The Pelican brief

25 January 2002 by
The Pelican brief

Whitbread's Café Rouge chain is up for sale along with the rest of the Pelican Group, but is the 12-year-old brand just too jaded? Mick Whitworth surveys the evidence.

When Whitbread set about reviewing its restaurant operations last year following the sale of its 3,000-strong pubs estate, it came up with tough targets for the underperforming Café Rouge, Bella Pasta and TGI Friday's brands.

Each was to achieve 5% like-for-like sales growth and 10% profits growth annually or face the chop. "It we can't grow them, we'll get rid of them," said strategic planning director David Richardson in October 2000.

Just over a year later, Whitbread has proved true to its word. All five brands in the company's Pelican Group - Café Rouge, Bella Pasta, Mamma Amalfi and Abbaye, plus the Oriel brasserie in London's Sloane Square - have been put on the market. Of the poor performers identified in 2000, only TGI Friday's has survived.

Whitbread is putting a brave face on the decision to sell. "There's nothing wrong with the brands," said chief executive David Thomas at the end of October, "but we don't think they can grow big enough to meet our targets." And, after all, it still leaves the company's restaurants division with a substantial portfolio: more than 1,300 sites, including 260 Costa Coffee outlets and 440 Pizza Huts.

Operating profit across all of its high-street restaurants - representing two-thirds of its portfolio - was up 19% to £3.1m in the first half of 2001-2002 on sales of £237.1m. There are plans for Costa to double in size to more than 400 stores, and it has developed trading partnerships with Abbey National, Waterstone's, Ottakar's and WH Smith.

However, it is clear Whitbread is unlikely to fully recover the £131m it spent buying the Pelican Group in 1996. Developed by entrepreneurs Roger Myers and Karen Jones, Pelican was centred on more than 100 French-themed Café Rouge sites. Some of these, says Whitbread, were "unsuitable and underperforming", and these were disposed of. Others, however, were added, and the Café Rouge brand now totals 75 high-street sites.

Alongside these, in what is now being bundled for sale as the Pelican Group, Whitbread slotted its 65 Bella Pasta outlets purchased from BrightReasons in 1995, plus 13 other units across other brands. But the whole Pelican estate is now believed to have a book value of only £50m.

"It hasn't been a great investment for them," says Clare Memory, an analyst at Barclays Stockbrokers. "But from a strategic point of view it's good they're sticking to what they said they would do and getting rid of these underperformers."

Whitbread won't give figures for individual brand performance. But it says like-for-like sales in the Pelican business, including Café Rouge, were up 1.4% in the first half of 2001-2002, "demonstrating that the brands have continued potential for growth". "What the year-long Whitbread Restaurants review showed, however, was that the business will not contribute on a scale sufficient to meet future requirements."

So what went wrong for Pelican, and particularly for its flagship Café Rouge? Market sentiment suggests the French-café formula was simply getting long in the tooth and Whitbread failed to move it forward. Loyal customers would see little difference today from the first outlet, opened in Richmond, Surrey, in 1989, and certainly not much change since Whitbread's takeover in 1996.

It's a criticism the company doesn't entirely refute. "The market has certainly moved on," says a spokeswoman. "There's now an increasing variety of restaurants on the high street competing for the leisure pound." She adds, however, that Café Rouge has "created and defined a market segment, and the brand still performs, as demonstrated by the like-for-like sales growth in the first half-year."

Even the chain's claim to have pioneered the French format is disputed. Juliette Joffe, co-owner of London's Giraffe chain, was one of the founders of Café Flo in 1987, which she describes as "the original French-type restaurant".

"We were the first people in England to do a steak-frites and a prix fixe menu," she says.

Joffe says Café Rouge has "stagnated", and puts it down to overexpansion and a failure to move with the times. "You can't keep the same things on the menu for 10 years," she says, adding: "They opened too many too quickly. If you do that, you lose it.

"When we sold Café Flo [in 1994], we were at the point where we would either have to sell or go big, which means aiming at the mass market and having central kitchens. I know you have to have more systems when you grow, but you still have to be prepared to tweak things depending on the location."

That point is echoed by one analyst at ING Barings Charterhouse Securities, who says: "It's as if they had looked at the economics but not the demographics. You can't just take a brand that worked in one place and try to re-create it everywhere. You've got to be fairly individualistic these days.

"If you look at the stuff Whitbread has had relative success with, like Brewers Fayre, apart from the name on the door you wouldn't really know it was part of a chain."

Others say there was a lack of care given to maintenance and refurbishment.

Some outlets became shoddy and run-down. At the outlet in Winchester, Hampshire, the main fascia board, where letters were missing from the Café Rouge name, remained unrepaired for months.

There is at least a hint of change. A new format, simply called Rouge, is being trialled at six high-street locations including Weybridge, Surrey; Basingstoke, Hampshire; and Leamington Spa, Warwickshire. These are said to have "a fresher, more cosmopolitan feel, both in terms of decor and menu", which updates the original offering without shedding all of its character.

But the format was being tested before the decision to offload Pelican, and Whitbread says the success or otherwise of Rouge will make no difference to its disposal plans.

Finding a buyer could, nonetheless, prove a challenge. There are no obvious frontrunners, although a report in the Sunday Times speculated that Michael Guthrie, who originally sold BrightReasons to Whitbread in 1996 for £46m, may be among those expected to bid up to £100m for the Pelican Group. Another potential bidder is thought to be Stephen Evans, who previously ran Bella Pasta.

The market is, meanwhile, looking distinctly jaundiced. In September 2001 another steak-frites company, Groupe Chez Gérard, cut dividends and announced a freeze in expansion, blaming the slump in tourist traffic through London. And Groupe Flo, the French owner of Café Flo, revealed it was pulling out of London altogether. Not surprisingly, neither is keen to comment on the woes of Café Rouge.

Barclays' Memory predicts the Pelican Group will fall to either a private owner or, more likely, a venture capital company, rather than a current player in the industry.

But Whitbread is believed to have set itself a six-month timeframe to achieve a sale, while analysts are not forecasting any pick-up in the economy until the second half of 2002. If no buyer is found for the entire Pelican package, Whitbread might be tempted to sell it off piecemeal rather than drag out its Franco-Italian adventure any further.

Up for sale

Café Rouge - 75 French-style café-bar restaurants
Bella Pasta - 65 pasta restaurants in high streets and retail parks
Mama Amalfi - nine local ristorante/bar-cafés serving fresh Italian cuisine
Abbaye - three individually styled Belgian bar-restaurants
Oriel - a French-style brasserie in Sloane Square, London, with à la carte restaurant and bar

Staying put

After the Pelican disposal, Whitbread's restaurant division will comprise: 226 Beefeaters, 27 Out & Outs, 4 Grillbars, 271 Brewers Fayres, 129 Brewsters, 261 Costa Coffees, 41 TGI Friday's and 44 Pizza Huts.

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