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Mon 6th Aug 2018 - Update: Restaurants market position, price of a pint, Eddie Rocket’s
Douglas Jack – restaurants are worst-placed going forward: Peel Hunt leisure analyst Douglas Jack has argued that restaurants are the worst-placed leisure sector segment going forward in terms of performance. In a note, he stated: “This note discusses some of the themes we expect to develop in the second half of 2018. Recent trading has been heavily influenced by the hot weather and FIFA World Cup, which, in licensed retail, has largely exacerbated established trends in the sector. For example, Domino’s Pizza’s year-on-year web-hits rose by 26% in June versus 13% in July; Like-for-like sales in wet-led pubs averaged +5% in May – June, 7% ahead of the average in restaurants. Long-term investors should not be too concerned about budgeted events, such as the World Cup, unless they compound established trends to the point of forcing profit warnings (in either direction). In this note, we are more concerned with how investment should determine success or failure over the next decade, in what we call Modern Leisure Generation 2.0. The First Generation of Modern Leisure (1995-2006) aimed to replace the old and traditional with the modern. This often lacked the sophisticated segmentation model of the current technology-assisted disruptive phase, which, in the case of gyms and bars, has wiped out the undifferentiated middle-market that was built in the first phase. In this light, we review factors influencing historic changes in supply, and consider which assets are vulnerable to the next phase of disruption, and which assets have the potential to disrupt. The downside risks are greatest where there is over- supply, a lack of differentiation/convenience/events, as well as high exposure to labour cost inflation. On all measures, we believe restaurants are worst placed. Low-cost gyms are best placed, followed by bowling and wet-led pubs. In most areas of leisure, weather has a significantly greater influence on short-term demand than consumer confidence; the exception to this rule is restaurants, which are highly correlated to consumer confidence, albeit with like-for-like sales declines that have been exacerbated by oversupply. We believe the de-rating of the pub sector is due partially to previously weak like-for-like sales, which some have attributed to the consumer backdrop, whereas we believe it was mostly due to cold, wet weather between July 2017 and March 2018. We expect pubs and pub restaurants to be resilient to changes in consumer confidence, yet benefit from soft weather comparatives over the next nine months. Thus, we view recent weakness as an attractive buying opportunity.”

CAMRA survey – most people think the price of a pint is unaffordable: The majority of people in Britain could be struggling to afford drinking beer in pubs, with new research by YouGov revealing that 56% of people surveyed who expressed an opinion believe the price of a pint of beer in a pub in the UK is unaffordable. Pub pint prices are continuing to rise, with a third of the cost of a pint now made up of various taxes including Beer Duty, Business Rates and VAT. Pubs are very often at the centre of local communities, playing a key role in supporting personal wellbeing and combating loneliness, but rising prices are driving consumers out of pubs, putting them at risk of closure. CAMRA is extremely concerned that there is no end in sight, with the government planning to increase the tax paid by pubs in the November Budget. Current plans will see Beer Duty rise by around 2p per pint, and pubs are set to lose £1,000 in Business Rate Relief, increasing pressure on pubs and driving away consumers. CAMRA’s national chairman Jackie Parker said: “It’s no surprise that most people are finding pub pints unaffordable, given the tax burden they’re facing. Beer drinkers will naturally look to more cost-effective ways to enjoy a drink, such as buying from off-licences and supermarkets for home consumption. The result is incredibly detrimental to our local communities and to our own personal connectivity. Having a good local makes people happier, better-connected and more trusting. Furthermore, pubs help bring communities together and support the local economy. The reality is that there are very few places that can replicate the benefit provided by our nation’s pubs, and once they’re gone, they’re gone forever.”

