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Morning Briefing for pub, restaurant and food wervice operators

Wed 26th Feb 2020 - Wagamama signs JV to add up to 40 sites in the US
Wagamama signs JV to add up to 40 sites in the US: Wagamama, The Restaurant Group-owned brand, is set for further growth in the US, after signing a joint venture partnership with a US investment fund and a pair of experienced US restaurant operators. The Emma Woods-led brand, which opened its sixth US site at the weekend in Midtown, New York, has entered the new partnership with Conversion Venture Capital (CVC2) as financial partners and Robert Cornog Jnr and Richard Flaherty as operating partners. Under the terms of the agreement Cornog Jnr and Flaherty, who most recently led Punch Bowl Social, one of the “hottest” concepts in US, will assume majority ownership and lead operations of Wagamama’s existing US business as part of a 20:80 joint venture partnership, with TRG as minority partner. While the joint venture board will decide the scale of the expansion plans, Wagamama expects the new partnership to be opening between 30 and 40 restaurants over a five to six-year time period. TRG retains the option to repurchase the remaining 80% of the business starting in 2026. Woods told Propel that the joint venture “secured the brand’s future in the US”. The company said that the joint venture provides TRG with a capital efficient means for expanding the business in the US, whilst at the same time minimising losses in the near-term. All of the existing Wagamama team in the US will now move over to work for the new joint venture. Propel understands that Phil Oakley, who has been with Wagamama for over 19 years, will be chief financial officer of the new joint venture, whilst Faye O’Brien will be vice president of marketing. Woods said that Cornog Jnr and Flaherty stood out for their “love of Wagamama, their vision for its future in the US and their track record of successfully nurturing brands in their infancy”. She said: “With the financial support of a firm that focuses on partnering with entrepreneurs and management teams that value flexible capital, CVC2, we have a partnership that will provide the business with the local operational expertise and expansion capital needed to accelerate growth.” TRG has been assessing it options for Wagamama in the US for over nine months. Propel understands that the business had been working with advisory group Arlington on the options for the brand, which made its US debut in Boston in April 2007. It currently operates three sites in Boston and three in New York. Woods told Propel: “This has been a long and rigorous process for us. Our team in the US have done an incredible job at getting our existing business into the best possible state (we finished the year with an average Yelp rating of 4.2 across the sites, so they’re really focused on getting it right for customers). I must have met at least ten potential partners who could take it on and build it. We first met Richard and Robert last July and the more we have got to know them the more comfortable we have become that they will be looking after the brand and taking it on in the US. I’m so glad that we’ve signed with Richard and Robert for a few reasons: They’ve got unparalleled experience of nurturing brands in their infancy – Punch Bowl Social is a really special concept, and last year was rated number ten in the Fishbowl US Emerging Brands index. So, they really ‘get it’. Richard is a really seasoned, on-the-ground operator who has gone through scaling a multi-site restaurant business – aside from Punch Bowl Social, he spent 15 years at Ruby Tuesday before that. There he took the business from a small operation to a national presence and then also de-scaled it, so he has what I would call the battle scars/the key experiences of growing brands in the US. He has a very measured approach to building businesses.” Woods stressed that the deal, which was signed at the end of last month, was also a really good one in terms of capital efficiency. She said: “TRG retains the right to buy out the 80% in six years’ time, and we’ll be working hand-in-hand with Robert and Richard to build it between now and then.” Woods told Propel that in terms of locations the brand was keen to look outside New York for further growth. She also said that although TRG retains the right to buy out the 80% stake in six years’ time, it may by that point consider other options for the joint venture depending on its success. Cornog Jnr and Flaherty most recently took Punch Bowl Social from three to 20 sites. The brand was named as one of Fast Company’s 2019 Top 50 Most Innovative Companies in the World, a Nation’s Restaurant News Hot Concept in 2018, among more than a dozen other national and regional awards.

