Mitchells & Butlers envisions a sizeable Mediterranean stream to its portfolio in the coming years, after announcing the acquisition of Pesto Restaurants.
CEO Phil Urban tells MCA the business could comfortably grow to 80 or more sites within this theme, having also introduced 31-strong Ego to the M&B estate last year.
Urban said he “wasnt necessarily looking for another Mediterranean offer,” but was drawn to Pesto’s unique proposition. The brand, created by Neil and Sara Gatt, offers Italian tapas, or Piattini, with a menu of 50 dishes, many around £4-5.
It aims to offer a “relaxed dining experience”, in a range of rural settings nationwide and a site in the Trafford Centre, Manchester. “It’s quite novel, and quite innovative, and it’s Italian themed, whereas Ego is probably more on the Spanish-end,” Urban explains.
He adds that both Pesto and Ego cater to premium and health-conscious consumers, which he believes is a growing market.
“For both those brands, they are a premium offer and they talk to a health trend that’s emerging, as consumers are getting increasingly into understanding nutrition. We also think it helps to broaden our portfolio.”
Urban outlined plans for expanding the businesses within M&B’s portfolio. “We’ve still got enough sites in our other brands that we think we can quite comfortably grow probably to around 80 Mediterranean-themed businesses.
“At the same time, we’ll then reduce the footprint of other bigger brands and have a range of manageable brands which makes far more sense because you’re in lots of different sectors; in suburban retail, suburban city centre, wet led, dry led, premium value. We can cover all those bases.”
When asked about M&B’s overall approach to acquisitions, Urban emphasised the company’s opportunistic stance.
“We will certainly be interested in freehold assets coming to market, but we’d also be interested in small startup businesses which we think are interesting and we feel we could scale; and Pesto certainly falls into that mould”
Urban highlighted the challenges of establishing a new brand, noting Pesto’s maturity as a key driver of the acquisition.
“Starting and making a brand successful is hard and for every one that succeeds, there are probably ten that fail. Acquiring something which has gone through those growth pains, and which is clearly successful where we can help it to scale, makes sense.”
Across its existing brands, Mitchells & Butlers has seen strong recent performance, and Urban highlighted that Nicholson’s pubs and Toby Carvery have remained top performers.
“Nicholson’s leads the way and has done for a couple of years; we can rationalise that because people are returning to office working and there are also tourists back in town.
Equally Toby Carvery’s success can be equated with a cost-of-living crisis, says Urban “It’s in the sweet spot because it’s fresh and healthy food, at a good price point where the customer can help themselves and eat as much they like.”
Brands experiencing slightly reduced frequency include Miller & Carter and Premium Country Pubs, although both saw 4% or more like-for-like growth in the last half year.
M&B’s half year results reflect a strong market position, with like-for-like sales growth of 7%. Total sales for the period were £1,396m, an 8.9% growth compared to the previous year, and operating profit rose to £164m from £99m in the previous year.
Volumes of food and drink were in marginal decline, whilst like-for-like sales in the first half comprised an increase in like-for-like food sales of 7.7% and of like-for-like drink sales of 6.0%, driven by strengthening spend per head.
Urban pointed out that M&B’s price increases have been kept below headline inflation, whilst customers are trading up to premium products when they dine out, indicating a discerning and quality-focused consumer base.
“Customers may come out less frequently, but when they do come out, they are looking for a premium experience, so they’re trading up whether that’s premium spirits or premium food dishes.
“In every single segment, we would like to think we are stretching the product we provide giving that customer choice, so they can still come in on an entry point lager or an entry point food dish. But by choice they are trading up which says to me the consumer is getting ever more sort of discerning and understanding of product. It is good news for this sector that they are willing to pay for quality.”
“Our guest and people metrics have never been stronger; we have got the lowest team turnover we’ve ever had. Our team are getting more and more experienced and staying with us.
He adds, “On wider macro trends, inflation is coming down. Consumer confidence seems to be on the turn as well. We think the lead indicators are good. Hospitality is well placed to benefit from that.”
