The second half of the year has kicked off with the completion of the largest corporate restaurant deal for many years with the sale of PizzaExpress to China’s Hony Capital for a figure reputedly in the region of £900m, equating to c£2m per unit.
It is perhaps on reflection, no surprise that It was purchased by a major Chinese private equity buyer. PizzaExpress has an already established, if admittedly small international foothold, with restaurants in the Middle East, a joint venture with Bharti in India and more importantly operates 22 restaurants in Hong Kong and Shanghai.
China is the most populated country on earth with 1.3bn people, equating to over one fifth of the world’s population. It is a rapidly growing economy with a large emerging and increasingly wealthy middle class.
The country’s growth as an economic powerhouse has been well documented. It has in the last 10 to 20 years become a major investor in international business and industry, particularly within sectors such as oil and mining in Africa but until now nothing in the corporate restaurant sector.
The American brands such as Yum! And McDonald’s have been at the vanguard of international expansion in Asia for many years and there are now few places in the world which have not been exposed to the famous yellow arches, the Pizza Hut hat or Colonel Saunders chicken. Yum! entered the Chinese market in 1987 with KFC and followed with Pizza Hut in 1990. It has since now expanded to over 6,400 restaurants in more than 950 cities and they expect to open a further 700 new sites in 2014.
Both these operations have been welcomed enthusiastically by the growing consumer class in China and have been a major success story for Yum!
PizzaExpress has over 430 restaurants in the UK, a country with a population of c70 million and the PizzaExpress brand is now a mature operation with more limited scope for growth.
The opportunity for the brand to expand throughout China and Asia in general, is however substantial and where Yum! Blazed a trail, it seems that Hony are set to follow and a new chapter in the PizzaExpress story looks set to unfold over the next decade in the Far East.
They will have the backing of local expertise and knowledge. But operating successfully in overseas markets is not always straightforward and whilst we live in an ever smaller and ever more cosmopolitan world it can take time for cultural differences and tastes to settle down.
Both KFC and Pizza Hut have tailored their menu to reflect this dynamic in China, with the former having a selection of beef, rice, seafood and fresh vegetable dishes. No doubt there will be a similar brand stretching that will occur with Pizza Express as it expands beyond their geographical hub in the main business cities of south east China.
Many established UK brands have been following a similar international path as PizzaExpress albeit in a more measured scale. Whilst there still remains opportunities in the home market, we have gone through a period of rapid expansion over the last five years, in terms of the sheer number and variety of casual dining restaurants to be found in our leisure parks and high streets. We have probably not yet reached saturation, but the UK market is becoming increasingly mature and the scope for major growth is limited. What constitutes market saturation will vary from brand to brand but it is a problem that more and more will need to confront and address if they are to continue to drive profit for their predominantly private equity owners.
International expansion in developing markets is a key area where many of these brands can drive new growth both in terms of restaurant numbers and profit. In many cases some of these market places may even be more suited to their offer than many of the towns and cities around the UK, where the demographic profile and level of spending power may represent an altogether riskier proposition.
In the case of higher value specialist brands that have developed in London it maybe more appropriate to look at expansion abroad in the major business centres rather than venture into UK provincial cities. Burger & Lobster having successfully established themselves in central London are set to open in Dubai next rather than the more predictable Manchester or Leeds.
The recent quick demise of L’Entrecote in Manchester is a salutary reminder of the risks. The Middle East and the oil states with a growing tourist trade and a strong ex pat community have been a popular alternative target for many operators.
Carluccio’s is one company that has embraced this route and has announced plans to ramp up its international expansion plans. They currently have restaurants in Turkey and the UAE but are now looking to open their first restaurant in the US in Washington DC. This is the first of seven new international sites that they have in the pipeline for 2015 with both Chicago and Boston mentioned as likely targets.
Whilst they continue to expand in the UK with an estate of c100 restaurants Simon Kossoff has stated that he feels that c170 maybe close to their saturation point in the home market and expansion into new markets is a key plank of their strategy going forward.
They are of course not alone, Jamie’s Italian which due to the nature and scale of each operation has more restricted expansion opportunities in the UK, have opened up in diverse locations from Hong Kong, Singapore, Dubai, Australia and Ireland, with further targets in the pipeline. Wagamama likewise now have an established worldwide presence with 17 international restaurants and the opportunity for these and other brands on the world stage is significant.
It seems that there remains opportunities for new and established players to expand in their home territory. We are also now firmly in an era where the many UK brands like many of their American cousins before them, are becoming a cultural export. We may as a country not have had the greatest of culinary track records, however, it seems that we have at least learned how to brand and repackage the traditions of other nations and export for wider international consumption.
