Andy McCue’s first update as chief executive of The Restaurant Group last week was brutally honest in assessing where the business now finds itself and in highlighting the speed of its decline. The question is will he and the company get time to right those wrongs and are the group’s future prospects and that of rival the Casual Dining Group now linked? Mark Wingett reports.
Admitting you have a problem is the first step in solving it. For the last six months, The Restaurant Group (TRG) has been open about the challenges it faces and new chief executive Andy McCue picked up the ball from chair Debbie Hewitt last Wednesday to shed further light on the issues facing the c500-strong business.
At the start of a review into the business last August, Hewitt targeted the group’s core brand Frankie & Benny’s and was scathing in her assessment – explaining that it had become a troubled brand for the group. McCue’s update led to leisure division stablemates Chiquito and Coast to Coast also being put under scrutiny - Chiquito was losing customers and its strategic positioning was unclear, while Coast to Coast was clearly a disaster. Despite its recent launch, it was seeing “extreme declines in like-for-like sales” and would be repositioned as a better burger concept.
The names of former chief executives Danny Breithaupt and Andrew Page were not mentioned, but their legacies at the company they both served respectively for over 10 years were again being placed under scrutiny by the incumbent. The news on Coast to Coast must have particularly stung. Speaking at the start of 2014, Page saw a bright future for the fledgling brand, which had been launched in Brighton in November 2011 and “touching £50,000” in average weekly sales six months after opening. He said that the brand was contributing “some astounding numbers” Page said: “When we said that Coast to Coast had the potential to reach 70 sites we were confident that it could operate alongside Frankies and Chiquito and that has been borne out so far.”
The confirmed appointment of Murray McGowan, formerly of Costa and KFC, to the newly created role of managing director across its leisure division underlines that new blood was needed, but that the baby will not be thrown out with the bath water and that their remains faith in the existing heads of each brand.
Can Frankie & Benny’s be turned around? For now it seems like a brand out of time, a slow moving beast in land of nimbler, better invested animals. As leading analyst Mark Brumby at Langton Capital commented on the brand after the group’s update “if it didn’t exist, would the UK be crying out for it?”
In the short-term, McCue is pinning his hopes on growth continuing and being driven by the group’s Brunning & Price pubs division and its admired concessions business. The latter has increasingly come into its own over the last few years under Nick Ayerst, benefiting from working across a number of brands and with wide range of concepts. Although it may be best not to tinker with a part of the business that is working, you wonder whether McCue should tap into this division more – its work with nimbler brands – or widen Ayert’s remit.
TRG’s acquisition of the then 14-strong Brunning & Price business for £14m in October 2007 has always looked like a good piece of business, McCue hopes it will now prop up the business whilst remedial work is carried out elsewhere. He said he envisaged a much faster growth rate for the pub business in the long-term.
He said: “I’d like to get it organically to double digit number of openings each year. Over the medium-term I think that’s an achievable target because they’re quite bespoke properties.” The group has always had a strong presence in the north west and has grown in the south east thanks in part to the conversion of TRG’s existing Bluebecker estate. It now needs to further bridge that geographical gap and not, as is being feared, cannibalise existing trade – especially in the north west. Easier said than done, when freehold destination pubs remain the must-have for the majority of the pub sector. However, the company’s balance sheet is unstretched so it does have the firepower to compete where necessary.
In terms of buying its way out of trouble, McCue said that the company had the tools to hand - its existing brands - to dig themselves out. Judging by his own harsh assessment of those brands, it is hard to believe the group won’t or hasn’t already done some modelling work on possible targets – Franco Manca and Turtle Bay, to name two.
And what of the company being a target itself? I understand that this question was brought up in the analysts update but got a firm no comment. Rival Casual Dining Group (CDG) is acquisitive and well-backed but it would be a big job to take it on before any recovery has taken hold and if an approach were made after recovery, the price would be very different and the current management may want to hang on for the upswing.
Of course that is not to say CDG will not be keeping a close eye on its nearest rival in terms of size and scope. In many ways they find themselves in the same position, parts of their businesses driving growth, whilst others – core brands – still need work. In CDG’s case there is still momentum to be harvested from the acquisition of Las Iguanas and the growth of its fledgling concessions and franchise division (for TRG read pubs and concessions). While the graphic equaliser dial on both of those has been dialled up, there is a sense that it has been turned down on Bella after three years where the brand has received strong investment and undergone a fast-paced roll out.
You could argue that the success Bella has had over that period under Nick White, especially on retail and leisure parks, in a small way has contributed to the problems faced at TRG, or at least heightened those it was increasingly facing. Conversely if it was CDG’s plan to seek an IPO – which many believe it was - the weakening of TRG’s position has certainly pushed that plan back, maybe by another three years – leading to changes to its management team and a quiet restructure of the business in terms of personnel as it cut its cloth accordingly. You sense that the group will need to return to the acquisition trail again the year to continue its momentum and allow Simon Wilkinson time to bring its other core brand – Café Rouge – up to speed. If anything, it finds itself two or three years ahead of where TRG finds itself now and has put in place a number of processes and foundations its rival is now searching for.
TRG needs to press the marketing button, cut capex, cut prices and generally sharpen up, but it needs to that in ever changing marketplace led by nimble competitors. It needs to make itself relevant again. As Brumby points out some actions are in train. He says: “Frankie & Benny’s will introduce a new menu this month with Chiquitos later this month. Coast to Coast is on a yellow card. Perhaps it should have got a straight red but, with 40-ish closed sites already sitting on the books, that may not have been an option. The consultants are in, though whether this is a positive or negative development is open to debate.”
TRG’s shares rallied on news of McCue’s initial findings and his plans for a turnaround. The group still has substantial sales, a real leisure park, airport & retail park presence and, for better or worse, recognisable brands. McCue admits that it will be a ‘”long journey” to halt the sales slide, but insists the ailing Frankie & Benny’s brand can “get back to where it was and beyond”. The group was in a hole, but the digging has stopped, the long climb back begins here.
