“A black cloud,” is how Caffè Nero founder Gerry Ford describes EG Group founders the Issa brothers’ determination to assume control of the business, through the acquisition of its debt.
Mohsin and Zuber Issa acquired around £150m of Caffè Nero’s lower-ranking debts meaning that they could seize control if the company defaulted on them.
“It occupied senior management’s time – particularly mine and my CFOs – and was a huge distraction and totally unnecessary,” he told MCA.
Speaking after the coffee shop business completed the refinancing of all of its debt this week – consisting of a six-year loan of approximately £330m and additional facilities of £85m which has been made available for growth opportunities – Ford said deal with its banking partners was “a massive relief”.
“We had almost weekly issues dealing with these guys, and it haunted us. It was draining and so it absolutely took us away from what we should be doing and was a horrible distraction during the pandemic,” he said. “We were literally held hostage by these guys.”
As a result of the new debt agreement with Carlyle, HSBC and Santander, EG Group is no longer a holder of any of Caffè Nero Group’s debt, and majority ownership of the group remains with Ford alongside his family and friends.
It also reduces its debt exposure by around 15% and gives the group additional funding to take advantage of growth opportunities for its four brands: Caffè Nero, Coffee#1, Harris + Hoole and Aroma.
Ford said he was keen to get back to running his business the way he would like to have done during the pandemic, looking after its people and its customers. “We have closed the door and entered a new chapter and now we can get back to being who we are.”
Firepower for growth
The £85m funding gives the business “a lot of firepower” to be able to pursue lots of different things, globally, he explained. It already operates coffee shops in 10 different countries and sees huge opportunities in many of those territories for all of its brands as well as its coffee at home business, which Ford said was just starting to really take off.
While all four brands have potential, the fact that Caffè Nero already has a presence in those 10 countries naturally means there is a probably a likelihood of more opportunities for that business than the others, he added.
The group has been experienced steady growth back to ‘normal’ 2019 trading levels following the lifting of restrictions last summer, with sales back up to around 90% overall by end of November, but the emergence of the Omicron variant has seen some of those gains eroded, with sales now steady at around 82% of pre-Covid levels.
That said, its sites often populated by ‘workers’ or in transport locations had seen sales recover more than Ford had anticipated between September and the end of November, when many employees returned to their offices, albeit often for fewer days per week.
Has the hybrid working trend affected its future growth strategy? Ford is taking a wait and see approach. The group has been “inundated with opportunities” for sites, he said. “Because we have national coverage, we can almost be opportunitistic to pick really slam dunk great deals. We will try to wait and see how the pattern plays out before making that many growth decisions.”
Right now, Ford is just keen to get back to the day-to-day job of running his business and taking advantage of the opportunities that are presented to them. “I think we have a really strong brand with firepower that can take advantage of the market – and that’s an exciting place to be as we come out of Covid.”
Caffè Nero chief executive Will Stratton-Morris will be taking part in an exclusive Q&A at MCA’s Food to Go Conference 2022, which will take place on 9 March at the Ham Yard Hotel in Soho, London. To find out more about the programme and to buy tickets, click here.
