TGI Fridays goes back to basics

One notable announcement from Hostmore’s belated annual results earlier this month was that it would return its core brand to its original name, TGI Fridays.

It followed an ill-advised three-year run as just Fridays - a rebrand the company acknowledged had damaged recognition among customers, and that was not even rolled out across fascias of the estate.

While the reversion represented a welcome dose of common-sense, the update laid bare deeper problems for the group, as it reported a loss after tax of £97.5m for 2022.

In contrast to the optimistic tone as it floated on the London Stock Exchange at the tail end of 2021, the de-merged company has endured a torrid time as a public company, with its share price suffering as a result.

The company’s former CEO Robert Cook, who last year warned soaring costs and weaker customer demand would depress profit margins for the year, unexpectedly announced he was stepping down in January 2023.

There were also jitters in the run-up to the recent results being published, after they were delayed by several weeks as the company sought to renegotiate its lending facilities with its banks.

When the results were published, they arrived at nearly 6.30pm on a Friday ahead of the May Bank Holiday.

In a bid to calm nervous investors, the results were followed by a further publication on Tuesday morning, announcing Julie McEwan as permanent CEO and further cost reduction measures, resulting in £4.1m of annualised savings.

Action plan 

While Hostmore isn’t the only casual dining chain to be hammered by inflationary and cost of living pressures, its problems have been exacerbated by consumer perceptions of TGI Fridays as a tired, legacy brand.

Its latest strategy – which follows a previous plan in 2020 – looks to reconnect TGI to its heritage, with a back to the basics focus on cocktails, celebrations, and dine-in experiences.

Bringing it back to its association as the “original corner bar”, the new management team wants local people to drop in and catch up’ with friends, feel welcome and enjoy a “place of fun and warmth”.

While acknowledging the “whiplash of Covid-19”, McEwan outlines a 4D strategy, including ‘Dine-in’, ‘Delivery’ and ‘Drive To’, enhanced by harnessing ‘Digital’.

Raising the Bar 

In particular, the ‘Raising the Bar’ campaign will seek to position TGI’s bars as the “heroes” of each restaurant.

With drinks’ share of revenue declining steeply from 26% in 2019 to c14% in 2022, TGI Fridays has struggled to compete with the influx of experiential-led cocktail concepts.

The ‘2 for 1’ cocktail offer aims to lure customers back for repeat visits during a cost-of-living crisis.

TGI’s origins as a cocktail bar still remains one of its strengths, with an offering which includes classics and more experimental concoctions.

Hostmore points out that drinks revenue is less labour-intensive, and also encourages guests to stay longer and spend more.

If it is able to convert this opportunity, it could tap into a higher profit margin, with additional bar-focused opportunities such as cocktail masterclasses and bottomless brunches delivering significant incremental revenue so far.

Many rivals have fought hard to distance themselves from discount deals, on account of their damage to margins, and impact on consumer perceptions of quality – but Hostmore insists ‘Raising the Bar’ is neutral to margins due to a combination of pricing and menu engineering.

Net promoter scores have increased considerably – from 30 in 2022 to the current 46 – while drinks’ share of revenue has been boosted to 25% with the ‘2 for 1’ offer trialled in six stores.

But while there are signs of improvement on drinks, TGI might have a way to go to becoming the female-friendly, neighbourhood bar-focused concept it was originally known for.

Food for thought 

Hostmore entered the QSR market with Fridays and Go in Dundee last spring, with the company telling MCA at the time it saw scope for another 30 sites under the concept.

Diversifying its offering away from just casual dining and cocktails, birthdays and hen parties, the food to go concept remains anchored on a single site, and it is unclear whether its new plan might involve jettisoning the format.

The food offer, which includes wings, burgers and salads, caters to a broad customer base, but does little to stand out from more well-established QSR specialists on the high street.

In terms of the food at core brand TGI, the offer looks similarly generic and undifferentiated, ranging from pasta to nachos, as the brand looks to offer “something for everybody”. 

As younger customers gravitate towards specialists over ‘do it all’ concepts, a restaurant that dabbles in several cuisines might not be the obvious choice.

Cocktails and all-American comfort food are what TGI Fridays is best known for, so a streamlined approach could help the brand regain its lost mojo.

Financial focus 

Chairman-designate Stephen Welker told MCA earlier this month the business was looking at running a “much leaner organisation”, with efforts to implement cost savings and reduce net debt.

Additional overhead expense, incurred to facilitate its IPO, multibrand platform, and new store rollout, resulted in the company embarking on a cost reduction programme that will reduce annualised expenses by £5.9m through trimming down on staff, contract services, and other costs.

With new openings deferred until FY25, the company will also look to store rationalisation for further savings.

This has seen Hostmore close TGI restaurants in Covent Garden and Guildford and a 63rd+1st restaurant in Harrogate, which were not generating the returns on investment expected.

Blaming the challenges on soften consumer demand and inflationary pressures, the company secured £2.3m of landlord concessions in FY22.

Group EBITDA was £31.1m, though a less flattering £11.3m when FRS102 is incorporated, adjusted for rent paid to lessors and rent received from subleases.

The losses came from recording impairments of £31.2m against property, plant and equipment and right of use assets and, and an impairment of £70.9m against goodwill.

Net bank debt increased from £27.7m at 1 January 2023 to £32.2m.

Hostmore warned with an uncertain consumer demand and the enduring inflationary environment, like-for-like revenue expectations for the first half are forecast to be similar to the FY22 comparative.

Outlook

While its position might have looked shaky in the run-up to the results, and the timing of publication was odd, the markets reacted positively to the plan.

The share price remains well below the 56p of one year ago, but it has climbed since the plan was outlined, from 13.5p last month, to 23.1p yesterday.

Analysts were encouraged, finnCap commending the company for successfully revised its banking facilities, negotiated with the master franchisor a deferral of all new openings to at least FY25 and rightsizing the business through a cost-reduction programme.

The analyst reinstated its target price at 55p (previously 45p), implying 140% upside.

“We expect the valuation gap to close as signs of recovery become evident,” finnCap wrote.