University friends Nick Jeffrey (left) and David Fox (right) set up casual dining chain Tampopo in 1997 after touring south-east Asia. But unlike many such businesses which start off in London, they chose Manchester. Now, as they gear up to open their seventh site, in London, they discuss the wisdom of that decision and why a takeover bid by pub chain M&B didn't come off
First of all, why did you choose Manchester for a new and different casual-dining concept and not London, as so many businesses do?
Nick Jeffrey (NJ) We had this notion of stealing a march on the industry in a city where the noodle bar hadn't really happened - it had only happened in London. We got out a map and did a breakdown of the demographics of the country. We looked for a city that has high affluence and quite a young, student population. We found Manchester people are very attuned to Asian and ethnic food. By the New Year of 1998 we were already something of a local institution.
David Fox (DF) It also cost us £220,000 to open in Manchester [in Albert Square]. Even in those days, you could not have paid that as a premium for a site in central London. So there was an element of cutting our cloth accordingly as well.
Where did you expand after that?
(NJ) The second was in Leeds city centre. So far up to that point Leeds and Manchester had appealed to the progressive, aspirational, edgy arty crowd. We then had the opportunity to go into the Trafford Centre in Manchester which is quite a different market in itself. At first we wondered if such a cutting-edge product was right for a mass-market environment.
How is trading in the North at the moment?
(DF) Trade is definitely more volatile. It is interesting to see how we perform in terms of the Coffer Peach Business Tracker [a monthly index of sales data from pub and restaurant groups]. For example, in June, our like-for-likes averaged about 20% up. There are some months where our like-for-likes are massively over and some months when they are under.
(NJ) We've beaten ourselves up over the Coffer Peach Tracker and then realised that it is very London-centric. April wasn't a particularly good month for us because of the Royal Wedding, but that had a good impact in London, for example.
(DF) Yes - two weeks of really hot weather in April and the Royal Wedding is not a great combination if you are in a retail leisure scheme in the North West.
You now have quite a geographical spread, with sites from Bristol to Leeds, and soon London. Why?
(NJ) We knew the geographic stretch would become a slight problem for us. When you are a small operation, it helps hugely to cluster what you do as far as brand equity development and availability of staff is concerned. And this is why so many concepts launch and grow in London - because you can open 20 units or more. We had created a little hub in the North West but the underlying strategy was to create a hub in the South-east.
(DF) We should say we were approached to go into Cabot Circus shopping centre in Bristol and Oracle shopping centre in Reading following our success at the Trafford Centre. With each retail leisure scheme landlords want the right balance of quality operators and I think clearly Trafford demonstrated to the landlord that we can be very successful in leisure schemes.
(NJ) So it was a trade-off between the opportunity and the difficulties we would create for ourselves operationally. But the long-term strategy is still to create a presence in the South East and we are in the midst of trying to organise a site opening in central London.
Where will that site be?
(DF) I can't say where it is at the moment apart from the area, which is around Oxford Street.
How are you financing this?
(DF) It is a combination of debt and our existing investor base. For further growth after that we will be looking to create a growth funding package and that could come from a group of high net-worth individuals, it could come from an institutional funder or further leverage.
And do you think that Tampopo can work in London, given its roots up north?
(DF) We have demonstrated we work in the regions so we know we can work in central London. Operationally it is easier to get from Manchester to London than it is to Leicester, for example. And to have a balanced portfolio makes commercial sense.
(NJ) Most of the hot concepts seem to be springing up within central London. However we have also seen when those concepts try to get out into the regions, it hasn't always worked. We have already done quite a lot of the hard work by demonstrating that our concept works outside the London village - and yet we feel instinctively our concept is good for Londoners as well.
Will the concept need tweaking?
(NJ) We are actually working with a new brand specialist with that in mind. We think it is a great offer but we might do some work on the cosmetics and how the brand integrates with customers. The format in the North and elsewhere is particularly well-suited to mall environments, in terms of it feeling very much like a branded food station-type operation. But central London is a little bit more edgy and people are a little more knowing. The food is going to be the same but it just won't feel quite so branded. It is about creating some clear space between the format of other competitive offers and what we do.
In June, it emerged that pub and casual dining group Mitchells & Butlers (M&B) was considering a takeover of Tampopo but it didn't come off. What happened?
(NJ) We were approached by M&B with a plan to acquire the company, as well as me and David. They wanted to roll out the brand from anywhere between 50 and 100 units round the country, converting a lot of their current estate into Tampopos.
We weren't soliciting this approach and initially we wondered if a big pub operator was really the right bedfellow for us. But they presented a convincing argument and we put together a business case that we were both happy with. This was led by one of their board members on the executive committee. The deal went to the main board for sign off and it was there where it got blocked by the non-executive arm of the board.
(DF) It is fair to say that the people we spoke to at M&B acted in good faith.
(NJ) The non-executive side of the board fed back to them that they don't want to acquire brands, they want to spend resources on creating and developing brands and they are doing that. They recruited our ex-executive chef to become their menu development offer and they are going to open a pan-Asian offer relatively soon.
Does it bother you that they are now going off to do a concept apparently similar to yours?
(NJ) Not at all. This is still a relatively small part of the eating-out sector. We know that has got to have a good knock-on effect for operators such as ourselves. We welcome all growth in this sector.
(DF) We wouldn't be as busy as we are if there weren't 60 Wagamamas.
So would you shy away from future offers like M&B's?
(DF) Prior to M&B we probably thought that the main routes to getting roll-out funding were private equity, institutional, or high net-worth individuals. But this has opened our eyes to another potential way forward provided it is right for the shareholder base and the business.
Given that you are considered a "healthy" casual-dining option, would you display nutritional information on menus?
(NJ) We don't at the moment because we are a little company and there are costs associated with doing such things. We are sensitive to what the market is doing and, more importantly, what customers really want. And there is mixed evidence at the moment over whether the customers really want nutritional information on the menu.
(DF) There is the wider philosophical issue about calorie counts and whether that will make a difference. We've got on average 50 customer feedback cards per week per site, and I can't remember the last time someone requested calorie counts, so this, in my view, is very much a Government-led push.
david fox on caterer's slash VAT Campaign
To have a cohesive campaign on this issue is really important. The increase is meaningful for a business of our size. We are probably paying an extra £130,000 a year in VAT and that is on a turnover of £6.5m - a substantial amount. You can't just add 2.5% to your prices because the consumer is being pinched as well.
Tim Martin from JD Wetherspoon has said that for every £1 in profit he makes, he pays £10 in taxes and I daresay it is more for us. As an industry we are a huge employer and a big creator of social mobility.
Show your support for the campaign at: www.caterersearch.com/slashVAT
Revenue £6.4m (July 2010 - June 2011)
Budgeted revenue for 2011-12 £8m
Site EBITDA £900,000
Forecast site EBITDA for 2011-12 £1.2m
Average spend per head £15