A case for staying private?

You have to feel a little sorry for The Restaurant Group. It saw its shares plunge almost 4% on the stock market on Thursday – a not unsubstantial fall considering it had nothing to do with its own performance. The reason was a broker’s note. Cazenove downgraded its rating for the group on the back of fears of a squeeze on middle-class spending. Earlier in the week, Tim Clarke, chief executive at Mitchells & Butlers, had raised the issue, highlighting the impact that increasing interest rates and a mounting tax burden were having on the mainstream suburban market. This was one of the factors, along with greater competition in the pub food market in the run-up to the smoking ban, putting pressure on M&B’s mid-market businesses, he said. The remarks obviously registered with Cazenove. What Clarke didn’t say was that another issue was likely to be increased competition from casual restaurant chains, such as The Restaurant Group’s own Frankie & Benny’s. That’s the irony of Cavenoze’s reaction. Only 10 days earlier The Restaurant Group reported a commendable 4% increase in like-for-like sales for the most recent trading period. There is also plenty of independent evidence to suggest that growing brands such as Frankie & Benny’s and Pizza Express are now rivaling pub restaurants in the public’s affection right across the country, and especially with women and younger diners. Those concepts are also consistently beating more established pub food names, including M&B’s own restaurants, when it comes to satisfaction ratings of the eating-out experience. Warning of a middle class squeeze is also nothing new. It has been highlighted even in this column. What M&B, with its customary thoroughness, did was to quantify and articulate the impact more effectively than most. Not that Tim Clarke appeared overly worried either, maintaining that M&B was well placed to withstand inflationary and interest rate pressures. The Restaurant Group has a reputation as a similarly well-prepared operator. In the great scheme of things, Cazenove’s intervention is likely to make little lasting impression. Although it may reinforce the sense among the majority of casual dining chain owners that they are right to remain in private hands. • Rumour has it that Regent Inns, which issued a profits warning this week, will be the next target for Robbie Tchenguiz’s R20 group, after it dropped out of the bidding for the Strada chain. The list of publicly quoted companies could get shorter still. Peter Martin is co-founder of M&C Report and director of the Peach Factory