The Caterer and Hotelkeeper Interview – Alex Reilley

08 June 2012 by
The Caterer and Hotelkeeper Interview – Alex Reilley

Co-founder and managing director of Loungers, Alex Reilley has helped grow his Bristol-based café-restaurant business to 28 suburban sites in just 10 years, with two brands - Lounges and Cosy Club. He tells Neil Gerrard how he hopes to open 50 more in five years and why all-day dining is here to stay

You have been trading as an all-day café-bar-restaurant since 2002, and it is becoming quite a fashionable concept. Do you think all-day operations are the way things are going to go in the coming years? It is no coincidence that a lot of the established casual-dining brands are desperately trying to have a broader appeal, with a breakfast offering. The likes of PizzaExpress, Zizzi, Giraffe - they have all gone into that space. Gone are the days when people stuck strictly and rigidly to the lunch-dinner format.

I think that level of flexibility and lack of structure with the Lounge concept is part of its success. We have one menu in the Lounge and it is served from 9am to 9pm. Nothing stops. If you want breakfast at 7.30pm you can have it. If you want tapas at 9am, you can have it. The reality is no one ever has tapas at 9am. But the fact is that people don't have to think.

I think the all-day, casual-orientated market is going to be a big growth story, purely because that's what people want.

What's your background? Have you always worked in hospitality? I went to sixth form college and got spectacularly distracted by girls and drinking and as a result I didn't do particularly well at my A levels. I decided to go to university but take a year out first.

At college I worked as a part-time waiter in a Mexican restaurant, which I quite enjoyed, so I decided that was probably the best thing for me to fall into to earn money to go travelling. I worked at a restaurant in Leicester called the Case for a year, went off travelling for three months, came back and I had a place lined up at university. But I was only doing it because I thought I should do, not because I wanted to, so after five months I dropped out, went back to the Case and told them I wanted to get a bit more serious about the industry and my profession. I did that for 18 months and learnt the role of a GM. Then in 1996 I went to Bristol to work for a restaurant group called BYO Restaurants.

How did the other founders, Jake Bishop and Dave Reid, get involved? Jake and I are friends from school. We had both moved down to Bristol and it was while working for BYO that we met Dave, who was an area manager. Dave disappeared off travelling for a couple of years and by the time he came back he was talking very enthusiastically about this all-day concept that exists in Australia.

We were constantly moaning about the fact that in Bristol there was nowhere decent to go for a drink so we decided we wanted to open something for ourselves. We decided Dave would run it and we would all invest - by that time I was operations manager of Glass Boat Co/Byzantium Restaurants.

We found a small site in Bristol. So we muddled our way getting a business plan together and we raised £30,000 between the three of us. Dave had it saved, Jake borrowed it off his dad, and I sold my house and bought another house and released some equity. We got a small business loan from the bank of £20,000, and we opened in August 2002, literally not having a penny to spare - we had maxed out our credit cards.

It had 10 tables and the rent was cheap so we thought, actually, it will take an awful lot for us to haemorrhage money. We opened the doors the day after the bank holiday and it was packed. And it suddenly dawned on us that what we were looking for was what a lot of people were looking for.

How did you fund such rapid expansion? The business has been growing to the point where we are at now purely by reinvesting the profits and getting the bank to hold our hand a bit more. We drew a business development loan against each individual opening.

In 2008, we approached private equity company Piper to come on board but the deal fell over in the banking crisis. So we developed a bit more of a mature facility with RBS, who were our bank at the time, and that meant that we could press on with growth.

Recession for us was not something to be afraid of, it was an opportunity. We knew that availability of property was suddenly going to be a lot better and we knew that we could drive harder prices with regards to the builders.

We had talked about recession back in 2002, because I think anyone that thinks that they want their business to have longevity and thinks that they can somehow miraculously dodge recession is a fool. So we talked about keeping the offer real and resisting the idea of just putting up prices because we felt we could get away with it.

You signed a deal for a £16m investment with Piper in April this year. Why did you decide on that, and how does the ownership of the business look now? About 18 months ago, Dave put his hand up and said he wanted to get off the bus. The deal we have just done has effectively just seen Dave exit from the business. He will stay on as a shareholder until the end of this year.

Jake and myself have each retained a 25% stake so we have 50% of the business. Previously we were at 60%. Piper has 43.5% and the remainder is a management pot, some of which has been allocated already to Nick Collins, our finance director, who comes from Capital Pub Company. And there is a slug of equity that is as yet unallocated but we will look to allocate it to people that flourish in the organisation or people who join at a later date.

You have 28 sites now but you announced at the time of the Piper deal that you wanted 50 more in the next three to five years. Are we going to see a point where you go nationwide, and perhaps into London? I think so, but I can't see us going much north of Leeds in the next five years. There are lots of areas of London that we are keen on - suburbs and towns outside London that have a population of 25,000. Now we are down in Hove, we have been looking at towns such as East Grinstead, Reigate, Dorking and Leatherhead.

I think if we come into London it will probably be from the south, picking off places such as Sutton because they are under-serviced. Or we could come in from the north-west which will probably be Harrow. But you won't see us opening in Soho. It will remain very much a residential, suburban-orientated business.

Are you worried that in growing so quickly you might lose some of the quality? We recognise it is going to be challenging and we are very much ready for that challenge. In terms of the acceleration of growth, we will have done eight sites this year, and we would have done eight sites if Piper hadn't invested anyway, so in terms of going from 28 to 70, which is effectively what we are looking at, it is another 42 sites over what will probably be four to five years. Logistically we can cope with that.

Quality is critical for a business of our size and we are obsessed about making sure that we don't compromise on it. That is operationally a big challenge because we need lots of really good people and we need to be very much in touch with our customers, which gets harder as you get bigger.

A lot of the success we have had is because we are not seen as a major player by our customers. That is going to be the biggest challenge to us. We always say the facade of the business is very cuddly. But if you peer behind the curtains there is a very aggressive machine behind it. Our job is making sure that customers don't start looking behind the curtain.

While they feel the business is focused on them, which we clearly are and will endeavour to remain to be, you have got that love element. We have seen that love element turn to loathing: Starbuck's has been a great example of that. So we are challenged but excited about scaling up the business.

And what is the endgame? Is the idea that you do what Capital did and sell on to a bigger player? I'd be lying if I said that isn't a distinct possibility. Our view on it would be that in five years' time, in 2017, we will have had the business for 15 years, which is a long time.

Of course, it might be that we get to four-and-a-half years down the line and we are still absolutely loving it. At that stage there might be an interesting conversation to be had with Piper because clearly their preference would be a trade sale. But we could have hundreds of the Lounge concept in particular, so if we did sell to a trade buyer there is so much left in it for them.

facts and stats
Highest trading sites Bath Cosy Club: £1.6m annual turnover; Seco Lounge, Plymouth: £1.5m annual turnover
Average spend per head £15 (if coming to eat, includes food and drink)
Number of sites 23
Employees 500
Annual turnover Net sales - £17.8m; Unit EBITDA - £3.7m; Company EBITDA - £2.6m

By Neil Gerrard

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