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Wed 7th Mar 2018 - Restaurant Group reports like-for-like sales decline 3.0% in ‘transitional’ year
Restaurant Group reports like-for-like sales decline 3.0% in ‘transitional’ year: The Restaurant Group has reported like-for-like sales fell 3% for the 52 weeks ended 31 December 2017 in what was a “transitional year” for the company. The company said proposition enhancements in Frankie & Benny’s were driving improving volume momentum and it had made good progress across other leisure brands. It said its pubs business continued to outperform the market and there was a pipeline of new opportunities. Its concessions business was expanding into new infrastructure hubs, and with “relevant new brands”. The cost reduction programme of £10m had been delivered ahead of plan, enabling reinvestment in the leisure business. Total revenue was down 4.4% to £679.3m on a 52-week comparable basis and 4.4% on a statutory basis. Adjusted profit before tax fell 26.4% to £56.7m compared with £77.1m the previous year. The company made a statutory profit before tax of £43.6m compared with a loss of £49.3m the year before. Adjusted Ebitda fell to £95.1m compared with £121.0m the previous year. Chief executive Andy McCue, said: “As expected, 2017 was a transitional year for the group, with significant investments made in price and proposition within our leisure business, which is driving improving volume momentum. We start 2018 with a significantly more competitive offering in our leisure business, a strengthened pipeline of growth opportunities in both our pubs and concessions businesses, and a leaner, faster and more focused organisation. I’d like to thank our colleagues for embracing the change agenda and for their contribution to stabilising the business.” The company added: “We’ve made significant proposition improvements in our leisure business focusing on giving our customers better value and improved food quality along with retrained service standards, all of which are driving improving volume momentum. Current trading is broadly in line with our expectations. The trading performance of the business in the first half of 2018 will reflect the significant price investments made in the middle of last year. We expect to benefit from our strategic initiatives gaining further traction as the year progresses.” Of its key brands and plans, it stated:

Frankie & Benny’s (259 sites): The company stated: “Our focus has been on enhancing our offer by restoring our value credentials, deepening the distinctiveness of our offer to our core family audience and launching a refocused and refreshed brand nationwide to attract back lapsed customers. Following the discovery in 2016 that the brand had lost significant value credentials, we made significant investments in price in 2017. In January we reintroduced a £9.95 two-course fixed price menu, our cheapest fixed price menu for six years. We trialled and subsequently launched our new, significantly better value core menu in two waves in March and May. Drawing on customer insight, we launched an optimised version of this menu in October with main course entry prices 26% lower than the menu we started the year with, and like-for-like dish prices reduced by 7% on average, positioning our offering as highly competitively priced relative to our peers. We have also struck new and extended partnerships with value-focused affiliates and intensified our promotional activity to ensure we remain competitive and to encourage retrial of the brand. We have deepened the distinctiveness of our offer by investing in the quality of ingredients, upgrading our menus to align with our core family audience and introducing new dishes which have proved popular such as our new hot dog range and a steakhouse salad which is now our best-selling salad. In the summer we launched our new kids’ menu, which is differentiated in the sector and was recently rated the best in customer satisfaction across our peer set. Our new breakfast menu has a broader range of healthy options and a tailored kids offering. Towards the end of the year, we commenced roll-out of a refreshed, more contemporary brand look and feel which will be represented across all brand touchpoints. This month we complete the roll-out of an upgraded website and app, improving their ease of use for core functions such as bookings. We have also improved our digital search listings and we continue to refine and improve our return from media spend with encouraging activation rates from digital media investment through our new ‘Parents win at Frankie & Benny’s’ campaign. We are currently building a new CRM platform, which will enable better segmentation of customers and more targeted communication. Our customers are recognising the proposition improvements we’ve made, with the latest external market data showing a continuing improvement in value for money ratings, net promoter score and the largest positive movement in revisit intention scores across our peers. The proposition changes are driving improving volume momentum. Our performance suggests that we are taking volume share, with market data showing declining restaurant like-for-like sales over the past six months, in spite of significant price increases by our competitors. Whilst we are pleased with our progress, we are not complacent. In the current year we will be launching an extended range of healthy dishes across our menus, upgrading our vegetarian and vegan options and introducing a redesigned desserts range. Alongside these initiatives, we will continue to improve the quality of our ingredients. We are trialling a pilot ‘capital refresh’ across ten of our sites which we will learn from and optimise before making a decision on whether to roll-out more widely.”

Chiquito’s (85 sites): The company stated: “Our focus on Chiquito has been to broaden the brand appeal, making it more accessible and frequented more often by our customers. We trialled two versions of a fundamentally changed menu in the year, which showed an improving covers trend versus the old menu. On the back of this we launched our new menu nationwide in January 2018. This new menu builds on the trials and allows greater customisation of dishes with, for example, ‘build your own’ tortillas with options to vary the spiciness of the dishes. We have also invested in the quality of the ingredients while at the same time making the menu more competitively priced with main course entry prices reduced by 10%, and like-for-like dish prices reduced on average by 6%. The menu is simpler and easier to navigate, benefiting from a 30% reduction in the number of main dishes. This simplicity has also reduced the number of back-of-house processes involved in preparation and improved the consistency and speed of service. We are also making the brand more accessible through new affiliate partnerships with the likes of Tastecard and Gourmet Society. In the current year we will accelerate our pace of change in this brand. We plan to trial a series of new and exciting product innovations, which if successful will be rolled out more broadly.”

