By Mark Wingett
You have to feel sorry for 2013. Before the new year has even begun, it has already been labelled as empty and difficult. It will be 12 months that the majority of people would like to get out of the way as like-for-like comparisons with 2012 will be negatively affected by the impact of the Jubilee, Olympics, Euros, before the perception of promise that 2014 will bring.
And yes, all the signs are that the next year will be tough, I don’t think many operators expected it to be viewed any differently. Food inflation will continue to increase, rising food costs will impact margins, while the ability to pass these on to an already squeezed consumer will become increasingly more difficult.
The high street will continue to evolve as corporate failures in the retail sector mount, while budgets for refurbishments and expansion may not be as bullish. So, 2013 is gearing up to be a year of taking stock rather than market share. Even the frantic charge for space in central London may cool off as premiums climb ever higher and more unattainable for the majority of operators, surely some levelling off is due.
The key -¬ as it has been for the last five years - is not to buckle and do something out of desperation. The main touch points that have served the industry well during the downturn, the renewed focus on service, offer and innovation, will be more prevalent than ever. Consumers continue to go out to eat and drink, the next 12 months will be about keeping that dialogue/relationship alive.
Not that there shouldn’t be enough talking points for everyone to get their teeth into over the coming months.
The role of discounting will again be debated. Consumers expect, indeed demand, a valued experience over vouchers. They expect all aspects of the eating-out experience to be the same whether they use a voucher or not. A shift is taking place, where customers are more attracted to pubs and restaurants which offer rewards for loyalty as opposed to money off, and are more likely to visit outlets which provide a loyalty card scheme. This move will continue over the next year.
Will we see a return of significant M&A activity? Again we are probably 18 months away from a number of group’s dipping their toes in the transactional market, such as YO! Sushi, Giraffe and Las Iguanas, but mooted processes for Byron and Cote, with £100m+ price tags should give buyers scope on achievable multiples for high quality concepts and businesses despite the current economic climate. This may also tempt similar successful operations such as Jamie’s Italian and Patisserie Valerie to the table.
Private equity players continue to circle the market. Processes that are already underway should come to fruition during the first half of the year, with LDC the frontrunner for D&D London, and Risk Capital and Bowmark still understood to be in the running for Red Hot World Buffet. Drake & Morgan should also find itself in new hands, although picking a new owner for this unique business is not so clear cut.
As with every year, it seems that we are on the verge of a US invasion of formats. However, 2013 looks like it will at least deliver in terms of burger concepts, with Shake Shack and Five Guys making their UK debuts, which should keep our own ‘better burger’ movement on its toes. While international operators eye London openings, UK chains, hindered by the fierce competition for sites and lack of development schemes, will continue to look overseas for expansion opportunities and ways to add some “sizzle” to upcoming private equity exits.
2012 was, compared to the previous few years, a better one for the pub sector. Managed operators continued to grow market share in the food-led arena, while the tenanted sector moved towards stability. Successful, fledgling operations such as Yummy Pub Co, Oakman Inns, Peach Pub Co and Renaissance Pub Co, may find themselves under the gaze of investors and trade players. The future of TCG will also need to be resolved, with further package sales from its estate mooted.
The first quarter should shed some more light on the future of Punch, with crucial conversations with bondholders believed to have already started on its future options. Rival Enterprise Inns is slowly moving in the right direction in terms of performance, Punch needs to show it can also “turn the tanker”.
It will also be a key 12 months for a number of individuals. After an impressive early performance, Alistair Darby, will remain under the spotlight as Mitchells & Butlers’ new CEO, while it will be interesting to see what impact Steve Easterbrook has at Wagamama as the year progresses.
In all this, keeping, training and recruiting the right people will as continue to be crucial. The sector is moving in the right direction to highlight what it can offer job seekers, hopefully that work will gain more recognition in the coming months.
The battle for the share of the consumer pound has never been fiercer, but the sector has never been better equipped to face the challenge head on.
