Growing pains?

16 November 2000 by
Growing pains?

When the Hartford Group warned in July this year that its annual profits to 31 December would be "significantly lower than expected", chief executive Kevin Finch suggested that the London restaurant market had "gone soft". Hartford's financial director resigned soon afterwards and in October the group announced it was seeking buyers for two of its group, Idaho and Utah, along with two development sites.

So it came as no surprise when, two weeks ago, the group announced a pre-tax loss of £1.67m for the period 3 January to 16 July (Caterer, 9 November).

And restaurateur Oliver Peyton said that stiffer competition in Mayfair meant it was harder to make money at his designer restaurant Coast, so last month he rebranded the venue as the more populist Mash.

But mainstream groups such as Groupe Chez Gérard and PizzaExpress reported like-for-like sales growth of 3% and sub-stantial increases in pre-tax profits in their annual reports in September. And the turnover for Belgo Group rose 32% to £35.7m in the year to 2 July and pre-tax profit was up 33% to £4.8m.

So what exactly is happening to the London restaurant scene? Has the market gone soft, or is this an industry that was in its adolescence in the 1990s, and is coming of age in the new century?

From a consumer's perspective, Richard Harden, editor of Harden's London Restaurants 2001, believes the market has matured. "I'd say the evidence is that existing restaurants are doing well," he says. "For the first time, our top 40 most-mentioned restaurants contain no newcomers.

"Three or four years ago you could hype a new restaurant into being the one everyone talked about. There used to be news-paper stories about who sat where at Daphne's when Diana [Princess of Wales] was around. That doesn't happen now."

The idea that the market has come of age meets with approval from operators such as Claudio Pulze, owner of five restaurants under the Cuisine's Collection umbrella. "The customers in London know their food as well as those in New York, France, Italy - they are sophisticated in their tastes," he says. "It is an exaggeration to say we are the gastronomic capital of the world, but we are one of the best."

But this does not mean things are not changing, and Pulze believes a rationalisation of the market is on the way. Once, restaurants could turn tables twice an evening if they so desired, but Pulze says this is no longer the case except in the most successful establishments.

"For the first time in catering, we are now having a recession that is not down to the economy, which is booming," he says. "There are simply too many restaurants. It will take a couple of years before the next real upturn, but we are certainly on the downward part of the cycle."

Shaun Wilson, proprietor of High Holborn and 19:20 in Clerkenwell, doesn't think the eating-out market is about to crash, but feels it has lost its direction slightly. His aim is to develop restaurants that do not look as if they are in a chain. "There are too many out there like Pizza Express, which I do not knock at all," he says. "But I think we are at a stage where people have done Pizza Express and they want something else now."

One man trying to provide the next level up is Andy Bassadone, chief executive of Belgo Group, which is about to open its fifth pizza restaurant, Strada, on New Burlington Street. "The days of the themed restaurant are over," he says. "Now the push is for high-quality chains.

"I believe Strada will appeal to 50% of the Pizza Express clientele and I'm aiming to have 50 in the country. There is a tension between a restaurant trying to roll out more than one and maintaining quality. I think Strada sets the right level of expectations. I couldn't do it with the Ivy."

With Strada, and the moules-and-frites Belgo restaurants, Bassadone believes he is filling a gap in the market for quality restaurants in the sub-£20-a-head price bracket, especially in suburban London, where he says the food offering is still dreadful. "Battersea is one of the few exceptions, but I live in Richmond and the closest really good restaurant is the Glasshouse in Kew."

It is this type of neighbourhood restaurant that seems to be coming into its own. Trevor Watson, director of special projects at property specialist Davis Coffer Lyons, also believes the days of heavy themes are over. "Soft branding is the key," he says. "Restaurants that are totally shoehorned into a mould are not the way forward."

Watson adds that he is unsure why the Hartford Group - which fits this criterion - has failed.

While Bassadone targets the sub-£20 market, Wilson believes there is room at the quality end of the market. He has positioned High Holborn there with an average spend of £50-£55 in a place that "does not feel like you are in a designer restaurant", he says.

"The customer does not need to be impressed by vast acres of restaurant and large numbers of waiters any more. We have moved on."

Pulze agrees that over-designed restaurants do not appeal to today's educated London diner. "It is like buying an expensive watch - you do not want the box to cost more than the watch." Ultimately the consumer wants to pay a fair price for his food, not the surroundings, he says.

Pulze spends no more than £500,000 on acquiring and refurbishing each of his restaurants, where average spend is £30.

Harden says his latest book backs up the belief that the customer is tired of Conranesque gastrodomes. "Conran perceived there was a window of opportunity in which it was possible to serve a mass-market product at bespoke prices," he says.

Now, Harden believes, London diners have decided that if they are paying £50-£60 a head, they want it from an operation such as Le Gavroche.

