A leading analyst has said that there is still a significant opportunity for The Restaurant Group (TRG) to grow its presence in established schemes across the UK by a further 128 sites and that there is scope for the company to grow its pub restaurant estate to at least 200 units.
Wayne Brown at Canaccord Genuity said that the Frankie & Benny’s operator currently operates on 232 out of 1,485 established schemes in the UK, which represents 15.6% of available locations. He estimates that by 2020E the group would have taken its share to 24.2%.
He also suggested that the fragmented nature of the UK’s pub industry and the 44% of that market, which lies within the free-trade channel also presents a further growth opportunity for the business.
Brown said: “We acknowledge that management would not want to open sites on all the 1,485 available locations but a market representation of only 15.6% highlights the scale of the opportunity in our view. Furthermore, the addition of a fourth brand suggests that should sites become available on any of the 232 locations on which it currently operates (where we know they enjoy high returns), the group now has that flexibility to take advantage of such opportunities. In particular, those 48 locations where both a Chiquito and Frankie & Benny currently co-exist are highly attractive from a returns perspective.
“We estimate that by 2020E the group would have opened a further 128 sites on new locations, taking its share to 24.2% (assuming no new schemes, which we know is not the case).”
Brown said that he saw the company’s opening programme focusing on five key areas, which all combine to make a “compelling investment”.
He said: “Around half of the annual opening programme will consist of Frankie & Benny locations. These are likely to represent new locations and increase the group’s representation within the established scheme market.
“The group will judiciously open Coast to Coast restaurants in close proximity to a Frankie & Benny’s and/or a Chiquito, thereby creating greater barriers to entry for new entrants where TRG already has a strong presence.
“On an opportunistic basis (likely to be single site locations) management will acquire freehold pub restaurants.
“The group is targeting 2-3 new Garfunkels p.a. which will be located in Central London, and it will continue to expand its concessions business within airports and transport hubs. The next major development is the refurbishment of T2 at Heathrow (FY13E) followed by Gatwick North terminal in FY14E.”
“One should also note the fragmented nature of the pub industry and the opportunities that this provides. Of the 53,300 pubs in the UK, 15% are managed houses run by pub companies. Around 44% of the market lies within the free-trade channel, which shows the opportunity for the company and an estate of at least 200 pub restaurants is more than feasible.”
