Fyne dining

A Loch Fyne restaurant hit the headlines in nearly every national newspaper last month when Gordon Brown and John Prescott met for a secret liaison at the Scottish restaurant. It's the only Loch Fyne restaurant, in fact, not owned by Mark Derry's company Loch Fyne Restaurants, but for Derry it was still a media bull's-eye.

Not that Loch Fyne needs extra publicity, as it appears to have been doing very well in recent years. The 30-strong restaurant group, founded seven years ago following a deal with its main supplier, presented a good set of financial results at the end of last year, continues its impressive expansion plan, and received a rating last year in the Times Fast Track 100 list as the 10th fastest-growing company and the fastest-growing restaurant company in the UK.

Loch Fyne Restaurants is also turning around its latest acquisition, Le Petit Blanc Brasseries, and has extracted a profit from the ailing business for the first time in years. It's small, reveals Derry - we're talking thousands only - but a profit nonetheless.

Sitting in the Covent Garden Loch Fyne restaurant in London, Derry appears content with his company's performance but is quick to point out that last year's trading conditions were difficult. The company has just closed its Crouch End site, in fact, but Derry admits that the London sites have always been hard work profit-wise. He also says the restaurants suffered in the warm weather, as few sites then had open-air eating areas.

"Last year we certainly made some mistakes," he says. "We let the menus drift away. They had been getting too poncey and we lost some of our authenticity, so I took all the managers up to Scotland and stuck their noses in Loch Fyne.

"I think it had an impact, and we got back to basics, but it doesn't change the fact that there are a lot of restaurants nowadays and the quality is getting better all the time. To even stand still in this market you have to make sure you're competitive, because the pressure on price and the demand for good quality is growing. You can't give people any old stuff these days and get away with it."

There's no denying that Loch Fyne Restaurants has developed at a tremendous rate in the past six years, growing from three to 24 sites in five years and still on schedule to open a further five sites a year. A Le Petit Blanc in Tunbridge Wells, Kent, and two Loch Fynes, in Bristol and Guildford, are opening within six weeks.

Last year the group took £21m in turnover, up from £15m the year before, while pre-tax profits were £760,000 this year, up from £252,000 the previous year. Last year it served one million meals and employed 1,000 staff.

According to Derry, the company is right where it wants to be at the moment. So, in the light of difficult trading conditions, how have they done it?

"We've been unbelievably lucky," he smiles. "The overall offering is appealing to customers; we have a fantastically good product and an appealing environment. It's not fashionable but it's comfortable, and very good value for money. You can eat here for £10."

Further luck presented itself when Le Petit Blanc Brasseries went into administration in April last year. Unfortunate for owners Raymond Blanc and the Orient-Express Group, it was well timed for Derry, who had been looking for another restaurant brand to acquire for some time. He wanted something with which he could do well and that others were finding difficult, a good-quality food business that could be grown. Blanc's eponymous chain was exactly what he had been looking for - and a bargain to boot.

"When we looked at Le Petit Blanc under administration, we saw it was doing £6.4m in turnover between four restaurants but was unable to make any money," says Derry. "When we asked ourselves how it did lose so much money, and looked closely, we felt like pinching ourselves.

"The restaurants were fundamentally good but there had been no investment under administration. Also, the group's controls and systems weren't brilliant and the management had been unstable. The main problem was that Le Petit Blanc was carrying the burden of controls and overheads it couldn't afford, and it was outside of Orient-Express's core business."

By the time Loch Fyne had purchased the brasserie chain for £1.1m, with Blanc and his management team retaining a 25% share, progress had already been made to bring controls and management into line, primarily by Le Petit Blanc's executive chef Clive Fretwell, who has remained in place.

It didn't take long to get things under control. "We applied our systems. We improved the wine list - which was overpriced and New World and just didn't make sense in a French brasserie - and simplified the menu. It was overcomplicated and too tough to deliver," Derry says.

Loch Fyne has also spent about £700,000 refurbishing the Oxford, Cheltenham and Manchester sites, and if the new Tunbridge Wells site is successful, Derry says, they'll start rolling them out.

"It requires time, investment and commitment, but we expect Le Petit Blanc to make money. We now have some fantastic-looking restaurants with stable management and kitchens, and Raymond is a fantastic partner. We are learning from each other. Raymond has already designed one of Loch Fyne's vegetarian dishes, because we didn't used to do vegetarian very well."

Business at Le Petit Blanc is recovering, according to Derry, which means expansion of the brand is on the cards. In the meantime, Derry and co are investigating other Loch Fyne concepts, leveraging the name for use in retail, for instance, and considering setting up overseas sites and airport concessions. Over the next couple of years it will continue to open five sites a year and get rid of anything that's not making any money. There is even talk of flotation next year or some sort of refinancing deal.

So will Loch Fyne continue to be in the fastest-growing company list next year? "If you are little, it's easy to grow fast," says Derry, "so I doubt we'll be the 10th fastest-growing business in Britain again. In one year we built 11 restaurants with no people and no infrastructure and the wheels nearly came off. I wouldn't do that again - it aged me about 12 years.

"And I still think trading is tough. When asking for a £25-a-head meal, people want choice. The biggest demand is to keep on top of it all and realise that it's all about people at the end of the day."

Fact file

Launched: 1998 Founders: Mark Derry and Ian Glyn
Chairman: Jeremy Hardie
Managing director: Mark Derry
Turnover 2002: £15m
Turnover 2003: £21m (group turnover was up 39% and unit operating profit up 39% in 2003)
Pre-tax profit: £760,000
Projected turnover 2004: £25m-£30m

Loch Fyne restaurants: 25
Le Petit Blanc brasseries: 5
Milsoms hotel: 1