The proposed whittling down of TRG’s leisure division after the Wagamama deal may lead to further acquisitions, Dom Walsh expects, while pondering Greene King’s next move and what Costa Coffee’s store expansion under the ownership of Coca-Cola may mean for both brands.
The legacy of Andy McCue’s truncated time as chief executive of The Restaurant Group is, as well all know, the £559m acquisition of Wagamama. When the deal squeaked through last year, there was widespread scepticism over the longevity of its stellar like-for-like sales growth.
Yet the Japanese noodle bar chain was the star of the show in TRG’s recent interim results, delivering extraordinary like-for-like sales growth of 10.6% in the first six months of the year. Of course, the brand cannot carry on at this kind of level forever, but there’s no reason why, with its skilful management, unique culture, good use of delivery and an offer that customers like, it cannot continue to at least outperform the market.
It is clear that, in Wagamama, Brunning & Price and its airport concessions business, Andy Hornby, McCue’s replacement as CEO, has three quality businesses on which to base the continuing turnaround of TRG. His plan to gradually whittle down at least half the leisure division over the next decade or more makes sense (although the timeframe got a bit garbled on the day of the results) and despite write-offs totalling almost £300m over the past four years, it is clear that TRG – after spending most of those four years in the corporate wilderness – now has a future.
Given his past life as CEO of HBOS, it is understandable that Hornby should want to tread cautiously in his first outing. He delivered a message not far different from that of his predecessor and was keen to express the hope that enough time has now elapsed that he can finally draw a line under his time at HBOS. He certainly built a formidable reputation at Ladbrokes Coral and GVC Holdings and I’m sure he will bring his undoubted retails skills to bear in his new role.
Once he’s got his feet under the table, though, I’d expect Hornby to seek to speed up the transformation. I reckon that, within the next three or four years, he’ll accelerate the exit from Frankie & Benny’s and Chiquito, step up the pace of conversions to Wagamama while rolling out the brand across the concessions arena and pushing delivery as hard as he can. I also believe that, at some, point he’ll think about selling Brunning & Price. It’s an excellent business delivering a quality product but do pub-restaurants really sit comfortably alongside Japanese noodle bars? There’d certainly be no shortage of pubcos ready and willing to pay top dollar for the business.
Ultimately, I’d also expect the ambitious Hornby to seek another transformative acquisition, especially if and when he’s largely got rid of the leisure sites and offloaded Brunning & Price. So, what could he go for? Well, he could buy a complementary Asian business like Yo! Sushi or Itsu. Or he could revisit the company McCue looked closely at before turning his aim on Wagamama. The word is that the former Paddy Power CEO was mustard keen on buying Franco Manca from David Page. I don’t know why the deal never happened but it is certainly a quality business that would I’m sure prosper under the auspices of a rejuvenated TRG run by a top retailer.
Speaking of new CEOs, it’ll be fascinating to see what Nick Mackenzie does at Greene King once the Chinese get their hands on the business. Some commentators have suggested the new owners will soon sell off the breweries and the tenanted pub estate, but the commitment they have provided to maintain the beer business and hold the company as a long-term strategic investment suggest there won’t be any dramatic changes.
At least none that the former Merlin Entertainments executive wasn’t planning to make anyway, even before Li Ka-shing announced a £4.6bn takeover of the Abbot Ale and Old Speckled Hen maker.
So what’s on his to-do list? One priority will be to review the group’s pub brands. They need to be more sharply defined and some innovation is required. One ill-defined brand that needs addressing is Chef & Brewer, while I hear that Mackenzie is considering putting some resource into reviving Flaming Grill and building it into a significant brand. Why? Because the brand proposition is clear and
easily understood by customers.
It’s a whole new ball game for Costa
I was intrigued by the announcement by Costa Coffee that it had agreed deals for 14 out-of-town sites in the first six months of the year, including ten drive-thrus. Working with Savills, the chain said it had opened “an impressive number of new equity stores in the first half of the years and are working to maintain this success”.
The suspicion remains, however, that under the ownership of Coca-Cola, the coffee chain’s store roll-out will play second fiddle to developing and selling Costa-branded drinks that can be pushed through the giant soft drinks group’s global distribution channels (a process that has already started), while selling Coca-Cola brands through Costa stores.
But hang on, I hear you say, what about the acceleration of the Costa store network initiated by Coke? Well, that’s a fair point, but I still can’t my head around the US fizzy drink behemoth running a chain of coffee shops. With one or two exceptions, Coke has always steered clear of running its own retail outlets and Costa does rather stick out like a sore thumb. It’s a whole new ball game.
So, what’s to be done? My own view is that Coke will at some point consider franchising the majority of the stores, retaining ownership of the brand and the ability to keep developing new branded products and sell them both across the Costa estate and the wider world. Hundreds of its stores are already franchises and by converting most of the rest it can effectively offload the retail element and remain true to its drinks heritage.
Dominic Walsh is a business reporter at The Times
‘TRG now has a future’
The legacy of Andy McCue’s truncated time as chief executive of The Restaurant Group is, as well all know, the £559m acquisition of Wagamama. When the deal squeaked through last year, there was widespread scepticism over the longevity of its stellar like-for-like sales growth. Yet the Japanese noodle bar chain was the star of the show in TRG’s recent interim results, delivering extraordinary like-for-like sales growth of 10.6% in the first six months of the year.