Inside track by Mark Wingett “Whatever you do stay in London”, those were the words said to me last week during M&C Report’s 2011 Restaurant Conference. I won’t divulge who said them, actually it could have been a number of operators in several different ways, but it highlights how the capital has become a comfort blanket to many in the sector. It also showed what many fear is happening out in the regions. Let’s not overstate the obvious, but London is shielded from the majority of the storm that regional operators are facing day in, day out. However, let’s look at this another way. Earlier this year an operator said this to me, “We don’t need to be in London, and have no plans to open there at present”. And no, no drink was involved when this statement was being declared. I’m also quite happy to name the operator who made this bold proclamation, Alex Reilley, co-founder of Loungers, the all-day and cafe bar chain, that last week opened its 20th and most northerly site in the UK. Founded in 2002, by Reilley, David Reid and Jake Bishop, with the opening of their first Lounge bar in Bedminster, Bristol, the group has already developed an established presence in the West Country, and is now creeping out of its homeland along the south coast, into the Midlands, Wales and beyond. The figures are also impressive, driven by its rollout plan. For the year to 30 April the group saw unit Ebitda increase from £1.46m to £2.46m and underlying Ebitda rise 88% to £1.64m. The Stamford opening last week was its third under the Cosy Club brand, which was developed to go into market towns and to appeal to a more female audience. A fourth is set to open in Exeter sometime next year, and sites have also been secured in Cardiff and Salisbury. It opened its latest Lounge site, its 17th under the format, in Southampton in August, while a further three new venues are set to open in the first quarter of next year, as the group moves towards its target of operating 32 outlets by the middle of 2013. So far the group has been bank and self-funded. It secured an additional £1m in funding in August. The extra funding followed its’ switch from RBS to Santander, which saw Santander refinancing Loungers’ existing £1.3m debt with the addition of £200,000 headroom into the business, plus an £800,000 revolving facility. Fit out cost for each site is on average £350,000 for Lounge sites and £550,000 for Cosy Club units. The sites on average turnover around £13,000 net for Lounge sites per week and £23,000 net for Cosy Club units. And what is the key to its success, I’ll leave that to Reilley. He said: “We understand the provinces and have a clear business model that we stick to rigorously. Whilst our turnover is not as sexy as a London-orientated business we achieve excellent return on investment as we look to take advantage of better property deals, cheaper overheads and less competition, the latter of which is in part a consequence of the lack of London operators looking to tackle ‘the rest of the UK’.” It is also not afraid to open multiple sites in the same town or city, witness five Lounges in Bristol, three in Cardiff, soon to be three in both Birmingham and Bournemouth, and two in Southampton and Bath (one Lounge and one Cosy Club), without diluting its performance in these locations. It is also strong enough to anchor new developments in city’s regarding as eating out backwaters. The opening of the first site at Plymouth’s Royal William Yard development was a calculated gamble but one that has paid off and has attracted Prezzo and Hugh Fearnley-Whittingstall’s River Cottage Canteen and Deli to open there, with other national operators set to follow. Unsurprisingly, private equity players have been circling the group for sometime, with Piper engaging in talks as far back as 2008. In June, Reilley himself revealed that the group had seen a “marked increase” in recent interest from private equity firms although he was quick to dismiss the prospect of an imminent deal. He said: “With the aid of a bit more bank debt the business is at a point where we can grow at a pace which is operationally sensible for us at this time and we're therefore not seeking an equity partner. We believe we can comfortably reach 32 sites by April 2013 and the three of us that own the business will almost certainly be considering our options ahead of this date.” Put the date in your diaries, for the way Loungers is going about its business in the hardest trading environment there is, or possible has been, there is sure to be one hell of a bun fight to be its backer as it targets a 50-strong estate and beyond.