PizzaExpress chief executive Richard Hodgson talks to Mark Wingett about facing up to a challenging trading environment; Deliveroo; choosing Firezza over Delivered; the future of Reys; and bringing some Starbucks expertise to bear in the Far East
“It is a challenging time, especially for a long-established brand like ours with 450 sites in the UK, some of which are not in the right locations, some of which are now having to compete, in some places, with eight new entrants in that catchment. It makes it really difficult to be able drive like-for-like growth in sites like that,” admits Richard Hodgson, PizzaExpress’s chief executive for the past three years.
“On the flip side, and one of the reasons people were keen to buy us three years ago, is that we have a very small tail, there are only a couple of restaurants that lose money. The last time we looked, it was seven, of which four lose less than £10,000 a year. Even sites that were less profitable than they were are still very profitable because of the business model. They only become unprofitable if they come up against the perfect storm; the rents go up and the competition turns up in force – that has happened in certain locations. My property director comes to me every week with a list of what sites our competitors are selling and we look at them all and think should we be more active in disposing of sites? But then why would you dispose of a profitable site?”
Competitive market
In a casual-dining market that has been sluggish since the turn of the year, Hodgson says that the company is having to work harder than ever to stay ahead. Speaking before the Brexit vote, he says: “We are looking very closely at every single site to understand where we should spend our money. We will open fewer sites. We pre-viously said we would open 20 a year, which will probably go down to 15. The money we save will be spent on polishing the existing estate.”
He is reassured that the issues currently being faced are sector-wide, not company specific. “We still have a very much loved brand across a wide demographic. I sometimes take offence when people say ‘are you worried about the better pizza players?’, I’m like ‘hang on a minute, no one sells better pizza than we do’. Franco Manca pizzas or Pizza Pilgrims pizza are not a patch on our pizzas in our opinion. There isn’t just the threat of the better pizza players there is the threat of more pizza players and more players full stop. We compete with everyone.”
To stay ahead of that growing competition, the company has been making both significant and subtle changes. Hodgson says: “The core business is challenging, we have to focus on what we are good at. We have signed a new partnership with O2, which has been successful. Promotions work to drive people back into restaurants at quiet times. The challenge is to find promotions that drive incremental business.
“We have signed a partnership with O2’s priority club members, which started two months ago, offering a classic pizza for £5 and that has proven successful in driving in a lot of incremental covers. It is also a non-family customer, so another demographic to tap into. We have been looking at our menu and created a new way to introduce specials. We are going to have fewer menu changes, but a rolling programme of seasonal specials. One of our challenges is that we have so many different versions of the menu and regional pricings, so every time we change the menu, it is a significant cost. What we have done is introduce specials cards. We are spending a lot less on menu print and that is creating a more profitable buzz within the restaurants. We will stick with this new initiative for a long time.”
The company has also made a number of head office changes, which Hodgson says is all part of it cutting its cloth accordingly “to the current headwinds” and allowing it to pay its restaurant teams more. He says: “With the national living wage comes a real opportunity. We have seen some of our competitors try very hard to get the money back by either cutting shifts down or removing staff meals. Staff members are such important assets, why would you mess with that? It is an opportunity to show what a good employer you can be.
“We have restructured the operations team. We took out a layer, the divisional director level, and now we have five regional operational directors: Graham Fenwick who oversees Ireland; Lee Homer in London; Rob McCoy overseeing the south; Carl Webber in central; and Tom Sycamore in the north.
“Structures have to be fluid and you have to keep changing them. We have to evolve. My top team is better than the team I inherited when I arrived. We have taken the opportunity as people move on to strengthen the team, and that’s how it should be. We’ve had to look at our central costs because our top line hasn’t been growing in proportion. I have moved very quickly to demonstrate to the team that anybody can be replaced and demonstrate to our investors – Hony Capital – that we will move swiftly as and when we need to.”
Far East promise
Internationally, Hodgson has also been decisive, acquiring back control in the Middle East and the Far East and, again, making key personnel changes. The company recently appointed one of the key men behind the launch of Starbucks in China to help it grow its estate in the country to 250 sites by 2020.
The company, which currently operates 24 sites in the country, has appointed Jinlong Wang, former legal counsel to Starbucks founder Howard Schultz and director of Hony as its interim chief executive for China. Wang led the team that launched Starbucks in China and oversaw the rollout of 2,500 sites there.
