Earlier this month, the Gondola Group’s chief executive Harvey Smyth said that the last 12 months had been a break-out year for the company’s burger brand, Byron. On Friday, those words took on new meaning. A process that had stalled back in June was jump started by an off-market approach by Hutton Collins. But what changed in the last three or so months and what next for both Byron and Gondola?
Firstly we have to start with timing and whether Byron was brought to the market too early. Many believed that Gondola would have preferred to have waited to see how the process of Cote played out and the multiple achieved by that deal, before officially setting the ball rolling on the Byron sale. The drawn-out nature of the Cote process hindered this waiting game and it seems finally broke the group’s patience.
Rewind to the start of June, and Byron, the then 34-strong-group, is taken off the market after several bidders, with TDR Capital understood to be the leading one, unprepared to go above the £85m-mark and toward Gondola’s expected £100m sale price. Again timing is an issue; the same week that the chain is taken of the market, its second site in the north west opens in Liverpool. The regional rollout story that the group lacked, and is believed to have played a major part in private equity coming up short on the valuation, was just about to get a vital shot in the arm.
Fast forward to the start of this month, and a sister site in Manchester, which opened in May, is believed to be generating average weekly sales of c£50k, while Liverpool is understood to be drawing in sales in excess of £30k. Add to the fact that further sites in Milton Keynes, Hammersmith, The Strand, Shoreditch and Langham Place, Westminster have been secured, and the plan to strengthen the pipeline over the next 12 months is certainly already being carried out vigorously.
The other fact is that Byron under the leadership of Tom Byng has been and will hopefully continue to be, one of the best casual-dining brands to have been developed and rolled out over the last decade. That didn’t change over the summer.
What moved on for the private equity world, with the pipeline strengthened, was whether it could now justify a multiple for the business that it felt uncomfortable with earlier in the year, which included Searchlight Capital and at one stage Hutton Collins.
As Paul Hemming at Zolfo Cooper says: “The real issue in all these deals is the pro forma EBITDA, what should be included and what is a step too far for a buyer to accept. In Byron’s process the market rejected the suggested pro forma, resulting in lower bids. The progress of the business since the sale process has allowed Hutton Collins to meet Gondola’s price.”
The run rate at the 34-strong chain is understood to be close to £10m, giving a multiple of 10x. After a few months for the dust to settle down, Hutton Collins, which previously backed PizzaExpress, Loch Fyne and Wagamama, clearly now felt comfortable enough with this figure to approach Gondola direct and quickly push through a deal that backs the existing management team led by Byng.
The talk from Byron’s new backers, whose current sector investments include Caffe Nero and Novus Leisure, is of 10 openings a year and the possibility of the brand reaching anywhere between 80 and 120 sites over the next few years. There are still plenty of potential locations for the brand outside and inside London, and with GBK still finding its expansion feet and doubts being cast over the potential rollout out of US chain Five Guys, Byron has the momentum and offer to get out, and stay, ahead of the pack.
For Byng, he must have thought the chance to join contemporaries such as Alex Reilley at Loungers, in securing an equity play for the concept he developed and put so much effort into, had slipped by in June. The real reward for his efforts, financially at least, should come from when Hutton Collins looks to exit in three-five years time. The genuine warmth and congratulations that have come Byng’s way since we broke news of the deal also shows the regard Byron and himself are held by peers and consumers alike.
The quality of Byron’s offer and people is testament to Byng, who will rightly take a lot of the credit for the growth of the burger brand since its launch in 2007, but he would be the first to acknowledge the part played by Smyth and Gondola over the past six years. As he told me back in March: “I had a sounding board on my doorstep. A bunch of people more than happy to give their perspective to help. To be able to have good people that close to call on was a great benefit, but also to have the space to develop something entrepreneurially where there was no pressure in terms of suppliers, marketing or recruitment. You know some people when they start up may look back and say they had cut corners to get where they were, we were determined to not do that. That is where the good parenting of Gondola paid dividends.”
As I have said before Smyth should be applauded for backing Byng’s vision and allowing him the space to develop and roll out the concept. The deal gives Gondola, alongside the recent “amend and extend” of its £500m debt burden, further breathing space to assess its options going into next year, but the feeling still persists that the sale of Byron is the start of Cinven winding down its involvement in Gondola. Whether that is through a further break-up, outright sale or IPO should become clearer over the next 12 months. For now it should take some pride in the part it played in handing over to Hutton Collins what under its stewardship has become one of the most important brands in the casual dining market.
For Byng there is the challenge of keeping up the momentum behind the brand’s development. He will also soon have to work with a new chairman/sounding board, and as with Cote, this will be an important appointment for the business, one that say Ian Neill could fit perfectly.
Back to that meeting in March and Byng was keen to get one point across: “We are not spreading ourselves too thin. Too many chains try to do too many things and move away from their core strength. We don’t want to fall into that trap.” The trick will be to make sure Byron doesn’t fall into a trap that has caught out many before it as it grows across the UK, but it is one you wouldn’t bet against him pulling off.
Trinity take off
Whether it quite matches the hyperbolic statement from Richard Johnson, founder of the British Street Food awards and the driving force behind the street food aspect of Leeds’ new Trinity Kitchen development, that it will “change in no small way the face of British retail”, the opening last week of the final part of the Land Securities-led scheme is definitely a significant step on from previous shopping and F&B mixes.
Andrew Dudley, head of retail project management at Land Securities, said at the launch last Thursday that the company wanted to create something “really special… to bring the urban, edgy environment into a shopping centre for the first time”. They may have just pulled it off.
What is true is that by complementing a selection of five street food vendors, which will be rotated monthly, with the first appearances in that part of the country by a number of highly-regarded fledgling brands, Land Securities has provided something akin to the communal buzz found at say Brixton Market. The trick will be to maintain the communial feel and camaraderie between the operators, especially if some start outstripping others.
It is hard not to tweak an old cliché but Trinity Kitchen is certainly a feast for the senses. This reporter for one found it hard to choose which offer to try out first and therefore indulged (some would say over indulged) in several during the day. However, this should equate to repeat visits from the more local consumer base over the months ahead and it was interesting to note the wide demographic that took in the Kitchen during its first day of trading.
For the street food operators it will provide much needed exposure and operational learnings. For the more established brands, such as Chicago Rib Shack, Pho and Tortilla, which have signed 10-year leases for the scheme, it will also be about exposure in a new trading region, getting used to new concept variants and the ebb and flow of trading in a shopping centre.
Early indications are that taking space in the 20,000sq ft food hall will turn out to be a shrewd move. Stephen Wall, co-founder of Pho told me: “We’ve had a very strong opening, extremely strong customer numbers and certainly above expectations.” This is backed up by Brandon Stephens, founder of Tortilla, who said: “The launch has been very successful. The launch marketing was managed exceedingly well by Land Securities and the resulting performance over the first four days has been well above expectations. Now we need to see how things play out once the honeymoon period subsides.”
Trinity Kitchen may not change the face of British retail but it will change consumers’ and operators’ expectations about what a shopping experience should deliver for both. Land Securities has now laid down a strong gauntlet for further F&B development in the retail sector. It will be interesting to see who takes up the challenge and how they move it on even further.
