Whilst last week’s news was dominated by the fast-moving story at Patisserie Holdings, the last month has shone a light on a number of other companies in the sector, which are faced with their own issues and questions about their future. Mark Wingett gives his thoughts on the Coaching Inn Group; TGI Fridays; Five Guys; The Restaurant Group (TRG); and Gordon Ramsay.

Mandate Fridays

It has been an interesting year so far for the Karen Forrester-led TGI Fridays UK, and most of what has made it so, has been largely out of its immediate control. At the start of the year, Electra Private Equity, which acquired the then 66-strong TGI Fridays in a c£225m deal at the end of 2014, appointed Morgan Stanley to review the brand’s options, as part of a review of its entire investment portfolio. Earlier this month, Electra said it had ended its formal sales process for its entire portfolio but said discussions continued on possible individual portfolio or group sales. During the year, TGI has also faced a strike over tipping and more recently over pay.

Electra said both TGI Fridays, and its other remaining investment Hotter Shoes, had been hit by increased competition in recent months, with the former particularly impacted by heavy discounting prevalent in the casual dining sector. It said that both companies were now in need of “fresh investment to stabilise their positions and provide a platform for future growth”.

Through it all, Forrester, who has reinvigorated the brand over the last 11 years, has stuck to the line that it is “business as usual” for the c85-strong company as it looks to continue to open seven/eight sites a year. It certainly remains a favourite of landlords, especially for retail and leisure parks, with the brand in high demand as the like of TRG and the Casual Dining Group step back from that market. Indeed, in locations such as Walsall and the New Mersey Retail Park Speke, the group is believed to be generating strong weekly average sales. The brand was also arguably the leader in what we now call the experiential sector, although it has moved more away from its cocktail roots and dialled up the food mix and quality.

The problem for Electra and Forrester, who is quite rightly seen most inspirational leaders in the hospitality sector, is where is the buyer going to come from, especially for a business that, at present, only has a mandate to grow in the UK? There is also the expectation that Electra will have implemented all the low hanging fruit in terms of improvements

It’s a tricky one for Electra, depending on the view you take about how many more sites you could open in the UK. Even if you took the view you could open another 50, which arguably could be a push, that would leave the next private equity owner with no exit story – a situation that is not just a problem for TGIs, but an increasing one for a swathe of operators.

Any conventional private equity will need to see strong current trading and get comfortable with a long-term roll out plan, and because the brand’s remit is UK only, that places a big question mark against that play. Having said that, the Gaucho process has proved that there are investors who will pay a (much less aspirational) price for dependable cash flows. Working on that theory, it could be bought as a bit of an income play, not dissimilar to Pizza Hut UK, a business it was one linked with as a merger possibility.

Of course the company could be bought by a consolidator, with CDG the most likely candidate, but there appears no appetite in the sector for such as play, when most our dealing with their own issues. There is also the issue of what role Forrester would play in a consolidation piece or merger, the fear being that you would risk diluting the impact she would have on TGIs.

Finally, could the US group acquire the UK franchise back? The US business has on a number of times talked up its admiration for how Forrester and her team has rejuvenated and evolved the brand. Could now be the time to bring it back into the fold and give Forrester a greater say globally? One for a Friday afternoon discussion perhaps.

By Gordon he might have cracked it

High-profile chef Gordon Ramsay was front and centre at the launch of the Michelin Guide Great Britain and Ireland 2019 at the start of this month, where he presented the awards and gave out a few pearls of wisdom, with one being a “control freak” helped him maintain a three Michelin-starred rating for 17 years.

Back near the end of 2014, Ramsay began working with advisors at BDO to explore the sale of a c50% stake in his restaurant business, to help fund its expansion, which at that time operated over 20 restaurants around the world. By October of the following year, and after securing a new £13m five-year banking facility with Barclays, the process of finding a new investor had come to a halt, although it was thought that Change Capital, Searchlight Capital and current Wagamama backer Lion Capital, has shown an interest in backing the business.

