Consumer expectancy levels have never been higher, that’s a given; but operators will also have to come to terms with increased red tape, including a renewed focus on health and the new battlefield in the war for talent that the National Living Wage will provide; a regional property market that is getting hotter; the further blurring of traditional trading lines; how best to use technology and delivery; and for some when to time their exit.
There is a “classic” scene in the Peter Kay-led series Phoenix Nights, where Kay’s wheelchair bound character Brian Potter finds himself stuck on his stair lift after a power cut and says to himself “think what would Thora Hird do?” I find myself muttering something similar whenever I am asked what should operators be looking to do to stay ahead over the coming year, but my line goes “think, what would Nando’s do?” For if there is one brand/business that continues to stay one step ahead of the market it is the per-peri chicken concept, whether that is through building and strengthening its culture; incorporating technology and delivery or it continued expansion (another 30 sites are set to open this year). It’s a machine, a well-oiled machine that is not, from what I understand, set to rest on its laurels.
Rumour is that after 18 months of looking inwards at how it could improve, the group spent most of 2015 putting its new thinking and a refreshed operational team into play, with the results believed to be close to double digit like-for-like sales growth throughout the year. The recent appointment of Richard Atkinson, who was responsible for building the award-winning JustGiving service, as its new technology director, highlights where is believes further crucial gains can be made. Expect it to make further significant steps in regards to the delivery side of its business this year.
In terms of delivery, for the majority of the sector it will be a case of how you use it, not if, to complement existing business. The growth of the likes of Deliveroo has continued apace, Bella Italia has become the latest brand to trial its service, and more firms of its ilk are expected to enter the UK market with Uber casting an increasing shadow on where this industry could eventually end up. Delivery will play a key part in the next 12 months for PizzaExpress. Chief executive Richard Hodgson has made an impressive start at the company and not been slow in pushing the brand and business forward. The group’s first Delivered sites should soon come online in Exeter, Staines, West Hampstead and Cambridge, it will be interesting to see how much of a foothold the brand can get against the traditional players, such as Domino’s and Pizza Hut. At the same time, the group will hope to further expand its fledgling chicken concept Reys and don’t rule it out from further M&A activity. I understand it was one of the main interested parties in Jamie’s Italian and is expected to look at further opportunities, especially ones with the potential to grow in the Far East.
In terms of M&A, the timing of processes and valuations will come into even greater focus this year. As analyst Simon French wrote in M&C last week private equity has reduced the multiples it is prepared to pay since the high watermark set by BC Partners with its acquisition of Côte last summer. Both YO! Sushi and Gaucho have had to substantially reduce their expectations in order to get deals over or close to the finishing line. Ed’s Easy Diner is going through a similar process, with a valuation rumoured to have started close to £90m at the start of last summer, now believed to be around the £65m mark. With a number of the sector’s highly-regarded businesses set to come to the market over the next 12-18 months – Be At One, Loungers, New World Trading Company and Bill’s – I expect the market to resemble a F1 qualifying session, with advisors looking for that clear track/air to get their cars/brands out into the market place before a plethora of IMs muddy the valuation waters.
New concepts will continue to enter the market, some with already established operators behind them and others from those looking to turn from poacher to gamekeeper. Ch&Co’s acquisition of Apostrophe two years ago was meant to herald the start of contract caterers looking to establish their own presence on the high street. 2016 could see this eventually happen, but with a twist, as wholesalers decide to side step supermarkets and look to reach consumers direct. The launch recently of Inferno Pizza from Bakkavor is a point in case. Closer to home, the recent launch of the more food-led Costa Fresco from Whitbread, will provide a further challenger in the breakfast and lunchtime market. It will interesting to see if anyone follows the lead of the Azzurri Group, which acquired Coco Di Mama last year, and purchases or develops their own food to go/fast casual concept. It will worth keeping a close eye on the development of Rapide by Café Rouge and YO! to Go.
Speaking of the latter, it is a big 12 months for YO! Sushi and chief executive Robin Rowland. The early momentum it is generating in the US needs to be built on. Conversely, any sense of disappointment over how the group’s recent deal finally panned out needs to be put to one side. For YO!, and indeed Carluccio’s under relatively new chief executive Neil Wickers, it may be a year of consolidation in the UK as they both look to defend their current market shares against more nimbler, youngers operations. Wagamama has shown over the last 12-18 months that established brands can evolve successfully even in the most competitive of environments.
When it comes to breakout performers, 2016 should be a big year for Chicken Shop, Busaba Eathai and Dishoom, all three are not new to anyone living in London, but all will be taking their first regional steps over the next 12 months and it will be interesting to see how they translate to a wider audience.
Sir Charles Dunstone will look to repeat his success with introducing Five Guys to the UK with the launch of MOD Pizza. The latter is already putting offers on sites here and rival operators will be well aware of the impact Five Guys had, and continues to have, on property valuations up and down the country.
On a wider note, further attention will be paid to the IPO market with the Casual Dining Group and Stonegate sure to be interested in how D&D London’s mooted, but so far delayed, listing goes. Contactless payment, already a key tool in the food to go and fast casual market, will also gain wider transaction. Questions, continued ones at that, will also need to be answered in regards to the future direction of Mitchells & Butlers, but that and more of the pub sector will be covered next week. For now I wish everyone good luck for the coming year – don’t blink or you will miss out!
