From kitchen porter to industry leader in premium casual dining, James Horler has built his reputation by developing restaurant chains. The 3Sixty Restaurants chief executive talks to Emily Manson about the current state of the business and why he won't be diversifying into fast food or fine dining
How are your different brands performing?
We have eight Ego restaurants based in the Mid- and North-west in mainly suburban locations. They've had a year of flat sales but growing EBITDA [underlying profitability]. Even so, we're not planning to expand as we want to see what happens. We've worked hard to develop the offering and have 84,000 members of the Ego club, so we're doing well and are cash-positive but we need to see the economy in those areas improving before we commit to further capital for expansion.
On the other hand, Rocket is predominantly London-based and we're thrilled with its performance. It's trading very well and has considerable like-for-like growth. It's interesting because it's a modern bar with really good fusion food, and does big portions that are good value. It seems to be hitting the mark as an up-and-coming brand. There aren't many bar-led concepts that also do great food.
How is your working relationship with Luke Johnson going?
I'm a huge fan, and I can't think of a better shareholder to have alongside me. He has two phenomenal abilities: to see the market ahead of anyone else - and he's proven that time and again, whether with PizzaExpress or artisan bread; and he's also incredibly talented at understanding the consumer. I take my hat off to him as, successful as he is, he challenges me with his consumer hat on and will say: ‘That's 50p too much,' etc.
Day to day I don't need a lot of direction, but he's a great ambassador and sponsor of the business. His personal investment in our business brings enormous credibility to the brands and I can't think of many people I'd rather be with than Luke.
What makes some brands work and others not?
That's difficult. It's about creating something that allows you to operate at a premium within a market. It's about price point, quality of food and staff. Cookie-cutter concepts aren't right at the moment. For the next three to five years people want somewhere a bit different and quirky where they can get good value and service. So Rocket, where every site is individually designed, allows consistency of product and service for the operator but individuality of a venue for the consumer.
How do you think the casual dining sector is faring in the face of continued discounting?
I don't think any casual dining people have gone on to Groupon yet, so please let's hope they don't. The discounting was started in 2008 by Gondola and PizzaExpress and I understand why - they had to hold up their EBITDA because of their debt levels. They benefited from such a strong margin that they could discount the food and their numbers worked if they sold a glass of wine. Tragus then followed and the rest of us had to do the same. But since then discounting has become a lot more sophisticated so we are able to target discount levels, days and products.
On the whole we'd like to stand back a bit from discounting but the big boys do control the marketplace to a certain extent. I don't think it's healthy when it becomes such a part of your offer, as it then challenges the whole ethos of your business model.
Has the economic climate now doomed restaurant groups in the North?
We are still profitable across the North-west but business has taken a real confidence hit as the consumer genuinely has less money to spend. If there are big redundancies in the North-west they just don't get absorbed as they do in the South-east. People have either lost their jobs or are worried about losing them. There's been no wage inflation and no equity value increase like in the South, so people are very cautious. I don't see it changing for 12 months. People are looking for deals and value events. Theme nights are still well received but you can't do that all the time. We actually just had our busiest Mother's Day ever - 5% ahead of last year - so people are still coming out if there's a reason or an event, or for Friday and Saturday nights, and then sales are fine, but they're just not coming out on the rainy Monday nights.
What's the key to running a successful midmarket operation in a recession?
You need to be consistent, and you only get that if you have stable people. That then gives you a fighting chance of achieving consistency. If you have unstable management teams, then you're on a hiding to nothing. I now put staff retention ahead of customers because to try and do it the other way around misses the point.
You also need to keep developing. The market is moving so fast these days and if you're not constantly pushing, you get left behind so quickly. Finally, flavours are vital. With TV shows and more home cooking we have to create flavours that customers can't make, as then it makes it worth coming out and spending more. That's why cocktails are so amazing, because you can't make them at home easily, so people will go out and pay for someone else to make them properly.
You've always done midmarket/premium casual. Do you have any aspiration to go up a notch or diversify into other areas?
No - I get the consumer from our point of view. Rocket is premium casual but I have no affiliation with fast food. I don't get it and don't want to get it. Fine dining doesn't really do it for me either. I like value, I like atmosphere and I like everyday food done really well. I'm a lot happier in premium and casual dining. I'm an everyday bloke and I find some of the fine stuff is a bit poncey - do I really want to spend £40 on a main course? It's just not my bag. Relaxed atmosphere and ambience is where I'm really comfortable operating and where I feel comfortable as a customer. I'm the target customer of my businesses, which helps me to try and make them successful.
How do you describe your management style?
I don't have an office, there's no hierarchy and I've not been to our head office in years. I like spending all my time in the restaurants with the teams at every level from KP to GMs. They all know me, and it's what I enjoy doing.
I'm a corporate restaurant entrepreneur. I like the ability to move quickly and be very entrepreneurial but we also have set financial structures without being overly bureaucratic. It's important that if we want to change things we can change them straight away, and I'm happy to lead from the front and make mistakes - as well as give others the space to make mistakes, but if people overstep the mark I'm as tough as anyone. There's a raft of things I won't accept - mainly about personal discipline - but restaurants should be fun and energetic, while at the same time conscious that it's a business. My job is to provide a return on capital for investors while at the same time having a lot of fun.
How do you spot when a concept or deal is right?
Stay focused on your market and don't deviate from what you know. It's no surprise the more we practise, the more we know. You've got to get the right financial structure - every business needs that - and I'm savvy enough to know what works for us and what will enable us to grow a brand so we can deliver a return.
What's your single biggest business achievement, and scariest moment?
My biggest achievement was really what everyone says: getting the timing right with La Tasca. Buying, floating and selling at the right times and right prices - the timing's the bit I do spend a lot of time thinking about.
The scariest moment was buying La Tasca on 9/11, having put everything, including my house, into the deal. Within a week we were going to breach our banking covenants and the loan was about to be called in. We had two months to claw it back, but it took all my persuasion for them not to call the loan back in straight away.
You were the youngest regional director of Little Chef - would you ever go back and sort out that chain?
No - Little Chef is finished. I don't think the customer needs roadside stuff any more. They should all be turned into Starbucks or Caffè Neros. There's no place for them now, as cars go further and petrol stations have supermarkets. It's sad, though, as when I joined it was the hardest company to get into. I had three interviews and assessment centre training to become a manager, and it was the industry leader in quality service. It's amazing to see where it's gone to now. At its peak Little Chef had 95% brand awareness, but it didn't invest or develop its products. Now it needs too much investment to recover, so selling up has become the only option. Once it's gone it's gone.
James Horler in a nutshell
Horler started at 16 as a kitchen porter for Trusthouse Forte
1989 Having risen from unit manager, he became Little Chef's youngest regional director at the age of 24
1996 Horler was operations director at City Centre Restaurants, (now the Restaurant Group), where he expanded the Frankie & Benny's brand from five to 65 outlets over five years
September 2001 Horler bought La Tasca for £28.2m with backing from private equity firm Penta Capital
2005 La Tasca floated for £54m on the Alternative Investment Market
2006 La Tasca bought by Robert Tchenguiz
2008 Horler bought restaurant chain Ego
2010 Former PizzaExpress chairman Luke Johnson acquired a majority stake in Ego
2010 Horler joined Charterhouse Leisure, the firm behind the Coal Bar & Grill brand, as non-executive chairman
March 2011 Ego merged with pizza business Rocket Restaurants under a new umbrella company called 3Sixty Restaurants