One of the reasons put forward at the time for the failure to get an investment deal over the line, was Ramsay’s control freak tendencies, with another the company’s lack of a rollout vehicle. The latter is a problem the LDC-backed D&D London is now trying to rectify with its push to expand its Bluebird brand. Another issue for Ramsay was the lack of a management team, something he looked to rectify with the subsequent appointments of Stuart Gillies as chief executive and Andy Wenlock at managing director, although Gillies left under a cloud early this year, with Wenlock taking over his responsibilities.

Ramsay has also looked at cultivating a rollout strategy for some of his concepts, especially in Bread Street Kitchen overseas and most recently started exploring opportunities for his newly launched Street Pizza concept. The chef’s group currently has a total of 35 restaurants globally and seven Michelin stars, but its perhaps on the US, where he made the most impact.

Since arriving in the United States in 2004, Ramsay has become a television phenomenon. In May 2005, his show Hell’s Kitchen, which showcased the chef’s perfectionism and short temper in a high-stress competition reality cooking show, was launched. It is still on the air, and its 17th season ended in February. Since 2010, Ramsay has also served as a producer and judge on the US version of MasterChef. He has opened 11 restaurants across the United States. While at least three of the restaurants have shuttered, several remain open in cities including Las Vegas, Atlantic City and Baltimore, with the chef understood to be generating impressive sales especially though his concepts in the former, such as his Gordon Ramsay Steak and Gordon Ramsay Fish & Chips formats.

It is thought that Ramsay is doing so well Stateside that it his business has again attracted interest from investors looking to back him over the pond. It is understood that at least one of the private equity firms that previously ran a rule of the business, thought to be Lion Capital, again believes that Ramsay’s name could be used to open up to 100 sites in the US over a number of formats. With speculation that any new investment could be through a joint venture or partnership with an existing US-based operator/entrepreneur. It is thought that the more eclectic nature of the rest of the chef’s business, here and in Europe and Asia, has made securing investment for that part of the group harder, but that it could still follow at a later date. Like the chef himself, this might be a story that could come to the boil quite soon.

Coaching lessons

There can’t be a decent, or even half-decent, pub group/collection that isn’t contemplating coming to market at present. M&A activity in the sector is in the majority dominated by the pub market, as investors and trade buyers looks to enhance, complement or diversify their existing businesses, with a sector that has remained resilient in comparison to its casual dining cousin. The entrant of a new player in The Restaurant Group has also pricked up the ears of pub group owners, and a number of smaller groups are set to come to the market over the coming year to test the waters whilst they remain warm and welcoming.

It is no surprise then that the Coaching Inn Group has confirmed reports over the weekend that it has appointed Sapient Finance to renew its options. The Kevin Charity-led group has doubled in size since in first received backing from BGF three years ago and believes with new funding it can double its size again and has pinpointed several sites already which it believes could come into its estate.

Formed in 2010, the group, which is chaired by industry veteran Andrew Guy, acquired its 15th pub at the end of last month, after taking on The Swan, Stafford, for an undisclosed sum in an off-market transaction. In December 2016, BGF, the investment firm, provided an additional £10 million of funding for the group, following its initial £4.5 million backing in March 2015. It also recently secured new £16.5m debt facility to fund further growth

Its most recent numbers are impressive. Gross site Ebitda for the year to end of March 2018 was £5.5m with group Ebitda at £3.5m and the estate does not have a tail; all the inns are performing well. Turnover for the year was just north of £20m. It said that each of the key revenue streams had grown significantly during the year, with liquor up 17%; food sales growing 19.2% and room letting up 17.7% with occupancy now at 77% across the 431 rooms. The group said it had seen a 25% increase in site level EBITDAR despite the impact of closure periods and re-opening costs within the year.

Charity says the brand is leveraged throughout the group via economies of scale and consistency of service and operation. The inns are pitched at premium three-star level - with an average room rate currently around £62, accommodation is priced above the budget operators but below the four-star hotels. Food, too, is deliberately just above most pub restaurants in terms of price and quality. Charity’s aim is to over-deliver on expectations and to have revenues split pretty evenly a third each from food, drink and accommodation.

It is thought that Charity is keen to stay on, therefore putting private equity in the box seat to back a pub-style concept, it can get its head around. As AlixPartners’ Graeme Smith writes in the most recent issue of MCA, accommodation is another area providing operators with a great way to convert unused space and drive demand during quieter times of the day and week, such as breakfast, “therefore driving returns over and above a pure pub”.

