The last month has brought further changes at the top of some of the UK’s casual dining brands; the admission that restructuring experts are at work carrying out a strategic review at another one; plus the confirmation that even Jamie Oliver was seeking advice on the best way forward for his restaurant empire. All this has led to a sector trying to show resilience against a growing backdrop of instability, not aided by a race to the bottom on discounting. Mark Wingett examines some of those recent changes and what they mean in a wider context, and looks at possible problems ahead at the St James’s Market development.
Who’s next, was the unsurprising question being asked by last Thursday lunchtime, following the news that Zeev Godik and Alasdair Murdoch, the chief executives of Gaucho Group and Goumet Burger Kitchen, respectively, were to leave their posts. It is hard not to imagine a number of chief executives/managing directors looking over their shoulders or checking for assurances for their investors/shareholders, the market is that fragile currently.
As Dominic Walsh’s comment from MCA on Friday suggested, the timing of Godik’s departure from Gaucho was unexpected, especially so soon after the announcement that Luke Johnson was stepping down as chairman and being replaced by Paul Mason, formerly of Asda. It suggests the decision for Godik to move on was unexpected and not one he had total control over.
Speculation persists that the company’s roll out brand CAU has been going backwards since Equistone purchased Gaucho for c£100m at the start of last year, which must have been alarming for the private equity group, as the impressive growth of the younger concept had underpinned the deal and price paid. Some have suggested that the two recent openings under its core brand in Birmingham and Edinburgh, and a handful of refurbs are covering over some deeper cracks. It is thought that Equistone may have even had to already write down its investment in the business.
At the same time, it is understood that the change in chairmanship has been in the pipeline since as early as the first quarter of this year, with Equistone perhaps feeling they needed the full attention of whoever was in the role, especially if performance, as expected, was going backwards. It also begs the question whether Johnson has also taken a hit on the “substantial sum” he invested in backing the business 18 months ago.
If the numbers were not stacking up, the spotlight was always going to fall on the management team led by Godik, especially as I understand that the out-going chief executive was in the majority based in Dubai. Clearly as majority shareholder, Equistone has flexed its muscles and decided a fresh pair of eyes/new approach was needed. The fact that no successor had been lined up underlines this point. What is sure, is that Godik’s successor will have his or her work cut out get CAU back into growth and on the expansion trail again, not to mention re-ignite an international play for its eponymous brand.
The timing of the departure of Murdoch at GBK was less surprising, coming as it did, just over a year on from Famous Brands’ c£120m acquisition of the burger chain. Many chief executives have stayed on a year after a deal to aid a handover to a successor/see out there incentive scheme/contract. It was surprising to hear that Murdoch would be joined in the departure lounge by chief operating officer Keith Bird, who for many was seen as his likely successor.
Murdoch has recently admitted to MCA that the company had cut its openings pipeline for the rest of the year amid disappointing sales at some new openings and declining like-for-like figures. In the 22 weeks to 30 July – GBK recorded system-wide sales up 12.1%, but like-for-like sales down 2.6%. It is thought that trading has worsened since that time.
However, Murdoch, the former Pizza Hut and PizzaExpress International chief executive, can leave with his reputation intact, indeed enhanced. He can point to the company’s prior record of almost six years’ like-for-like sales growth of over 5%. In a period in which it started on the back foot and in the wake of the rise of rival Byron. Murdoch oversaw the brand undergo an extensive refurbishment programme, embrace new technology, return to the expansion trail and work the advent of delivery expertly.
With a background of delivering results both in the UK and internationally, Murdoch may get one or two calls before his initial estimate of a return to the sector next spring.
According to Geof Collyer, who was for 30 years a sector analyst at Deutsche Bank, there have been at least 40 profit warnings or implied profit warnings in the restaurant and pub space in the past year or so. As he says “we all know that ‘reducing the rollout’ is an effective profit warning for a private company”. Of that 40 “profits warnings”, 34 have been from restaurant groups.
Collyer, who is the founder of Lavender Bank Partners, says: “This is far worse than 2002, which signalled a similar case of over supply in the high street and late night bar market after a prolonged period of new site growth. 11 of the 40 have seen a change of chief executive, chairman or senior operations director - or all three. Even amongst the 27 other groups that have talked about positive or at least neutral trading, there have been eight changes of senior board management.” Which suggests there are more changes to come - along with more site closures and “strategic reviews” - to destabilise the sector further.
Market downturn
“You can’t call it Lower Regent Street anymore,” said Simon Mullins, co-founder of the Salt Yard Group, of the unloved area just south of London’s Piccadilly Circus. “It’s now Regent Street St James’s, which sounds much more appealing.”
Mullins, founder of the Salt Yard Group, along with then executive chef Ben Tish, had a vested interest in this subtle change. The pair were hoping that a new name, along with a makeover that has been carried out by landlord The Crown Estate over the past four years, would help create London’s latest dining destination. One that will see people make the journey from Soho and Mayfair to visit Veneta, the group’s new Venetian restaurant that opened there last October.
Described by Mullins as having once been a “no man’s land with six lanes of buses to navigate”, the pavements around Lower Regent Street and Haymarket have been widened to encourage people to perambulate southwards from Piccadilly, buses have been re-routed and more restaurants and shops have been enticed, including destination fashion chain Dover Street Market. In addition, St James’s Market, a self-enclosed area of shops and restaurants with its own courtyard, was created, which houses Veneta.
Joining Veneta was Japanese ‘brasserie’ Anzu from the team behind ramen and sushi restaurants Tonkotsu and Tsuru; Aquavit, the two Michelin-starred Swedish restaurant that crossed The Pond from New York; a more takeaway-led version on Samba Brands’ Duck & Waffle – Duck & Waffle Local and Danish bakery Ole & Steen.
“There’s an interesting tenant mix,” Mullins told MCA’s sister title Restaurant at the time. “In terms of us, Anzu and Duck & Waffle, it is welcoming new concepts. Novelty is the attraction here. It’s only a block south of Soho and there are now five good reasons to come down here. We are creating a dining destination.”
A year on, both Mullins and Tish have left Salt Yard Group and one of the major reasons behind their departures is the failure of Veneta to meet expectations and the subsequent impact on the performance of the rest of the business. The site is understood to be on the market, but rather than an example of how the current property market in the capital is going, it seems operators at the new scheme were facing an uphill struggle from the start.
As I understand it Aquavit, which spent £4m on their fit out is struggling and Anzu isn’t doing much better. The office element of the scheme is still largely unoccupied – it may be fully let, but it helps if there is actually someone in the units. Then there was also the premise of picking a line up of similar £40-£60 a head ‘non branded’ restaurants, which may not have seem that risky when negotiations on the space started two years ago, very much does in the current climate.
Reviews of the scheme have also been less than glowing, with the development being criticised for being cold, uninviting and misleading - why call it a “market” when is a line up of high-end restaurants and grade A office? The operators there will hope some of these problems are addressed, or more will go the way of Veneta.
