I went to a seminar organised by investment bank, Citi,
recently that looked at investment trends in the F&B sector and inevitably
in that environment and in the current climate, the conversation came up about
big chains versus innovative independents - the latter increasingly
outperforming the former.
In this context, it was great to have Billy Hookway from JKS
and White Rabbit founder, Chris Miller, on the panel as, while very different,
they share the same aim of achieving scale through repeated diversification
rather than the more familiar tactic of simple replication. Both have finance
or private equity expertise as a core part of the business but both are
operators. Imbiba is another London-based investor/operator with multiple small
brands under its banner. Perhaps this model could act as inspiration for some
of the big chains which have the sites and the resources but seem to have run
out of ideas - and customers.
It's undoubtedly more difficult to consistently come up with
new ideas than it is to oversee a brand ‘roll-out’. However, if a business
opens its door to new creative talent and sets itself up as investor as well as
operator there is potentially an unlimited pool of ideas from which to choose.
It's certainly more in line with what customers want.
Although restaurant groups have traditionally grown through faithful
replication, the trend for some time has been for unique experiences. And that’s ultimately why we’ve seen so many
of the big brands fail recently.
Of course, there will always be room for a limited number of
brands that can sustain ubiquity and be controlled at board level with a
competent operational management firmly in place. But we’ve now seen that -
outside the fast food and coffee sectors - that approach is increasingly
The independent sector, as ever, is where the innovation is,
and that is what the customer wants.
The recent explosion of street food halls and similar formats are clear
evidence of this- a response to demands for choice, quality and an experience-
a reaction against boringness.
So how can big institutional money tackle this challenge?
While a board of accountants may be able to oversee a process of faithful
replication, growing a group while
continuing to innovate is a completely different game and one you only get to
play if you have the operational and creative expertise generally only found in
the independent sector.
In London, for example, there are still numerous sites held
by the big restaurant and pub groups that are considered ‘prime’ yet massively
underperform in relative terms. This is to the detriment of customers,
landlords and to the institutional owners of these businesses. Maybe it’s time
for those groups to switch from ‘Operator Mode’ to ‘Investor Mode’ in certain
cases. Instead of coasting along or selling the asset at a loss, perhaps they
should first try partnering with an independent operator with proven success,
who may hold the key to big profits but doesn’t have the funds for a big
premium or the required capex.
In this scenario, everybody can win including landlords who
retain the covenant strength of the ultimate owner of the asset. In due course, these owners may find
themselves with a stable of small, agile and innovative partners to invest in
and work with, providing sites, staff, and capex and taking a share of the
upside. Deciding who to partner with is
clearly the main consideration but if in doubt advice can be sought from people
who know the sector intimately and have a firm grasp of the market.
Ultimately, as the trend increasingly veers towards
independent talent, maybe that’s how the big money invested in the sector can
ultimately get in on the action.