The last 12 months has witnessed some seismic changes in the UK’s eating and drinking-out market, probably the most significant and far reaching will be the Parliamentary vote for a market rent only (MRO) clause for tied tenants in the pubs code.
M&A activity increased further during the year, with the summer witnessing the final stage in the painful debt restructuring of Tragus and last month, the final stage in the lifespan of Gondola, with the £250m sale of ASK and Zizzi to Bridgepoint. There was also, until the vote on MRO, renewed investment interest in the tenanted pub market, thanks to newcomer Hawthorne Leisure and Admiral Taverns-backer Cerberus.
Further movement in the tenanted market is expected, but at what level has been thrown into question by the pubs code vote, although portfolios such as the remainder of the GRS Inns estate are expected to become available in the first part of the year. The onus will be on Punch Taverns and Enterprise Inns to be proactive on the back of the Government’s decision, which will be bring challenges and opportunities in equal measure.
The activity seen over the last year, is set to be repeated and surpassed next year across both the pub and restaurant sectors, with the industry awash with private equity money and benefiting from acquisitive trade buyers, especially from the pub sector looking at further food-led opportunities.
The spotlight will fall on Greene King’s integration of Spirit, further fallout from the pubs code vote, Hugh Osmond’s plan for Strada, and numerous sale processes. It will also fall on several operators at businesses that need to show signs of having a more positive future, such as Toby Smith at Novus and James Spragg at Café Rouge. M&B chief executive Alistair Darby will need to build on the signs of momentum found in the group’s most recent update.
In a wider context the sector will continue to evolve its offer toward the new consumer heartland that is fast-casual, with fast food operators moving up into that space - witness KFC new design at its Bracknell site, and established casual-dining chains dropping down as they stretch their brands, see YO! Sushi with the soon to launch YO! to Go.
Earlier this year, Fuller’s invested in regional restaurant business The Stable, while both Greene King and Marston’s have spoken about investment in complementary, smaller food-led groups. Expect both to cement that interest next year. I wouldn’t be surprised if Young’s was also looking at opportunities within this space as the momentum generated in the business from its acquisition of Geronimo Inns tails off.
The flight to the regions will continue, with eating and drinking-out circuits in Manchester, Leeds and Bristol set to be further enhanced and reinvigorated, although this will come with the caveat of increasing rental levels.
While barbecue (pulled pork) has influenced and dominated menus over the last 12 months and there is a sense of growing momentum in Thai-based concepts, the staples of burgers and pizzas will provide the main battleground for the consumer pound over the coming year. Five Guys has made no secret of its plans to become a national player, but now it is to be joined by US cousin Shake Shack, which believes the UK market is capable of sustaining 100 sites under its brands, rather than the one it currently operates in London’s Covent Garden.
New business director of Shake Shack UK Nigel Sherwood says that the brand has the potential to dwarf many of its burger rivals. “If we open 20 sites and they all do only 75% of what Covent Garden does we’ll have a company with a turnover of £60-70m.” Home grown players, Byron, GBK, Honest Burger and MEATLiquor will have a major say on whether the two US brands can achieve their growth targets.
While international expansion will be the main focus for PizzaExpress, it will need to evolve its offer further to match the growing influence of artisan concepts such as The Stable and Franco Manca. I also expect it to explore a standalone delivery option rather than continue to lose market share to Domino’s and Pizza Hut.
A lot of work has been put in over the last year to keep businesses competitive and in tune with increasingly sophisticated and fickle demands of today’s consumer. That work will need to be continued but a good portion of that hard graft should be rewarded as the sector grows further in 2015. No one will want to miss out.