Harden says that groups such as BGR, which recently sold off its quality Bank restaurant to concentrate on rolling out its Fish! concept, will find favour with the public. "I think that is the top end of the group market, and you can get away with allowing systems to run the restaurant and still charge £35-£40 per head," he says.

Rolling out concepts is definitely where the City would like to see restaurateurs going, even if the consumer is reluctant. Watson says financial capital is readily available for restaurateurs, especially those with concepts that could be copied.

But Wilson says rolling out 10 restaurants in 12 months is not what many of today's restaurateurs are about. "People only do that to sell out and make money and I think that is not the way forward. I would like four or five individual places that I have been personally involved in."

FACTS:

Key London groups

A-Z restaurants: Aubergine, Ken Lo's, L'Oranger, Rosmarino, Spiga, Spighetta, Teca and Zafferano

Belgo: Five Stradas, 11 Belgos, J Sheekeys, the Ivy, Le Caprice

BGR: Sold Bank for £11m to expand Fish!, its five-strong chain

City Centre Restaurants: Wok Wok, Caffè Uno, Garfunkel's, Deep Pan Pizza, Est Est Est, Chiquito, Frankie & Benny's. There are rumours that PizzaExpress is interested in buying the group

Conran: Quaglino's, Mezzo, Sartoria, Coq d'Argent, Orrery, Pont de la Tour, Bluebird, Aurora, Zinc, Butlers Wharf Chop House, Terminus, Fishmarket

Cuisine's Collection (Claudio Pulze): Il Forno, Al Duca, Zaika, L'Anis and El Rincon, with three more planned for next year and another Zaika in New York

Groupe Chez Gérard: Livebait and Chez Gérard key brands

Gruppo (Oliver Peyton): Shut and reopened Coast in London as a second London Mash while modern Italian Isola still struggles at lunchtime. But this summer Peyton opened Admiralty at Somerset House

Hartford Group: Idaho and Utah up for sale, but Montana, the Pharmacy and Canyon remain

Nigel Platts-Martin: the Square, Chez Bruce and the Glasshouse

Marco Pierre White: Escargot, Mirabelle, Belvedere, Criterion, Oak Room, Quo Vadis, Titanic

Moving Picture: Kensington Place, Launceston Place, the Brackenbury, the Avenue, Circus

Pizza Express: 41

NEW YORK'S RESTAURANT SCENE

If London's restaurants are coming of age, New York's must surely be drawing a pension by now. Few obviously branded groups dominate the city, their operators preferring to stick to the malls of suburbia in New Jersey. Instead, the diner is greeted by quality food at almost every price level.

A few UK restaurateurs are trying to get established in this highly competitive atmosphere. The latest newcomer is Claudio Pulze and partner Vineet Bhatia, who are planning a second Zaika restaurant with a US partner to open by the middle of next year (Caterer, 2 November, page 4).

In July, Prêt à Manger opened a site in the shadow of the New York Stock Exchange. Sinclair Beecham, co-founder of the UK concept and president in the USA, says the restaurant is serving 1,200 customers a day. He expects this to double in the first 18 months and says average spend equals the London average of £3-£4.

"In London we are mid- to upper-spend for lunch," he says. "Here we are cheap. But people buy the same things."

Beecham admits he had worries about Prêt à Manger in New York. "I wasn't sure if New Yorkers would buy pre-packaged sandwiches and I wasn't sure if the UK sizes would work."

But there have been no complaints on size and, because the sandwiches are already made, there isn't the usual deli-bar queue at lunchtime, which appeals to the ever-busy Manhattanite.

The company has invested $750,000 (£524,000) in the first shop, but Beecham has clearly not moved lock, stock and barrel to New York to launch a single Prêt. There are expansion plans but things takes longer in the Big Apple, where the paperwork must all be completed before the builders walk in. Beecham estimates there will be 10 units in the first 15 months and then 25-30 units a year after that.

"In five years' time, I hope we will be all over the city," he adds.

New York is notorious for giving operators a bumpy ride. Andy Bassadone, chief executive of Belgo Group, admits he was "too ambitious" with his roll-out of Belgo to the USA in January 1999. "We had a partner, Avado Brands, and they were keen to go, so we did," he says.

Initial difficulties with building contractors had a knock-on effect on the group's financial results, but now the 225-seat restaurant is the second busiest Belgo in the chain, serving about 2,000 covers a week with an average spend of $35-$38 (£25-£27).

Michael Formichella, director of operations at Belgo New York, says: "New Yorkers want quality food and good service with decent ambience and if they don't like something, they complain."

And competition is everywhere, says Formichella. "You can get a margherita delivered to your door, so if it is raining hard out, why leave home?"

But he still believes that the unique Belgian concept, the restaurant's location in an up-and-coming part of Manhattan and the size of the restaurant give him a competitive edge.

"This has to be one of the only restaurants where a party of 20 can walk in with no reservation and we try to accommodate them - anywhere else, they'd just laugh," he says.

Source: Caterer & Hotelkeeper magazine, 16-22 November 2000

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