The strength of the business and its points of difference will of course attract trade buyers, Punch and TRG are now linked to every process in the sector, but equally Fuller’s, Young’s and Marston’s are all keen to increase their letting room stock and could explore a joint venture/partnership model with Coaching Inns Group. Like Brewhouse & Kitchen, when it inevitably come to the market next year, the Coaching Inns Group has developed into a business that should enhance any portfolio it ends up choosing to join.

Here’s looking at another five

Many, maybe harshly, expected the news sooner, but five years since its launch in the UK, Five Guys closed its first site here, at the Westwood Cross scheme in Thanet, Kent, at the end of last month. It is not many one-site closure stories that become the most read on MCA’s website, but this one even made the number one spot. This highlighted for me the continued interest in the brand and the fact that many expected, with the speed of the brand’s roll out, price point and troubles faced by its better burger peers, which a closure, if not a handful of closures, would have happened already.

The group, which earlier this summer secured a new £100m banking facility through Goldman Sachs as it seeks further growth across the UK and Europe, currently operates c80 sites in the UK, with further openings lined up for this year in Canterbury, Chester and Rushden Lakes. It has not been unaffected by the sectors wider travails, pulling back on its rollout this year, becoming more strategic in its openings and focusing more on opportunities in Europe.

Documents issued to Companies House also showed UK turnover up 42% to £122m in the year to 31 December 2017, with like-for-like sales in the period growing 2.3%. EBITDA was up 60% to £18.9m with net losses increasing to £19.9m from £13.3m last year. Whilst the like-for-like sales growth looks robust, it must be remembered that these are the first figures with delivery sales fully taken into account and therefore I would have expected them to maybe higher. Either way, five years on Sir Charles Dunstone must be happy with how his investment has gone, especially as his others MOD Pizza and Chik’n, have experienced varying teething problems.

What will the next five years bring? Firstly, further growth in Europe, a market not over occupied with better burger brands. The company currently operates or has in the pipeline 14 sites in Spain, 12 in France and seven in Germany, whilst a first site in Portugal is also being sought. The success of the brand in Continental Europe was highlight last year, when the company reported that its site on the Champs Elysees averaged €303,000 a week. Its first store in France, in Bercy Village, Paris, averaged sales of €163,000 a week since opening in August 2016. In the UK, it has already explored smaller formats here, with a recent opening in Maidstone, becoming the group’s smallest footprint site – a test on whether the model will work in similar sized towns.

At some point, Dunstone will surely turn his attention to taking the brand into other parts of the continent, with Scandinavia possibly the first port of call, although he may have competition here from the company, which oversees the franchise in the Netherlands. Then there is the longer-term conversation to be had with the brands founders, the Murrell family, and whether they look to buy Dunstone, who is thought will be looking at some sort of transaction as he nears the 10th year of his investment, out or look to bring in another investor.

Murray’s hint

You may have missed an interesting people move from Friday afternoon, but one that may have some long-term significance for the company involved. It wasn’t a case of burying bad news, just more of the timing of when MCA found out, but TRG confirmed that Murray McGowan had left his role as managing director of its Leisure division.

McGowan took on the role last June after three years with Costa Coffee, latterly as managing director of Costa Express. He was previously chief financial officer for KFC UK. He was appointed to oversee the turnaround of the company’s Frankie & Benny’s, Chiquito, Garfunkel’s and Coast to Coast brands, giving chief executive Andy McCue space to work on an overall strategy for the business.

A spokesman for the group said the move was part of a restructure of the division, which incorporates Frankie & Benny’s, Chiquito and fledgling brand, Firejacks. There will not be a direct replacement, with responsibility for the division shared across a variety of roles.

The business continues to evolve away from what was traditionally its core elements, with a continued focus on its pubs and concession arms. This latest restructure and the departure of McGowan suggests there will be no stop to this movement in priorities in the short to medium-term.

To underline this, the company recently placed another nine restaurant sites on the market, following the successful disposal of 31 restaurants to date, and signed heads of terms to acquire Peach Pub Company. Perhaps, a name change for the overall business is all that is left now to really signal this shift in priorities.