Hodgson says: “Jinlong has an amazing track record. He is helping me with our plans and expansion there. We currently have 24 sites in China and 15 in Hong Kong. We plan to open 250 restaurants by 2020 in mainland China and I am confident we will do that. We opened a site in Hong Kong two months ago and it is 40% ahead of expectations. We recently opened a site in Guangzhou that is taking £30,000 a week.”
Hodgson says the company had taken the decision to separate its Hong Kong and China operations, as despite being next to each other geographically, they are very different in terms of consumer demographic and usage.
At the same time, Liam Collette has been promoted to run the group’s Hong Kong operation and oversee growth in both the company’s existing and new International markets other than China.
“We will open another four in Hong Kong this year and we are looking at new markets out there. We open in Singapore at the end of this month with a company-owned site. Our focus is likely to be south-east Asia hence Liam being based in the region. At present, we are looking at finding the right markets and the right way of working in those markets. That might be company-owned, franchise or through a joint venture,” he admits.
When we met, Hodgson admitted that the company was currently deciding on whether it aggressively rolled out its Delivered concept, which was launched earlier this year, or its recently acquired Firezza brand. Judging by his subsequent comments that decision seemed already made. Hodgson said that the group’s first, and so far only, Delivered site in Exeter was doing “OK”. At the same time, the performance of the 17-strong Firezza, which the company acquired earlier this year, had “exceeded all expectations”.
Pipeline options
He said: “Our first Delivered site in Exeter has been interesting. It is a really good site. It is right next to a Domino’s, which closed to be refurbished and reopened just before we opened, so that site has all that brand’s wisdom in it. In the first week, we couldn’t keep up with demand, despite all the testing we did. It has settled at an OK level. We have learnt a lot about delivery through our Exeter pilot and Neil Lambert, who led the project, had been able to provide Edin Basic and his team at Firezza with a lot of help. We have found that both businesses have some great ways of working that, when combined, could be a real winning formula.
“We have been building a pipeline, but what has made us think again has been the performance of Firezza, which has been really impressive. We are deciding at the moment what we want to do. Do we want to aggressively roll out Firezza?
“Firezza has really delighted me. You never know how good it is going to be until it is yours. It is a great business. It has been run in a very entrepreneurial way and the structure and processes that make PizzaExpress such consistently high quality is already helping them. It has been working like a dream and we will open a significant number of Firezzas over the next couple of years. We will open between six and nine Firezza sites between now and Christmas. It will be a mixture of London and Home Counties locations.”
It is thought that, in time, the group’s Delivered pipeline, including its Exeter store will be rebadged as a Firezza.
The company announced last month that it had signed a deal with Deliveroo to work with it across its 460 restaurants. Hodgson says: “We sell about one million pizzas through takeaway already, but it’s not that convenient for customers.
“There’s been a significant increase in demand for restaurant-quality food delivered to the home and we didn’t expect that explosion. It’s about convenience. Some people don’t want to walk to the fridge, take out a pizza, warm up the oven and wait 11 minutes for it to cook, they prefer the tap, tap, boom of Deliveroo.”
Chicken concept set to fly
The company is also set to evolve the design and feel of its fledgling chicken concept Reys as it looks to open a further two sites this autumn. The changes come as the group has placed the concept, which launched last year in Cambridge, under the remit of Fenwick. Roman Sierankowski stepped down as head of operations for the concept and Neil Nugent, who was development chef, has taken a full-time role at Iceland, but continues to advise.
Hodgson says: “Reys is frustrating. All the feedback is fantastic. It gets a strong tourist trade and among theatre-goers, but we need to do a better job of getting locals in. It has lots of peaks and troughs, more certainly than we see with PizzaExpress.
“We are not making many changes to the menu, but we are looking at evolving the design and feel – making it a little bit more cool and grown up. Everything I said 18 months ago about the concept still stands – there is plenty of potential.
“In terms of expansion, we have nothing confirmed. We have four/five potential sites and we will be choosing two of those and I expect to have both opened this autumn.”
Hodgson remains as excited about his role as he did when he joined the business three years ago, aided by the international possibilities Hony’s ownership provides.
He says: “The UK business remains hugely cash generative, but it will get harder to open sites. When we sold the business, there were 200 possible locations we could open in and we are looking at opportunities in all of those locations. There are still opportunities but it is great not to have the pressure to have to take them up. I am now turning down marginal sites here in order to open sites overseas where we can get better returns. It is great that we have that option.”
