The Azzurri Group has done a canny bit of business acquiring the fast-casual concept Coco Di Mama, while Costa has decided to follow rival Starbucks’ route in looking to enhance its food offer through a partnership with a smaller complimentary brand. Mark Wingett asks if it is time for more sector companies to seek new partnerships and add further strings to their bows.
It may be operating under a new name, but there was a lot of the “Gondola way”of doing business about the Azzurri Group’s acquisition of the six-strong Coco Di Mama last week. It was under the radar and done with the minimum of fuss. It should prove an astute piece of business from the ASK Italian and Zizzi operator, led by the increasingly impressive Steve Holmes.
A few years back, M&C picked out the central London-based Coco Di Mama as a concept to watch and its steady growth in the most competitive of markets under the patronage of chairman Sir Stuart Rose, has backed that up. As Holmes has pointed out, this is a good fit with Azzurri – allowing it to operate in a familiar area in terms of Italian cuisine but opens up the company to new areas within the fast casual market.While the A3 property market continues to hot up, Azzurri will now have an A1-based model to underpin its expansion targets.
Founders Daniel Land and Jeremy Sanders will remain to oversee the brand’s growth, which could see it grow to 40 sites in London in the next few years. Holmes told M&C: “In terms of how quickly it can grow, you just have to look at the size that Pret has reached in London. They have 200 sites so there’s clearly a lot of scope I would see us building 30 to 40 sites in the next few years. We would want to get critical mass in London before going further but I certainly don’t see growth being restricted to the capital.” The fact that Coco Di Mama now shares a backer with Pret should also be interesting.
While the expansion and indeed the future of Harris & Hoole remains in limbo as backer Tesco decides the future shape of its hospitality division, the way it brought food higher into the traditional coffee shop mix continues to have an influence on the strategies of its more established rivals.
As we revealed last week, Costa has now followed Starbucks in partnering with a healthy, fast food chain to enhance its food offer. Although only at the trial stage in six London sites, the Whitbread-owned chain’s link up with Chop’d is earmarked to grow to 30 units and then if successful nationwide. As with Starbucks’ partnership with POD, it is thought that both larger companies may at some point look to take an equity stake in their smaller partners.
These partnerships, and Azzurri’s acquisition of Coco Di Mama, further underlines the strength and growing influence of the UK’s fast-casual/food-to-go market and should see more established operators looking to dip their toes in the water. The Casual Dining Group is set to follow YO! Sushi in developing its own grab-and-go models for both Cafe Rouge and Bella Italia, but others may look to find their own partnerships/smaller format growth brands.
For speculation’s sake, here’s two companies that were both in the news last week and could feature on each side of the above coin. Firstly, Wagamama, whose new chairman Allan Leighton made his entrance last week with an expansion rallying call. He is especially keen to grow what has until now been the company’s Achilles heel, the US, where he believes there is potential to open a “a couple of hundred restaurants”. A similar drum was beaten the last time the brand was brought to market and it is thought Leighton’s appointment could see the Duke Street Capital-backed business review its options, with an IPO mooted. It would go down that route from a position of strength, thanks to the work carried out its management team led by chief executive David Campbell and underpinned by global marketing and property director Simon Cope. For the 40 weeks to 1 February 2015 like-for-like sales were up 10.5% and EBITDA stood at £22.7m.
This month marks Campbell’s two year anniversary at the helm of the brand, and the man who was once tipped to succeed Bernie Ecclestone as the head of Formula One has done an excellent job of steering Wagamama out of the slow lane of marginal growth it found itself in after the departure of first Steve Hill and then Steve Easterbrook. While expansion in the US remains a key goal, Campbell will be aware that the company may need a further string to its bow to continue to drive growth in the UK to go alongside the strong performance its current openings and refurbishment programme is thought to be generating.
I previously thought that it might go down the same route at YO! and develop its own model, but on the back of Azzurri’s move perhaps an acquisition of an existing brand would play better to the public market. The £150m it raised through a bond issue earlier this year to accelerate its expansion could equally be used as a war chest. The nuclear option would be to acquire say Wasabi or even Itsu and becoming a significant player in the food to go market in one swoop, or perhaps something a little more left-field like a burrito chain. It is a tantalising thought.
There are two brands that highly-regarded sector investor Ian Edward would currently invest in (discounting those he already backs) - Sticks n Sushi and Leon, and it is the latter that for me is the key fast casual/food-to-go format in the marketplace that larger groups should be circling. The market has come to a brand that remarkably turned its first profit in its last financial year and is on track to have 32 sites by the end of 2015. It has momentum, health credentials, a strong product, culture and back story. It is a national brand, its founders would say international, in waiting, but at this stage of its life cycle it would make an exceptional second brand for an established business.
Time to choose your partners carefully.