The current economic environment provides a “challenging backdrop” to raise capital, but the outlook for fledgling restaurant businesses is largely positive, Edition Capital’s senior partner Harry Heartfield says.
The leisure investment and advisory group says despite feeling some nervousness amongst investors, on the consumer side of things, “demand is still there.”
Edition’s portfolio includes several hospitality brands including Farmer J, Incipio Group and coffeehouse chain WatchHouse.
“My general view, over a five-to-seven-year horizon, is that it is still positive,” Heartfield said, speaking at Restaurant Online and MCA’s Generation Next event yesterday (10 October).
Consumers, in particular millennials and Gen-Z, still want to go out and have leisure experiences, he added.
“For us, we’re still actively investing, but it is a challenging backdrop to raise capital.”
Despite the long-lasting “legacy of Covid”, alongside inflationary pressures, he sees the business model for restaurant operators remaining relatively unchanged.
Although costs have gone up and the level of risk has shifted in a post-Covid world, Heartfield said it is now about “finding an investor that’s willing to take on that risk, and who understands the market.”
In London, consumers seem to have been slightly more insulated from the worst impacts of the cost-of-living crisis.
Like-for-like sales are better in London, said Heartfield, where restaurants have been able to capitalise especially on mid-week restaurant bookings.
When it comes to considering new investments, he said the company is heavily focused on people.
“What we have found is that the businesses that have done the best are the ones that had grounded management teams who understood what they didn’t know”.
A clear, delineated plan for expansion is also key.
“Before you come looking, have a clear understanding of the journey you want to go on”, he added.
Heartfield predicts several areas for future growth, including “vertical drinking locations”, having seen like-for-like sales go “through the roof” for bars and cocktail bars.
These businesses are “grabbing extra days in the week”, and capitalising on seven days of trading, especially in city centres.
Furthermore, a boom in immersive and theatrical experiences is creating an opportunity for operators to come in, where F&B offerings have been historically “underthought.”
Considering the benefits of omnichannel, Heartfield concluded that this approach was better suited to larger operating models.
“You’ve only got so many hours in the day to nail every element that you’re doing, and more important is making sure you’re nailing one or two.”
For Heartfield, omnichannel is perfectly positioned for operators at the 20-site mark, where there is substantial infrastructure to support it.
“It’s a question of scale” he said. For smaller businesses, his advice is to “nail your retail offering”, and “don’t try to do everything at once”.
