Under normal circumstances, any CEO of a restaurant group posting a half-year loss of over £200m would be gone. But these are not normal circumstances. So despite that huge fall in pre-tax profits, over half of which was down to restructuring costs, The Restaurant Group CEO Andy Hornby believes the 400-site business is in “good shape, all things considered. You have to judge your performance in the context of what’s going on around you.”
Has there ever been context as chaotic as this? “It’s such a strange period,” says Hornby, and it’s fair to say that sales and profits have been so wildly skewed by the events of the last few months that judging any operation by the numbers over the last six months feels pointless.
Unless you start at the industry’s version of day one - 4 July - and take it from there. And as far as Hornby is concerned, if you do that then there are good reasons to be positive. “We are really encouraged by how we’ve traded since we reopened,” he says. “Since the fourth of July Wagamama has traded really well, it’s up 11% on a like for like basis through that period.
He says he’s particularly pleased with how the pubs part of TRG has performed. “I’m often criticised for never being happy, but I have to say the performance of our pubs has been exceptionally strong with like for like sales growth through the period coming in at over 14%. So the pub business has had a strong period.”
As for why that is, he says the pubs, of which it has 77 under the Brunning & Price brand, tend to be in “rural or semi-rural locations with a very small presence in London and other city centres, so the pubs benefitted from work from home and the staycation situation we had over the summer”. He thinks he could grow the estate to 160.
As for the long-troubled leisure arm, he says it’s “traded well, up 4%, which is broadly in line with the market and, importantly, it represents significant improvements for a division that has historically lagged behind the market.”
It’s also gone through a major restructure, with Chiquito going into administration and Frankie & Benny’s slashed in size, from 350 sites at the end of 2019 to 140 today. Hornby is now optimistic about the division, which was previously a drag on TRG’s fortunes and insists there is a long-term plan for Frankie & Benny’s.
“We are going to reinvest in it,” he says. “I think we’ve now got the estate where we need it, 140 sites is the right kind of size for the leisure division and there is still huge faith in the Frankie and Benny’s brand from the core customer base. We need to reinvest in the brand proposition, constantly invest in developing the food and be operationally slick and rigorous.”
He knows it’s “very early days” since the slimmed down leisure estate reopened but says the “early signs are that progress has been really positive. We’ve got a good experienced team running the division and I think in two to three years you will see steady incremental improvements.”
He also says the temporary closure of Cineworld, which are often housed in retail parks alongside casual dining restaurants like Wagamama and Frankie & Benny’s, won’t have a “major impact” on sales, as only around “20% of our leisure estate has a Cineworld near it.” He also points out that over the last 11 weeks those like for likes are based on, cinema takings were down 90%, so the closure is “not a huge blow”.
Plus another emerging bright spot has been the growth of delivery, which has grown significantly at Wagamama since lockdown and tripled in the leisure arm.
“Delivery has been extremely strong,” he says. “During lockdown, for probably two months of that three months, Wagamama was delivering through Deliveroo, and when we reopened delivery has been given a major push.”
In September 2019, Wagamama delivery represented 15% of sales, now it’s 24%. In the leisure arm delivery has tripled from 4% of sales to 12%. Hornby thinks the growth will “continue” in the short term because “localised lockdowns will encourage people to use delivery” but also in the longer term it “does feel like the trends are still moving towards customers looking to use delivery.”
Still, just because the last few weeks have seen positive momentum doesn’t mean the situation doesn’t remain extremely challenging. “We are not complacent,” he says. “Clearly, the next three months are extremely uncertain. As we stand, the only thing we know is we’re going to have a mixture of regional lockdowns to deal with.
“We’re going to have a number of different new rules coming in at various stages, so we’re managing the rule of six, we’re managing the 10pm curfew, we’re managing regional lockdowns, we’ve got the direction for people to work from home which is impacting city centres. We recognise that the next few months are going to present lots of challenges.”
Hornby is familiar with lots of challenges. As the CEO at HBOS Hornby came under the spotlight during the global financial crisis, and since the coronavirus struck the dire events of 2008 have been used as the most common comparison to the last time hospitality came under such sustained pressure. But Hornby says any parallels are pointless.
“You could never compare the situation,” he says. “This is a completely unique set of scenarios which has impacted the hospitality sector absolutely head on, and what has made it so challenging for everybody is we had to close businesses down entirely for a three-month period and then reopen incredibly carefully, and we’re still managing that constantly.
“To compare it to other periods is really not relevant, what matters here is how all of us in the industry are looking after customers and colleagues through what is a truly incredible period.”
As for whether his experiences at HBOS steeled him for the rigours of the current crisis, Hornby says it’s “not about me, it’s about the whole team at TRG and how we have pulled together to navigate an incredibly complex situation to try and look out for our customers and look after our colleagues. I think we are succeeding, but we’ve got a long way to go and that’s what I’m focused on.”
Some headlines may have proved to be a distraction though, like those last week which suggested Hornby would be in line for a bonus worth over £700,000 this year and over £900,000 in 2021, which drew criticism for Hornby potentially earning thousands more pounds while thousands of TRG employees lost their jobs. Is the criticism fair?
Hornby, who has been on a reduced salary throughout the crisis and waived his bonus for 2019, is predictably tight-lipped over the issue, saying that “remunerations are totally dictated by our independent board committee and that’s how it should be. All decisions are taken by them and by shareholders. The senior management team continue to take a reduced salary, which is how it should be at this stage.”
Besides, given the issues facing TRG, and every other operator within the industry, the ongoing row about levels of executive pay, which is by no means exclusive to TRG, seems trivial by comparison.
And behind the headlines, TRG is emerging out of the coronavirus looking much leaner – overall it’s cut the size of its overall estate from 653 sites to 400 – and now it’s cut away the underperforming elements of its estate it’s looking stronger too. But at the moment, Hornby knows TRG is still in the middle of it.
“No one ever wants to be going through what we’re going through now as an industry, but I really hope that we all learn the most important thing from it, which is how important the hospitality sector is to the country,” he says.
“And how valuable it is as a supplier of jobs, and by giving customers a really good experience. I really hope that’s remembered by everyone as we pull out of all this, because that’s the most important thing.”
THE BIG INTERVIEW
Restaurant Group CEO Andy Hornby: TRG is emerging stronger and leaner
Under normal circumstances, any CEO of a restaurant group posting a half-year loss of over £200m would be gone. But these are not normal circumstances. So despite that huge fall in pre-tax profits, over half of which was down to restructuring costs, The Restaurant Group CEO Andy Hornby believes the 400-site business is in “good shape, all things considered. You have to judge your performance in the context of what’s going on around you.” Has there ever been context as chaotic as this? “It’s such a strange period,” says Hornby, and it’s fair to say that sales and profits have been so wildly skewed by the events of the last few months that judging any operation by the numbers over the last six months feels pointless.