingham, Leatherhead and Oxford. The concept offers a simple menu, with a choice of burgers, chicken or ribs in a rustic setting.

 
 

Key Contacts

Mat Oakley

Mat Oakley

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8781

 

James Hurst

James Hurst

Director
Retail Warehouse & Leisure Investment

Savills Margaret Street

+44 (0) 20 7409 9927

 

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