In his first year as chief executive of The Restaurant Group, Andy McCue, has made good progress, but are his hands ultimately tied by the weakness of the group’s core brands? Dominic Walsh discusses this dilemma as well as examining the successful takeover of Admiral Taverns and a Deliveroo deal that never was
It is difficult to take issue with anything Andy McCue has done during his first year as chief executive of The Restaurant Group. He has closed uneconomic sites, revamped menus, reversed past increases, appointed new talent, cut costs, improved service… the list goes on.
The City certainly liked what it heard at its recent half-year results, despite the 30% slump in underlying pre-tax profits to £25.5m and a worsening of the like-for-like sales decline. The shares responded on the day with a 9% jump to 346.5p, although that was partly from relief that the interim dividend was being maintained at 6.8p a share.
Since then, the enthusiasm has waned somewhat and the shares have given up much of that gain. They are now down almost 20% in the 12 months since the former Paddy Power boss took the reins and the 740p they peaked at in February 2015 is but a distant memory.
Analysts at Liberum encapsulated the issue neatly, declaring that it was “easy to forget that The Restaurant Group is conducting a turnaround against a tough backdrop of increasing inflationary pressures and a highly competitive eating-out market”.
The Brumby clan, at Langton Capital, said the growing confidence in the company’s turnaround prospects under McCue was all very well, but cautioned that its reliance on leisure parks might be a problem if the 52% slump in cinema attendances in America so far this year is replicated this side of The Pond. If such a decline was, as has been mooted, due simply to a poor schedule of blockbuster releases, it wouldn’t be a massive issue; but if it was a structural issue relating to the on-demand revolution led by the likes of Amazon and Netflix, the implications for the Frankie & Benny’s operator could be more serious.
In fairness to McCue, he has done nothing to hype up expectations, warning investors the turnaround cannot be rushed, especially if they want a long-term solution. As he has made abundantly clear, this is a “transitional year”, where the focus remains on rebuilding volumes (at the expense, in the short term, of like-for-like sales).
My own qualms about the turnaround are more straightforward. While the group’s concessions and pub divisions are strong businesses that are more than capable of holding their own against the competition, I’m simply not convinced by The Restaurant Group’s leisure brands. While Coast to Coast is clearly destined for the scrapheap, possibly to be replaced by Firejacks if the pilot site in Northampton proves a success, McCue has (so far) insisted that Frankie & Benny’s and Chiquito will be retained.
In some ways, he doesn’t have much alternative. Scrapping the still fledgling Coast to Coast brand is one thing, but Frankie & Benny’s, with 258 units, and the 83-strong Chiquito chain are different propositions in terms of the scale of such a challenge. Even assuming McCue could drum up new brands to replace them, the conversion process would extend the turnaround by at least another couple of years and it could take several stabs to find the right formula, without any guarantee of success.
Which basically means that The Restaurant Group CEO is lumbered with the Frankies and Chiquito brands and will simply have to get on with trying to improve them to the point where they can, once again, hold their own against the competitors doing their best to grind The Restaurant Group into the dust.
C&C toasting deal to take on Admiral
C&C group chief exacutive Stephen Glancey and his colleagues will doubtless have been downing a Magners or two after finally snaring a pub deal to boost their “challenged” distribution in England and Wales.
Teaming up with Propium Capital Partners was a case of third time lucky for C&C as the company had previously taken a tilt at both Spirit Pub Company (on its own) and Punch (in partnership with Alan McIntosh’s Emerald Investment Partners) before being approached by the New York-based private equity firm about the purchase of Admiral Taverns.
Including debt, the deal values Admiral at about £220m although C&C has had to stump up a comparatively modest £37m in return for a 47% equity stake and, more importantly, a distribution and procurement deal with Admiral. Far better than having to stump up almost £800m for Spirit and having to take on the running of a large and complex managed pub estate.
Time for Molson Coors to show strength on ABV labelling
How bizarre is the story about Molson Coors and the mystery of the under-strength ABV of Carling?
I don’t propose to go into the ins and outs of what the brewing giant described as “a very complex legal case”, but it does strike me as extraordinary that a manufacturer as big and professional as Molson Coors would attribute the 3.7% ABV its lager came out as to “small variances” due to brewing being a “natural process”.
If the company really has been deliberately producing below-strength beer to avoid paying higher duty, then it needs to do the decent thing and change the current ABV of 4% it is falsely claiming on the side of Carling packaging.
All quiet on SoftBank front
So what has happened to SoftBank’s mooted interest in buying a sizeable stake in Deliveroo as part of a new funding round by the takeaway delivery firm? Well, nothing so far. In fact, if my sources (people who ought to know) are to be believed, negotiations may well have fallen apart.
I guess it’s possible talks could be reignited, but if they have been killed for good it begs the question of what happens next. If Deliveroo, which remains loss-making, is to pursue its ambitious development plans, it will need more cash, but it is not clear whether its new funding round talks involved only SoftBank or whether it has other putative investors waiting to come off the bench.
Impressive an operation though it undoubtedly is, doubts over its business model in an increasingly competitive takeaway landscape remain and it looks like co-founder and CEO Will Shu will have his work cut out as he seeks to turn the company into a profitable business with a solid long-term future.
Dominic Walsh is a business reporter at The Times covering the leisure, tobacco and drinks industries
