Inside Track by Peter Martin
It has been a bumper year for deals, and the flow shows no signs of slowing in 2006. But whatever happened to market consolidation? Despite all the transactional activity, there has been very little movement towards creating new big power groupings in the pub and restaurant sector. The float of Gondola, bringing together PizzaExpress and ASK, was perhaps the one exception. Three years ago, on the break-up of the old Six Continents business, Tim Clarke chief executive of the then newly formed Mitchells & Butlers pub group promised to become a major market consolidator. He now sits at the head of a successful company some distance clear as the biggest player in the managed pub market, but without having done anything significant in the acquisition field. Its nearest rivals have either marked time, like Whitbread and Wetherspoons, or fallen away. Spirit is currently being split up. Laurel was similarly dismantled, and is only now being rebuilt with new components. The only significant acquisitive growth in managed pubs, apart from the reconstruction work at Laurel, has come from the two major regional brewers. Greene King and Wolverhampton & Dudley are about the only competitors making inroads into M&B's new-found dominance. OK, consolidation has undoubtedly driven the tenanted pub market where Punch and Enterprise rule supreme. But both are essentially asset rather than operational plays. So why no rush to bring together more big name pub and restaurant concepts and companies in the name of operational synergy and efficiency? The weight of private equity cash attracted to both pubs and restaurants and the recent appetite in the City for restaurant IPOs have both been big factors, working against trade buyers. But in the restaurant market, in particular, the focus has rightly been on the growth potential of existing brands, rather than parcelling them up. The likes of Caffe Nero, Loch Fyne, La Tasca, Wagamama, Carluccio's and Chez Gerard all have a way to go in reaching critical mass. The Restaurant Group had the opportunity and base to be a portfolio player right across casual dining, but this year has decided to quit the high street, hiving off Est Est Est and selling Caffe Uno, to concentrate on its core concession and retail park businesses, while looking for new business growth out in suburbia, through its Blubeckers acquisition. It may have found town centres too competitive, but it will now find itself up against M&B and the other pub restaurant players. The fact is that the bulk of companies are not set up for consolidation; their main focus has been on single concept roll-out. Post-merger integration is perhaps the biggest challenge facing any business, as Laurel is finding out. It is trying to meld together not just two, but three, different businesses and cultures. Its success will only really be judged when that painful process is complete. Before worrying about becoming market consolidators, companies perhaps need first to create internal environments that can stimulate, and cope with, their own new concept development, nurturing and growth. M&B is one of the few enterprises that has proved it can do that, so it will be interesting now to see if Tim Clarke will make that supposedly overdue deal. Spirit's pub restaurant business, including Chef & Brewer, is the obvious target. Clarke will face competition, possibly from Whitbread, keen to get back sites next to its Premier Travel Inn lodges, and even the old pub hands at the Restaurant Group might be tempted. Clarke is known for not wanting to overpay, so whether he gets a deal away is still open. The question, of course, is does he really need to do it? Conjecture over consolidation and market dominance has become something of a market distraction. There is much to be said for concentrating simply on building strong concepts and brands, and creating internal cultures for new product development. The deals will keep coming in any event, and a fragmented market has virtues of its own.