Prezzo has had a good recession - its half-year results for 2011 show a 7% rise in profits. Neil Gerrard speaks to founder and chief executive Jonathan Kaye, who earlier this year won a Catey for best restaurant group, about trading through hard times, discount vouchers, and reviving the Caffe Uno brand
You started working in restaurants from the age of 13. Did you always want to go into hospitality, or was there anything else you were interested in doing? Yes I think there was. My knee-jerk reaction was to not to do what my family did [his cousins Adam and Sam Kaye founded Ask and Zizzi, while his father Reginald and uncle Philip founded Golden Egg, Deep Pan Pizza and Garfunkel's]. I studied politics at Leeds, but I think the realities of having the opportunity to learn such a potentially exciting and dynamic business dawned on me while I was at university, and I focused towards setting this up.
How are things for Prezzo at the moment? Things are good at the moment - but they change very quickly. You can see large movements in sales and in product prices pretty quickly. Recently, we have seen a sharp hike in food prices. We don't quite know where that is going.
It is a funny time. We can't be too confident about the economy and what may or may not be around the corner. As far as trade is concerned, we are happy. The restaurants are doing alright.
How did you deal with the recession? You have to work harder to make sure you are not falling backwards. Pre-recession, when we started, we had several years in a wonderful economic climate. Really, we just opened restaurants, opened the doors and everything took care of itself.
It wasn't quite as easy as that, but the recession made us sit back and take stock of literally everything. It was a time when we decided to spend money, not on new restaurants, but on the existing estate, and we got out of it pretty strong.
Did you change your approach to combat it? In the full year prior to recession, we opened 34 branches and in the following year, when we started to feel the pinch, we were in legals to perform a similar opening schedule. We dropped that back to 17, pulling out of sites we weren't contracted on. The year after that we opened two.
The first thing we did was to stop expanding, because it didn't feel like the right environment in which to be going out and spending millions of pounds. We did experience a period of like-for-like decline, which is always a bit unnerving and we just took the time to think about everything we did. So we went on a big refurbishment programme - we developed the menu, and we started promoting along with the competition.
We also launched lots of different marketing initiatives - we are on Facebook [with 110,000 fans] and Twitter, and we built a database. But all of those things are add-ons. I think the most important thing was to really improve Prezzo's offer.
One of the big trends in promotions in your sector is discount vouchers. How are you finding vouchers working for you and how long do you think you will keep producing them? It is unquestionably working for us. If I am honest I like to see sales. If I have sales, I can deal with margin. If I don't have sales, I get stressed out. That may sound obvious but some people are different. Some people are really focused on margin. How long will it last? I don't know. I can't see it finishing any time soon or at all. Maybe it is a permanent addition to this space.
And that doesn't concern you? Trying to wean customers off the back of these deals must be pretty difficult. I am not going to sit here and get concerned about what may or may not happen in a few years. We'll deal with what is thrown at us at the time. If the promotional activity becomes less aggressive we will follow suit. It is a big marketplace; we will see what is happening and respond to it.
OK, so with promotions our margins are not as good but you could argue our sales are better. I'd rather not have it, but sometimes people are too greedy. Promotions have been good for sales in restaurants across the board and it is not something I feel bitter about.
Earlier this year you acquired several Paramount sites under the Caffe Uno and Il Bertorelli brands. How have you found integrating them? It was a tremendous deal for us, we were able to take over some incredible sites, which ordinarily you would be hard-pressed to pick up in the marketplace. We did 11 the first time round, then six. They certainly operate differently to us but we have Prezzo-fied them.
You also acquired the Caffe Uno brand. What are your plans for that? We bought the Caffe Uno name as part of the original deal and we have opened two restaurants in Enfield and Farnham. By the end of the year we will have five [Amersham, Brentwood and Braintree]. It is a reminder that to get something going is not easy. And to be honest I think we have got our work cut out for us. I feel confident that we should be able to get it going, but it is certainly a challenge.
What are you doing differently with the new Caffe Unos? They are night and day; they really look good. We have changed the menu to make it a bit more of an all-day offer. We are doing breakfasts and sandwiches, and there is a coffee area next to the restaurant. So we are trying to attract all-day business. It is very difficult to get something going and it is very easy to forget that when we are expanding Prezzo. You forget the power of the brand and the recognition, and the consequences of that recognition.
Why would you want to try? Why not just change it all to Prezzo? There are many brilliant towns where Prezzo is already trading, so if a vacant unit comes up and I can put a Caffe Uno in there, great. It gives us that much more scope for expansion. The plan was to make it more distinct from Prezzo, so there is another area to expand.
What about your Mexican brand Chimichanga? Mexican food is fashionable at the moment. It seems like a good time to expand. That's right. Because of that we are going to get more aggressive with Chimichanga. We have got 12 at the moment, and we are going to see the biggest bout of expansion from the business. I am pretty comfortable to say that we are contracted in another four at the moment, and that is a number that could grow as well. We have the confidence to go anywhere throughout England with it.
The idea of all-day dining is popular at the moment, with Pizza Express doing breakfasts in its "next generation" restaurants. Would you consider taking Prezzo in a similar direction? Absolutely not. Prezzo is what it is. If I could have hundreds of people coming in between 3pm and 5pm, lovely. Am I going to change the look and feel of the brand to achieve that? No. What we are is a premium casual dining restaurant brand.
Our restaurants are an environment that could certainly lend themselves to more than the £14-£15 average spend that we are. What that means is that you probably don't get a load of people falling in for a coffee. I would like to give that all-day business a go, but we will do that with Caffe Uno and see how it goes.
So when it comes to Prezzo, what are your future plans? We will definitely continue to expand, develop the existing estate, and improve the brand recognition and loyalty through our various channels. We are saying broadly 20 sites per year at the moment. This year we will probably do a few more than that.
How do you see the casual dining sector developing over the next few years? I see it as a strong space. There is a handful of really good operators. I don't want to be too complimentary about my competitors, but I do think there are some good operators.
We are really focused on developing so I think it is a space that will get stronger, and it is getting more popular the whole time with our customers.
I think eating out is more part of our culture than it has ever been and it is probably only ever going to get better. Of course there will be peaks and troughs along the way, but the overall trend is upwards.
jonathan kaye's tips for making a business work
The obvious tip for operators is to create a nice place with good, friendly staff that know their product, serving consistent food. It is not simple. In fact, it is amazing how difficult it is.
And it is amazing how many people have not thought it through before they open a restaurant. You have got to say to yourself, and I say it every time I open a new premises, "would I come here?" Very occasionally I go into a new one, I say to myself, "no, I'm not sure I would" and I have to get the design team to come back in and change it. Because if you say that yourself, it is a bad feeling. It hasn't happened for a long time, fortunately. You have to be really honest with yourself.
prezzo: need to know
Turnover £59.6m (half-year to 3 July 2011)
Pre-tax profit £7.3m (half-year to 3 July 2011)
Branch profit margin 14%
Average spend per head £14-£15