Eddie Rocket’s signs deal to open 20 sites in Germany: The company behind Irish burger brand Eddie Rocket’s has unveiled plans to open 20 restaurants in Germany. The American diner restaurant franchise is part of Rocket Restaurants, an Irish-owned and privately held, multi-brand restaurant group. The deal with Areas, part of global catering contractor Elior Group, will see the first Rocket’s restaurant open in Center Parcs in Baden-Württemberg in Germany in October. Areas will open 20 of the restaurants within three years. By 2020, the founder of the company Niall Fortune said he expected to have 80 outlets open in Ireland and across Europe. The restaurants abroad will be launched under the Rocket’s brand, but it will maintain the Eddie Rocket’s brand in Ireland, according to Fortune. Founded by Fortune and his wife Ann, Rocket Restaurants opened its first restaurant on South Anne Street in Dublin in 1989. Fortune came up with the Eddie Rocket’s brand after being inspired by diners he had seen in other countries. “I took the best of what I saw in England, the best of what I saw in the United States, put a bit of Irish in it and opened up downstairs,” he said during the interview in the Rocket’s Restaurants headquarters located above the South Anne Street restaurant. It has 50 restaurants: 22 are company-owned and 28 are franchisee-owned. In relation to Ireland, Fortune said the firm was looking for a franchisee in Cork, Galway or Limerick. It opened its first restaurants in Northern Ireland three years ago, and now it has five, which are beginning to gain traction, according to Fortune. While Fortune does not think Ireland is in a burger bubble, he said the burger is having a moment. “We are absolutely in a burger phenomenon at the moment,” he said. “Competition is always healthy. It makes you up your game. We don’t depend on just hamburgers. In fact, we sell more chicken than hamburgers.” The company sells about 2.5 million hamburgers a year and 2.5 million pieces of chicken. Rocket Restaurants has about 500 direct employees and its franchisees have another 600 staff. “At the moment it is very hard to find people, but it is easing up a bit,” he said. “We hire the smile and then we train them.” Fortune and his wife are the sole shareholders of the company. However, he said it was possible that might change. “We would probably look for private equity or partners if we wanted to really take off in Europe. Of course, I am 62 years old so I have to step back some time.” He said he planned to hand over more control to the team, adding that many staff members had worked for him for between 15 and 20 years.

Women’s Entrepreneur Conference four weeks away: Propel has partnered with Elliotts chief executive Ann Elliott to launch the sector’s first conference featuring an all-female line-up of company leaders. The event, which is open for bookings, takes place on Tuesday, 4 September at One Moorgate Place, London. Speakers will be Wahaca founder Thomasina Miers (“How to ascertain if your business idea is genius or madness”); Mowgli founder Nisha Katona (“From barrister to bunny chow: why risk it all for restaurants?”); Sophie Bathgate, of Sophie’s Steakhouse (“What I would do differently next time”); Artizian founder Alison Frith (“How to market a startup”); Cheshire Cat Pubs & Bars founder Mary Mclaughlin (“Growing an idea from startup to sustainable”); Eve Bugler, founder of BabaBoom (“How to keep the joy when it’s all on your shoulders”); Jane O’Riordan, founder of The Dynamo (“The importance of patience”); Sally Jackson, owner of The Pink Pig Farm (“The ten hardest lessons I’ve learned”); Christine Winton, of Siam Eatery (“Can you have work-life balance when you start a business?”); Vanessa Hall, co-founder of Jack & Alice (“The importance of staying true to your values when you start and expand your business”); and Laura Harper-Hinton, co-founder of Caravan (“Why people are key to your success”). The event will also see an award given to the Wireless Social Female Entrepreneur of the Year. Elliott said: “Female entrepreneurs are making an enormous contribution to the hospitality sector – but we need even more of them. The conference is intended as a showcase of some of the sector’s best female entrepreneurs and to encourage even more of them to take the plunge.” Propel managing director Paul Charity added: “If our sector is to truly serve its market, we need more companies led by women at senior levels. We hope companies send their brightest female talent to the conference to pick up inspiration and develop their entrepreneurial talent. We also believe it’s a great opportunity for male colleagues to gain insights into female entrepreneurial skills.  Tickets are £195 plus VAT for Propel Premium subscribers, £245 plus VAT for operators and £395 plus VAT for suppliers and can be booked by emailing anne.steele@propelinfo.com or calling her on 01444 817691.

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