The proliferation of the eating-out sector is attracting increased interest from investors, but gaining their attention and cash requires more than just a great idea, four leading investors have revealed.
Investors, on-hand with their insight, spoke at the ALMR Autumn Festival of Food and Flavour Conference and Study Tour in London earlier this week and included Steve Croswell, relationships director for hotel and leisure at Natwest; Luke Johnson, co-founder at Risk Capital Partners; Jason Katz, founding partner at Kings Park Capital; and Steven Kenee, partner at Downing LLP.
Those seeking a cash injection to get an idea off the ground would be wrong to think the crux of an investor’s decision lay with just the concept. “It’s about management,” said Kenee at the conference, which was run in association with the M&C’s sister title the Publican’s Morning Advertiser.
“If there are the right teams in place then they’re going to work well together and be working towards the same goal. It’s not always about the concept,” said Kenee, who mainly focuses on pub businesses. “We tend not to invest in a business that just says ‘this is a great concept’.”
Competent management is attractive, echoed Johnson, whose company’s investment portfolio included Patisserie Valerie, Giraffe, PizzaExpress and other food and drink businesses.
“Management must have aligned interests,” he added. “We look for businesses that aren’t too esoteric and that can be replicated across multiple sites nationally, are cash generative and can endure. Though, the biggest risk for us is that a business doesn’t stand out.”
To put it simply, most investors look for businesses they can buy into for one amount and then sell on for more. But Johnson also wants longevity — up to 10 years — in the businesses he invests, he said.
“It’s got to be a business that has broad appeal and will last, which, obviously, is quite hard to find.”
Ready to grow their reach
Katz, whose company’s portfolio spans restaurants, pubs and leisure, said the firm seeks ventures that had one or two sites, but were ready to grow their reach.
“Typically,” he said, “We focus on how we align our interests with management and the value that we can add.”
Adding rooms to pubs, for example, is an opportunity Kings Park Capital is interested in, because it can make food and drink offers in such venues work harder, said Katz.
There is no doubt among the leaders that foodservice had benefited from the growth in digital. More sites had become available as a result of the retail sector’s retraction, driven by fewer customers shopping in traditional bricks and mortar stores, said Johnson.
But property rates in cities such as London are still high despite this, which has resulted in investors looking for opportunities outside the M25. “We’re looking quite hard [for places outside London] because the rents are going to make things move from easy profit to break even,” he explained.
“It’s going to be a shock to some businesses. We are tending to avoid those super-prime central London sites.”
Yet, he added, London was a creative place and it was often difficult to find such talent elsewhere because the majority of driven entrepreneurs craved sites in London and were attracted to the City.
“It’s about us going out there and trying to discover that originality in other places and having the chance to grow those businesses.”
