Ed’s Easy Diner has been through the mill. In the second half of last year, the fast-growing business was being confidently touted around the market with a mooted asking price of as much as £90m, the only real issue being whether putative suitors could be persuaded to base their valuations on future earnings estimates that took account of the avalanche of restaurant openings.
That’s when the problems started. While the process run by McQueen is reputed to have elicited serious interest from the likes of private equity firms ECI Partners, Bowmark Capital and TPG, there appears to have been a problem with a large number of the new openings missing their targets. The appointment of a new chief executive in the middle of the process seems to have muddied the waters further, prompting a further redrafting of the company’s business plan.
With the process in disarray, and offers having been cut to, by some estimates, little more than half the original £90m asking price, the plug was finally pulled on the sale in mid-February and, just days later, Ivan Schofield quit as CEO, less than six months after taking the helm at the 1950s American diner chain. The only positive was that, rather than being left in limbo, Ed’s was able to re-appoint Andrew Guy to the role of CEO he had held for five years before the arrival of Schofield.
While the return of the industry veteran ensured there was no damaging hiatus, it has now become clear that Guy has had a big challenge on his hands since his boomerang-like return. With three of its 59 outlets proving unviable due to unsustainable rent levels, Guy brought in AlixPartners to look at the possibility of exiting the trio of troublesome sites through a partial company voluntary arrangement. However, having done a desktop assessment of the CVA route, Guy decided it might be simpler to go straight to the two landlords (one with two sites and one with a single site). At time of writing, he was still in negotiations and remained hopeful of a satisfactory exit from the three sites, although one source I spoke to who was familiar with the proceedings said the situation might yet require a CVA to reach a resolution.
One area of concern amid the company’s recent travails has been the issue of the quality of the food at Ed’s. With so many better burger chains proliferating around the country, some experts have questioned whether the Ed’s formula is strong enough to compete, both for customers and to secure the best sites for new units. Having not been to an Ed’s for years, I can’t offer a personal opinion, although given the speed with which the concept has been expanded, it would hardly be a massive surprise if quality and consistency had slipped a little. Guy himself admitted that the group had expanded too quickly and was now “pausing for breath” on new sites.
That does not mean expansion has ground to a halt. Instead, for the time being at least, new openings will come largely via the franchise route. In April, it opened its first franchise with Welcome Break, at the South Mimms services on the M25 in Hertfordshire, and it has just announced a deal with travel caterer SSP to open an Ed’s at London’s Liverpool Street Station, plus a further 10 sites in UK stations, airports and visitor attractions by 2020.
These franchising deals strike me as important for two reasons. Firstly, they allow the brand to carry on expanding while requiring little or no investment from Ed’s itself. Secondly, they provide much-needed approval for the Ed’s formula at a time when many had started to question not only the quality of the food but also the scaleability of the concept at a time when competition has never been more intense.
As Simon Smith, the CEO of SSP UK, declared at the announcement of the partnership: “Ed’s is a much-loved brand that has a truly unique personality and a stand-out style that captures the imagination.”
Let’s hope the travails of recent months have not done any lasting damage to that reputation.
Should M&B look toward Stonegate?
It is two and a half years since Stonegate Pub Company first set the IPO hares running by announcing that it had poached Simon Longbottom, from Greene King, as chief executive. Coming hard on the heels of the acquisition of part of the Bramwell Pub Company, it was a clear signal that the Yates’s and Slug and Lettuce operator was being primed for an eventual flotation by TDR Capital.
Last year, the wheels began to move in earnest as investments bankers (from Morgan Stanley and Barclays, if memory serves) were appointed and the groundwork prepared. The first quarter of 2016 had been penciled in as a likely target for the float – tipped to have valued the company at up to £1bn – but market volatility in the run-up to the Brexit vote eventually led to the process being put on ice.
If there was disappointment, then it hasn’t shown in the Stonegate performance. The company is about to finish its financial year and, by all accounts, things could scarcely have gone better. A combination of the Rugby World Cup, a warm winter, a good Euro 2016 championship and a hot August look to have put it on track to deliver a sparkling year, float or no float, and provide further evidence that a wet-led business, properly run, can deliver the goods. It has also continued to set the pace on training and development, particularly in apprenticeships.
The icing on the cake was the recent acquisition of ten pubs from JD Wetherspoon for a rumoured sum of £6-7m, although I sometimes wonder whether it shouldn’t go for broke and target something rather bigger. Stonegate was created through the acquisition six years ago of 333 Mitchells & Butlers pubs for £373 million. Given M&B’s subsequent travails and the apparent inability of successive management teams to get the business moving forwards in any meaningful way, would it not be to the advantage of both to stitch together some kind of marriage? I appreciate that M&B’s trio of shareholding tycoons – Joe Lewis, JP McManus and John Magnier – may not want to be diluted down, but surely a smaller percentage of a well-run, growing larger group is better than what they have the moment.
Pret’s front-foot PR
Whoever does Pret a Manger’s PR and marketing should be paid a fat bonus. Having garnered myriad column inches last year from the clever idea of allowing staff to give free coffees to their favourite customers or those they fancied, it has repeated the trick with its Veggie Pret pop-up. It’s amazing how much coverage its one outlet in Soho has captured. I can’t wait for the next wheeze.