EP Business in Hospitality Issue 49 - April 2014

Graeme Smith
BUSINESS
Samba/Duck and Waffle combination at
the top of the Heron Tower near London’s
Liverpool Street. A combination of good
design and an unparalleled view make
for a heady mix.
All the groups that I have mentioned,
other than the ETM Group, which
receives many admiring glances I’m sure,
have been bought in recent years often at
market-leading multiples. This is despite
not having fixed restaurant brands or an
entirely freehold estate (in the case of
Geronimo). There is clearly money in this
flexible brand model!
This development in the market
presents an interesting challenge and
opportunity for catering and events
companies. All catering companies are
striving to create capital value in their
businesses which operate in a highly
competitive contract environment and
a seasonal and short lead time events
market. In recent years one answer has
been to acquire or develop food retail
brands such as Benugo, Apostrophe or
the Rhubarb branded airport restaurants.
Running and rolling out a branded
food retail chain is a particular skill and
perhaps one that doesn’t sit naturally
with catering businesses that pride
themselves on bespoke service and
delivering exactly what the client wants.
However, these skills can sit much
more easily with a flexible and, if you
like, unbranded offering that is tailored
to the requirements of the specific
location and landlord, all day dining
– check; high-quality food preparation
and service – check; ability to cater for
functions – check; promote and sell
space for events and parties – check.
It is easy to see how the best catering
companies could be an attractive
proposition for landlords looking
for an F&B solution.
What it does require, though, is for
caterers to take on risk through entering
into a property lease. Compared with a
concession agreement, a lease provides
for longer tenure, property rights and
the ability to capture profits from
outperformance and most importantly
realise capital value on an exit if the
lease proves valuable. They also allow
for more control over the offering and
less interference when compared with
traditional concession arrangements.
Of course, these rewards only come with
increased risk. Operators must keep up
with fixed lease payments even if trading
disappoints. Loss-making leases can
drag a company down.
Some caterers have come to terms
with these risks and are taking on leases.
Examples include Searcy’s, with the
iconic Gherkin sites and its champagne
bars; Green and Fortune, with its
locations in Kings’ Place; and Rhubarb
recently taking on the site at the top of
the ‘Walkie Talkie’ at 20 Fenchurch Street.
It will be interesting to see who ends up
“One has to be
able to adapt
catering business.
to different
situations which I think is
natural to caterers as every
party or event is different”
acquiring the Searcy’s sites at the end of
the current sale process and whether the
capital value resides in the leases or the
The market is developing all the time
and the convergence between food retail
and catering continues. If caterers are
able to adapt their model to meet the
needs of landlords and the dynamics
of individual locations, and are bold
enough to take on the risk of property
leases, it is possible they can steal a
march on branded food retailers and
open up a new avenue to create and
grow capital value.
EP | April 14 | 21