Coast to Coast (19 sites): The company stated: “Coast to Coast’s like-for-like trading performance remains challenging, albeit the trading trajectory continues to improve driven, in part, by our competitive discounts. The focus remains on further developing our new proposition, Firejacks, which offers high quality flame-grilled steaks and burgers at highly competitive prices. The first Firejacks was a conversion of the Coast to Coast in Northampton and opened in August 2017. We are encouraged by its ongoing trading performance and plan to convert at least three more Coast to Coast sites to Firejacks in the coming months.”

Serve our customers better and more efficiently: The company stated: “During the course of the year we completed the upgrade of our technology in restaurants in our leisure and concessions businesses. We’ve introduced hand-held terminals enabling faster ordering and payment processing for our customers. The terminals also provide our restaurant staff with automated prompts of, for example, side dishes, which has increased attachment rates of these items. The new labour management software solution has led to improved sales forecasting accuracy and more effective deployment of our teams, ensuring our labour is increased for peak times to provide the right level of customer service, and minimised during quieter periods. We have also improved the flexibility of our workforce to help better align with our trading patterns. These initiatives combined have contributed to the labour cost per cover in our leisure business declining by 7% in the second half of 2017 compared to the second half of 2016. Our new simplified service standards have been introduced across our leisure front-of-house teams to serve our customers better and more consistently. We’ve moved from an overly complex ‘rules-based’ service approach to a simplified approach of putting the customer experience at the forefront of everything we do, for example, through a more natural and warmer welcome upon arrival and greater encouragement for our restaurant teams to show their passion for our food and brands. We continue to invest in new technology to remove customer pain points and improve the overall customer experience. Our ‘pay with app’ and ‘click and collect’ trials have been positively received by our customers and we will roll these out across our leisure business in the first half of this year. We are in the process of developing a mobile order and pay application, allowing guests to be in control of their service and even order in advance of arriving at the restaurant. We have also increased the frequency and accuracy of bookings via an integrated system of online, telephone and in-restaurant reservations, and entered a partnership for the first time with OpenTable. We have trialled and are soon to be launching a new approach to obtaining guest feedback, moving away from an online post-meal survey which generated unrepresentative samples to an ‘at-table’ system where we can collect real-time feedback in volume, enabling us to respond to issues much more quickly. We have increased our penetration of delivery with Deliveroo, growing the number of sites that offer this service from 37 at the start of 2017 to 130 in February 2018. We are trialling delivery services with UberEats and Just Eat which we expect will further increase our delivery reach and penetration. In addition, we see opportunities to extend brand reach by offering multiple delivery brands from an individual restaurant and will trial a new delivery-only brand in the coming weeks.”
Grow the pubs and concessions business: The company stated: “Our pubs business is well positioned in the market with a compelling, differentiated food-led offer that consistently outperforms the pub restaurant sector. Strong operational execution, along with locally sourced produce, has attracted a loyal and increasing customer base who rate the offering highly, relative to competitors. The pubs business delivers consistently good and growing returns, with recent openings consistently delivering Ebitda returns in excess of 20% (on an assumed leasehold cost base). Our estate is largely freehold asset backed with a book value in excess of £80m and requires, relative to fast-changing casual dining formats, relatively modest levels of ongoing maintenance capital spend. We see opportunities to increase like-for-like sales through optimising our menu pricing architecture and developing better offerings for previously considered non-core occasions such as breakfast and afternoon tea. We will continue to look for ways we can maximise the use of technology, building on the success we’ve had in driving bookings. We are finding new ways to maximise available space in our sites by creating private dining areas and will, later this year, make our first foray into accommodation. Our pipeline of new pub opportunities has strengthened over the past year as we have dedicated more resources to site finding, widened our geographic reach, and embraced new formats such as town pubs. We expect to open between five and ten new pubs in 2018 and more again in 2019. Our concessions business operates in an attractive market segment supported by historically strong levels of passenger growth and with airport operators who are increasingly willing to invest in terminal capacity and breadth of food and beverage offer. Our trading continues to be strong and we seek further ways of increasing returns from our existing estate through greater use of technology to increase through-put of passengers and menu optimisation to align with customer trends towards quality branded experiences. Our unique and market leading capabilities of consistently delivering high operational standards at high volume and peak-load intensity, along with our format development and partnering skills, have enabled us to successfully retain and win new sites. We expect to open about ten units this year, including our first unit in Edinburgh airport, and including sites with new franchise partners we have recently signed up, such as BrewDog and Spuntino.”

Build a leaner business: The company stated: “We have delivered ahead of our original timescale and reduced the cost base of the business by £10m in 2017, all of which has supported our reinvestment in price, product and marketing. We’ve achieved this through restructuring both our head office and field operations teams, centralising our purchasing and consolidating our supply base to leverage the group’s scale and by closer management of overheads. We have enhanced our leadership team, which now reflects a balance of hospitality and other consumer sector experience, and brings significantly improved analytical and customer insight capabilities, enabling us to react more swiftly in a fast changing market. We remain focused on cost efficiencies and see further opportunities to leverage scale economies and consolidate suppliers. Our planned transition to a new logistics provider in 2019 will allow us to unlock further supply chain opportunities, such as cost savings via collection of restaurant waste and recycling.”

Rank Group chief executive to resign: The Rank Group has announced Henry Birch, chief executive of the company since May 2014, has given 12 months’ notice to resign from the business in order to join Shop Direct as group chief executive. The company stated: “A further announcement will be made when a successor has been identified and in the meantime Henry will remain in his current role to ensure an orderly handover. The board would like to thank Henry for his significant contribution to Rank over the past four years and will continue to work closely with him and the executive management team during this leadership transition.”

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