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 unsustainable.
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.