From increasing M&A activity, to the fallout from the decision by Enterprise Inns to invest in pubs in partnership with “managed experts” and the growing pressure on the all-you-can-eat buffet market is coming under, the sector is set to shift over the coming six to 12 months from shadow boxing to landing some knock out punches.

What do Las Iguanas, La Tasca and YO! Sushi all have in common? They had all got to a point in their respective lifecycles when their backers needed to place them on the market. Bowmark acquired Las Iguanas in August 2007, YO! was acquired by Quilvest in March 2008, while Kaupthing and Commerzbank have been backing La Tasca since April 2007. You could argue that exits here are long overdue, postponed until after the downturn and more favourable trading and funding conditions.

Fast forward six months, and that need is set to be replaced by a want. A raft of businesses are set to come to the market next year that are ahead of schedule in terms of performance and roll out. The Piper-backed Loungers and Be At One, Cote and Bill’s are set to be at the vanguard of M&A activity next year, harking back to three-five year private equity-ownership cycle that was stretched during the downturn. Although it is thought that all four businesses would favour a further private equity play, each has been set up to allow for every option to be explored, with Loungers already indicating that an IPO “is coming on to the radar a little bit more”.

Others to look out for include Byron, Individual Restaurant Company, Brasserie Bar Co and the fast-growing Turtle Bay. The latter, another from the Piper stable, is understood to be generating average weekly turnover of £50k and has a raft of openings already up in London villages (Brixton, Dalston, Peckham) and across the country over the next 18 months. I would be amazed if its recent success isn’t being discussed by would be suitors for Las Iguanas.

Eureka moment

Speaking last November, Ian Edward, the corporate adviser to the eating and drinking-out market, said that the breaking of the tie was going to present a fantastic opportunity for good operators.

Edward said: “At the top end there will be some really interesting developments. Good companies will find a way to get the best operators working with them and give them good sites and we could end up with a situation where you get a number of high-quality operators running between five and 20 sites from Enterprise or from Punch, who are prepared to work as a partnership and put money in.

“For example Enterprise they know they are going to have to try and find a way to equalise the beer discount. To try and equalise that they will have to find a great operator that is going to make so much money out of his food sales and business that he can afford to pay a top up rent that goes some way to equalising that.”

Unsurprisingly, Edward and long-time associate Rupert Clevely are set to be the first of these “managed experts” as Enterprise calls them, with a conversation on the terms of their partnership going on for some time. The result is that Enterprise’s managed expert model will include an average initial capital investment of £400k per pub. The question now is how many more operators will get in bed with Enterprise, which envisages 100 schemes within five years under the segment, with each pub turning over at least £1m.

Edward and Clevely are not the first experienced operators to see the opportunity that the MRO option is set to provide. Mark Derry at White Brasserie will have nine pubs open by the end of the summer, seven acquired in the group’s current financial year, the majority former Enterprise sites. The pubs achieve higher sales and higher volumes than Derry’s restaurants and consumer expectations are lower. Again Derry came with his own solution to get the ball rolling designing a lease that includes a “fixed element” and a “turnover element”.

He says: “In return for that we are striking some deals that require a little bit of investment from the landlord and a lot of investment from us. That means that the estate is improved, we get leases that have residual value rather than tied leases which are severely marked down, because it’s an open valve to price increases, frankly.”

Derry has been followed by James Horler, the former La Tasca chief executive, who now heads up Ego Restaurants, which opened its first pub, Ego at the Holy Bush in Stockton Brook, last year. The site is generating average weekly sales of £25k up from £4k/5k before acquisition and ROI of in excess of 50%. Like Derry, Horler is concentrating on growing a pub estate over his established restaurant brand. Unlike Derry, who is seeing average weekly sales top £40k, he is concentrating on a wider, less affluent market. The company is currently in advanced negotiations on a second pub site in the Doncaster area.

And what of companies such as Whiting & Hammond, Peach Pub Company and TLC inns and their like? Does Enterprise’s decision mean a glass ceiling to further, significant expansion can now be broken through? Or is this just another layer of competition to battle against? The greater competition means there will also be higher turnovers and more choice for consumers, if operators have capital to spend. It is this last point that will go a long way to determine the winners and losers over the next few years.

As Edward puts it: “For me they (Enterprise or Punch) pick 10 to 20 great operators to work with at the top end. We will then end up with a market in which you can sell these businesses in the same way you can sell a branded pub or restaurant business.”

Man your stations

Two years ago, there was talk of growing a 25-strong estate in the short-term and eventually operating 80 sites across the UK, but perhaps Luke Johnson had already envisaged that new investment Red Hot World Buffet would be a longer and more difficult play than that, immediately making it known that the business would scale its ambitions back to around one opening a year.

And so it has proved, with interim chief executive James Horler indicating at the start of last week that the company and the sector as a whole was entering a period of consolidation. When Johnson invested in Red Hot much was made of how like say Harvester, Toby Carvery and Frankie & Benny’s it expertly matched the consumer need for value and generosity. However, where it doesn’t match them is in terms of wage costs per site and the infrastructure involved to produce over 180 fresh dishes per day per site.

And although there is still a lag on consumers trading up, Red Hot is not the only branded operator in the fixed price all-you-can-eat buffet sector being impacted as more independent operators enter local markets. Cosmo has closed sites and postponed openings, while Jimmy’s is understood to be facing a further restructure. Horler says: “When a new one opens, it doesn’t grow the market by the volume of the latest opening it grows the market a very small percentage, and the other operators become less busy.”

The sector grew in direct correlation with the more austere times. However, RHWB managed to pull off the trick of crossing over from the world buffet staples of cash-strapped families and students to also engage more of the eating-out market demographic. It now has to repeat that trick in a more competitive and shifting marketplace.