Inside Track by Mark Stretton
It seems Mark Price was deadly serious when he last year told an audience of senior restaurant executives of his plans to take a bigger bite of the UK eating out market. At the time Waitrose’s managing director – dubbed “the chubby grocer” – told delegates at M&C Report’s Restaurant conference: “We believe we will move into the space more in the next 10 years. “We like the margins in the industry and we can bring the advantage of our distinct model to the sector. Supermarkets have got to change how they use the physical space that they have and a way they can use that is by expanding their foodservice offer." His comments about margins leapt out straight away – as restaurant executives bemoaned shrinking margins driven lower by competition and discounting, Waitrose and the supermarket fraternity looked on fondly, thinking up ways they could capture a bigger share of the spend from out-of-home occasions. Now Price has put the supermarket chain favoured by Britain’s more discerning food shoppers – part of the John Lewis Partnership – in pole position to buy Eat, the sandwich and coffee chain, having been granted a four-week period of exclusive negotiations. The deal, expected to weigh in at around £100m, would overnight catapult the company further into eating out, giving it 100 stores, predominantly in London, and a sizeable platform. The significance of Waitrose taking a hearty bite into UK eating out should not be underestimated. The acquisition would be the clearest and most striking example yet of the convergence of retail and foodservice, allowing Waitrose to access markets that it can’t get into because of its current square footage requirements. It would make Waitrose a serious competitor to Marks & Spencer’s Simply Food convenience business, but actually taking it further into foodservice than its retailing rival. It also suggests that Waitrose’s initial foray into out of home occasions through a partnership to open convenience stores at Welcome Break motorway service stations has been extremely encouraging. If negotiations are concluded successfully, it seems the plan would not be to subsume the Eat brand but to retain it, albeit as Waitrose’s “food on the go” proposition. Eat outlets would open in many of its supermarkets and Waitrose food could be sold at Eat locations. For Eat, which is owned jointly by Penta Capital and founders Niall and Faith MacArthur, a deal would represent the end of a two-year sale push that began shortly after Bridgepoint Capital and Goldman Sachs refinanced Pret A Manger for a steamy £345m in 2008. Eat was initially withdrawn after buyers failed to match the £150m price tag, although mid recession was probably not the best time. Comparing Pret with Eat is a bit like matching up Barcelona’s Lionel Messi and Arsenal’s Theo Walcott. One is at the top of the game, drawing admiration from fellow pros and has the pundits salivating, while the other shows great promise but is yet to cut it in the same league. But my understanding is that the chaps at Eat, Penta and its advisers have quite naturally developed something of an obsession in every moving part of Pret, with the key aim of understanding how Eat might close the performance gap when it comes to average revenue per store. That’s possibly easier said than done, but for a business like Eat that has to be the ambition. Figures out last week suggest that – based on back of the envelope calculations – Pret’s 230 locations produce weekly sales of more than £23,000. Not bad for a sandwich shop, but then Pret feels quite unique: a very well differentiated brand, with a lovely proposition, great culture and some much-admired practices, especially when it comes to building and retaining teams that feel valued and perform consistently to a high level. It is impossible to create the same thing at Eat. However, throw Waitrose into the mix and the proposition starts to feel a bit different, possibly like something special to set apart a business that possibly doesn’t have the most distinct identity. It’s not about aping Pret, but about creating a unique and enticing consumer brand in the same markets as Pret. Eat is not broken, but it is me too - a good business rather than a great one. The question is how does it make the leap? Aside from the halo effect of the Waitrose brand, it is also worth considering the impact the organisation’s purchasing scale, marketing skills and consumer insights could have on Eat, not to mention the impressive John Lewis Partnership structure for employees. Supermarkets both here and in the US have for some time been using in-house foodservice and catering to differentiate the experience. M&S has finally worked out that its in-house Café Revive outlets should encapsulate the magic of its foodhalls while Waitrose has introduced sushi bars and Italian coffeehouses at its flagship stores. But this deal is, as they say in the States, a “game-changer”. It heralds an exciting new era. Perhaps full-blown restaurants and casual-dining brands will be next on grocers’ shopping lists – and that could throw up some interesting opportunities for eating-out groups.