Customers pay for quality as casual dining goes upmarket

Investors see plenty of money to be made in high-end casual-dining restaurants, even though some customers have less to spend. Christopher Walton reports

Casual dining is attracting increasing amounts of cash, not just from customers but more recently from private equity. The money men are sensing a market yet to fulfil its potential as the advent of "premium casual dining" opens up new investment opportunities.

Last week restaurant operator Tragus, owned by private-equity group Blackstone, made its second acquisition of the year, splashing out £140m on Italian restaurant chain Strada, following its acquisition of Ma Potters in February for £14.5m.

The deal should make up for the disappointment of losing the April bidding war for high-street tapas chain La Tasca, which was won by property tycoon Robert Tchenguiz's £123m bid.

Strada's 50 Italian restaurants, mostly located in London and the South-east, with additional outlets in regional town centres, expands the Tragus portfolio to 230 restaurants, including the Café Rouge, Ma Potters and Bella Italia brands.

Grown-up Italian

"We see Strada as having a strong brand," said Graham Turner, chief executive at Tragus. "It is not just pizza, it is not just pasta. It has the ability to do more grown-up Italian and offer something more complex."

Turner said the aim was to expand to about 150 sites in the UK, while maintaining the brand's association with quality.

"If you are looking around for something to eat, you trust [Strada] to deliver a good experience," he added.

Getting a trustworthy brand with scope for expansion is something the Food and Drink Group has also focused on with its development of American-themed bar and grill chain Henry J Bean's over the past year.

James Kowszun, Food and Drink Group chief executive, said that revamping the venues and product quality was critical to improving Henry J Bean's fortunes: "We stripped it out to the core of the brand, did a lot of work on sites and put in new, improved menus. As of this financial year, like-for-like sales were up by 14%."

Clapham House Group, which runs four high-quality brands with different food styles (Tootsies, Gourmet Burger Kitchen, Bombay Bicycle Club and the Real Greek) also announced recently that it was looking at a nationwide roll-out through its AIM-listing.

But despite this trend, which has seen a total of £263m private-equity cash spent on acquiring casual-dining outlets in the past two months, socio-economic forecasts for increases in customer spending are mixed.

Last month analyst group FMCG told Caterer that "eating-out pessimism" was a rising phenomenon among some customers, who were feeling the strain in their wallets from rising interest rates, utility costs and tax bills.

David Humphreys, director at FMCG, said: "We will begin to see a marked setback and have already started to notice a dichotomy in spending habits," noting that blue-collar workers and first-time buyers were feeling the pinch the most.

However, Humphreys admitted that customers still seemed prepared to spend on quality and as a result premium casual-dining restaurants and high-end, food-led pubs would benefit the most.

Quality of life

James Dawson, analyst at Charles Stanley Securities, offered a more positive outlook: "Casual dining was a discretionary spend: now it is more about quality of life. For customers to stop eating out once a week, things would have to be pretty desperate and there are no signs of that."

The challenge now is to convert customers away from the traditional casual Italian and burger market and on to more diverse cuisine.

Tchenguiz's pub group Laurel, which will absorb the La Tasca chain on 14 June, has already set out ambitious expansion plans and intends to more than double the size of the business, which stands at 58 restaurants across the country.

However, Dawson warned: "The next step for La Tasca has to be delivering its brand. That type of outlet is targeted at a high-end demographic. I sense that investing in a more authentically Spanish style, rather than continuing with what they already put out, would be more effective."

At the end of the day, differentiation will be the key to success, as the premium casual-dining sector strives to fulfil its predicted market potential and attract the desired levels of investment.

However, with customer spending outlooks fluctuating, getting the premium brands to deliver a consistently enjoyable dining experience to justify their higher prices, will make or break this burgeoning sector.

Some UK premium casual-dining operators

• Individual Restaurant Company (Piccolino's, the Restaurant Bar and Grill, Bank)
• Paramount Restaurants (Chez Gérard, Café Fish, Livebait, Bertorelli's)
• Clapham House Group (Gourmet Burger Kitchen, Bombay Bicycle Club, the Real Greek, Tootsies)
• Living Ventures (Living Room)
• Ultimate Leisure (Bel and the Dragon)
• Gourmet Holdings (Richoux, the Gastronomic Pub Company)
• Loch Fyne Restaurants (Loch Fyne Restaurants, Blanc Brasserie)
• The Food and Drink Group (Henry J Bean's)
• Tragus Holdings (Strada, Café Rouge, above)
• Fishworks