The growth of chain restaurants


With the foodservice sector seeing growth for the first time in several years, suppliers need to keep up with their customers’ plans and know what they want – and be ready to adapt their offers, writes Horizons’ Peter Backman.

At Horizons’ annual briefing in March, the audience heard that for the first time in many years, the outlook for UK hospitality was looking positive. The foodservice sector, with a few exceptions, is seeing some growth against a backdrop of rising household consumption, increasing national wages and falling unemployment.

In 2014, the value of the sector saw a nominal growth (including inflation) of 3.8%, with real growth at 2.9%, giving it a value of £46.6bn. I have forecast that the value of the sector will rise by £10bn (including inflation) by the end of 2019 to reach a new value of £56.3bn.

The reason for this is quite simple: people are starting to eat out more. Admittedly, this is in a different way to pre-downturn times. But all markets have changed since the recession – the consumer is different now, with different needs and concerns than before, and there’s no going back.

In our sector, there is more snacking on the move throughout the day, more breakfasts being eaten outside the home, more lunches being eaten out and coffee purchases have risen and are still rising. Average spend on a three-course meal has now reached £14.48.

We are catering for a changed consumer, one more concerned with value-for-money, quality of service and quality of food. Today’s diner is more likely to shop around, is less loyal, and tends to be more price-conscious. And as consumers become less exposed to high levels of borrowing, become more certain of their jobs and are buoyed by low inflation, they become increasingly more likely to spend their disposable income on eating out.

While not racing ahead, growth in the foodservice sector is now at a higher level than we have seen since before the economic downturn.

Key styles of operation are leading this growth: pizza delivery outlets, managed branded pubs, pub restaurants and coffee shops. These are the operators that have adapted their businesses most keenly to the new consumer, offering food round the clock, flexible menus and great marketing through social media, and have kept their customers interested with new dishes, new services and longer opening hours. They have engaged with the new consumers and understand their needs.

And as we see margins in the food­service business improving, operators start to have money to invest in their businesses – or in others. Transactions in the foodservice market are becoming more apparent, particularly as investment banks – which have been biding their time until now– are now keen to cash in their chips and see a return.

Last year, PizzaExpress gained a new Chinese private equity owner in Bejing-based Hony Capital, which acquired the group from Gondola Holdings for £900m. It has plans to open in China, as well as an active development pipeline in the UK. Recent results were an impressive 6.8% like-for-like growth for the 50-year-old company, which now boasts a turnover
of £231m.

While at one stage the Pizza­Express format was becoming stale and tired, revamping the menu, the service and the outlets has paid dividends. The group says it will continue to innovate, with a home delivery trial believed to be on the cards.

As restaurant chains become more profitable, expansion becomes a bigger part of their plans. The Restaurant Group aims to double its size in eight years and will open 50 Frankie & Benny’s and Chiquitos sites by the end of this year. The company has reported a 7% rise in operating profit over the past 12 months to £80.5m.

Ed’s Easy Diner is to open six new sites this spring, making it one of the fastest-growing private companies in the UK.

Revolution Bars will see a stock market flotation this year, with a value of £100m helping it fund growth that will see its 53 bars become more than 100.

Good times also see a certain amount of repositioning and rebranding. Last year saw the break-up of the Gondola Group (now renamed the Azzurri Group), with the sale of PizzaExpress and Byron. With the ASK and Zizzi brands bought by Bridgepoint, expansion is on the cards for both restaurant chains.

Tragus, operator of Café Rouge and Bella Italia, has been renamed the Casual Dining Group and has announced plans to open 70 restaurants over the next few years. The group sold the Strada chain to Sun Capital Partners in September last year for £37m.

At the smaller end of the market, there is also much activity. Our ones to watch survey highlights the fledgling chains that are seeing the biggest growth. Top of the list is American casual dining concept Coast to Coast, which has 12 outlets, along with Mexican burrito fast casual brand El Mexicana, which also now boasts 12 sites.

Among the other fast-growing small chains, there is Chinese takeaway and delivery specialist Hotcha, Thai casual dining brand Tiger Bills and gourmet burger specialist Honest Burgers. We believe these brands, along with Argentinian steakhouse Cau, DP Cappuccino Espresso and Burger & Lobster, are some of the most likely small chains to end up on our high streets in years to come.

Other chains we’ve earmarked as ones to watch include Fuel Juice Bars, Dunkin’ Donuts, Abokado and Tortilla Mexican Grill, with regional expansion being seen particularly in Leeds, Manchester, Bristol and some of the UK’s market towns, along with London. As suppliers to the sector, it is important to stay in touch with those expanding brands by understanding their business and their future plans.

Today’s consumer is still price-conscious, but other factors come into play – sometimes conflicting ones, which makes it difficult to draw hard and fast rules.

For example, our research reveals a real interest from consumers in healthy eating: the provenance of food, ‘free-from’ foods and lighter, healthier dishes. Yet at the same time our feedback suggests there is a need for indulgence dishes, too. Today’s restaurateur needs to provide for all these needs.

Yet there is also room for the specialist operator, too. Our recent annual briefing heard from the CEO and founder of Belgian waffle brand Wafflemeister, which currently has 11 outlets and is actively seeking franchise partners.

Alex Trouillier said that the company had deliberately chosen sweet waffles, rather than savoury, to cater for consumers who wanted to treat themselves in an intelligent, relatively low-calorie way.

He believed the craving for sugar at some point of the day was something consumers would always have.

It’s also worth noting that, while not yet mainstream, we are also seeing an increasing number of regional American dishes on menus, as well as those of world cuisines such as Vietnamese, Peruvian and Egyptian.

If there is anything to conclude from this, it is the importance of keeping in touch with the way people are eating out now and the food and drink they want, as well as what your competitors are ­offering.

If you do this and innovate your offer accordingly, your business is more likely to grow along with that of your customers, rather than being left behind in the slipstream. 

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Peter Backman is the managing director of Horizons, the analyst and specialist information consultant for the foodservice and hospitality sector.


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