I have no idea whether the same holds true in the UK. But our own industry statistics suggest that becoming a restaurateur is no exercise for the faint hearted – as Jamie Oliver has found to his cost this week with the collapse of his embattled chain of restaurants. After years of rapid expansion, which peaked in late 2014 at over 20 per cent, the so-called ‘casual dining’ sector saw a contraction in restaurant numbers in 2018 for the first time in eight years. And as Mr Oliver’s troubles highlight – and investors in the listed restaurant sector will have also felt – it’s not just small businessmen that are suffering; amongst others, Prezzo, Carluccio’s and even the mighty Restaurant Group (RTN) have all shuttered eateries, the latter making a risky and many say expensive acquisition of Wagamama to shore up growth.
Brexit – once again the conversation topic of the week as EU parliamentary elections approach – is often blamed for the woes of the sector, in particular its effect on the buying power of the pound and the resultant food cost inflation, or the difficulties in attracting good staff as EU citizens head home. But Brexit is not the only culprit – as holds true in almost all instances where it is blamed, such as the troubles in the travel business Mark Robinson writes about on page 49. A rising UK minimum wage has heaped further pressure on already overstretched cost bases. And it is the sector’s own breakneck expansion that has been its biggest problem, fuelled by the appetites of private equity and the ‘cookie cutter’ ease with which dining concepts can be rolled out. With too many restaurants chasing too few diners, they will be hard pressed to offload their struggling chains on to the market now.
Others blame changing consumer tastes for the troubles in casual dining – less sit-down dining, more takeaways and food-on-the-go, reflecting busy modern lives. Operators in those markets have fared better in recent years, but there are signs that competition is catching up with them here, too. Domino’s Pizza’s (DOM) recent franchisee troubles suggest a saturated market, while Just Eat’s (JE.) shares took a hit this week on news that Amazon is backing its rival, Deliveroo, with Uber Eats also planning major expansion here. Pret a Manger’s takeover of rival Eat this week suggests that even the battle for the humble lunchtime sandwich could be reaching its end game – and a PE ratio of 25 for Greggs, whose shares hit an all-time high this week, is asking a lot of a vegan sausage roll. Investors should make sure their eyes are not bigger than their bellies.