The Restaurant Group to step up reduction of leisure park with up to 90 sites gone by end of 2021: The Restaurant Group is to try to reduce the size of its Frankie & Benny’s plus Chiquito’s leisure park business by up to 90 sites by the end of 2021. The company plans to accelerate rationalisation of the estate from 350 sites today to a target of 260 to 275 sites by the end of 2021. The company reported market-leading like-for-like sales growth of 8.5% at Wagamama with cost synergies ahead of plan and site conversion programme well progressed. The company’s concessions business saw like-for-like sales growth of +4.1%. Pubs division achieved like-for-like sales growth 4%. The company said like-for-like in its leisure division of 2.8% represented an improvement on previous years. It reported delivery sales performing well, supported by targeted operational initiatives to improve food offering and brand proposition. Chief executive Andy Hornby said: “Having joined the business in August last year I am particularly pleased with the continued and significant progress made following the acquisition of Wagamama and the integration of the business into the group, which has transformed the group’s growth trajectory and momentum. Our three growth businesses of Wagamama, Concessions and Pubs are all out-performing their respective markets and have clear potential for further growth. I am also acutely aware of the challenges facing our leisure business and the wider casual dining sector. It is therefore clear that our strategic priorities need to evolve in order to maximise shareholder value in the medium term. Following extensive review we have defined three clear strategic priorities for the next two years: Grow our Wagamama, Concessions and Pubs businesses; rationalise our leisure business; and accelerate our deleveraging profile. In order to support these strategic priorities, the board has taken the decision to temporarily suspend the dividend. This will allow us to continue investing in our three high growth businesses, whilst facilitating an acceleration of our leisure estate rationalisation and reducing our net debt. We have made an encouraging start to the new financial year with like-for-like sales up 5.3% for the first six weeks of 2020.” The company reported total sales up 56.4% to £1,073.1m (2018: £686.0m) in the 52 weeks ended 29 December 2019 with a statutory loss before tax of £37.3m (2018 Statutory profit: £13.9m). There was an exceptional pre-tax charge of £111.8m (H1 2019: £115.7m, H2 2019: (£3.9m) credit) primarily related to impairment in our leisure business recorded in the first half of 2019 (2018: £39.2m). Meanwhile, Wagamama reported that its Q3 like-for-like sales increased 7.2%, while turnover increased 13.9% to £104.5 million. The like-for-like performance in the UK marked the 300th consecutive week the Emma Woods-business has traded ahead of the Coffer Peach Tracker. Adjusted Ebitda in the quarter was up 26.1% to £19.6 million from £15.5 million in Q3 2018/19 (13 weeks). Adjusted Ebitda margin stood at 18.9% in Q3 2019 compared to 17.1% in Q3 2018/19. During the quarter the company opened four new restaurants, one delivery kitchen and its first Mamago site. Its five-strong US operation posted like for like sales growth of 4.7%. In the year to date (35 weeks), the company said that turnover increased 13% to £258.5 million, with UK like-for-like sales growth of 8.2%. Adjusted Ebitda was up 31.9% to 2019 to £45.3 million from £34.3 million. Its US operation reported 9.1% like for like sales growth over the 35 weeks. Emma Woods, chief executive, said: “The final quarter of 2019 completed a strong year of growth for Wagamama, which has continued in 2020, with the business now passing the 300-week milestone of market outperformance. It is thanks to the very special group of people who make this business what it is, and I’d like to thank them for their relentless dedication and passion. Investment in our people, product and property continue to drive key metrics, including top ranking against our competitors for net promoter score (NPS), low team turnover and delivering double digit adjusted Ebitda growth.” The company said that synergy savings as part of the wider The Restaurant Group were realised throughout the 35 weeks to 29 December 2019. In terms of expansion, two new sites were open in Heathrow T3 and Old Street, there were eight conversion sites, two delivery kitchens and first Mamago restaurant completed. At the same time, transformational refurbishments were completed at Stratford and Exeter, bringing Kaizen design and new covers. The company said it had a strong pipeline of sites for 2020, including further conversion sites. Turnover in the group’s restaurant business in the US increased 18.8% to £3.8 million ($4.8 million) in Q3 2019 from £3.2 million. Turnover from its international franchised restaurants remained broadly in line at £0.9 million, reflecting a higher level of royalties in Q3 2019 but a lower level of restaurant opening fee. Of its concessions business, chairman Debbie Hewitt said: “We expect to open six sites in the first phase of the planned Manchester airport terminal redevelopment which is due to open in the second half of 2020. We are pleased with the broad portfolio of brands we have secured, which include a Wagamama restaurant, the first pub with a brewery “Bridgewater exchange”, the first San Carlo restaurant and the first ETM affiliated pub “Apiary” in a UK airport. The market remains attractive with air passenger growth still positive albeit slowing, and airports continuing to invest in terminals, capacity and their offering. We see opportunities to expand our estate and will compete through a disciplined capital approach for forthcoming terminal development opportunities in the UK, including Birmingham, London City, Stansted and Luton airports, which will arise over the next three to four years. We continue to explore opportunities to expand our presence in adjacent markets, and expect to open two sites (both of which are bespoke brands) in locations within Hilton hotels in 2020.”

Revolution Bars Group well-positioned to resume expansion in 2021 after stabilising performance: Revolution Bars Group has reported sales rose 3.5% to £81.2m in the 26 weeks to 28 December 2019. Like-for-like sales for the period improved by 1.2%. As previously reported, Quarter One like-for-like sales were +0.7%, but improved to +1.7% in Quarter Two on the back of a strong performance in the lead up to Christmas. The four-week festive period saw like-for-like sales grow 4%, a seventh consecutive year of festive growth. The Revolución de Cuba sub-brand achieved ‘strong’ like-for-like sales growth of 5%. Revolution’s like-for-like sales were down 0.4%, a much-improved trend on FY19. The company stated: “The recent new and refurbished Revolution bars have performed well and are proof that the Revolution brand remains relevant and liked by its customer base. The multiple work-streams referred to in recent results announcements, many of which are targeted at driving sales, are gaining good traction, with refurbishments in particular delivering strong sales uplifts. Adjusted Ebitda grew +10.6% from £6.9 million to £7.6 million, primarily through like-for-like sales growth, but also improvements in gross margin and tight cost control. The group continues to generate strong cash flow and gross bank debt has reduced by £6.0 million over H1 to £11.5 million and is £7.0m lower than at the end of H1 FY19. Shortly after the end of the reporting period the group exchanged contracts to surrender leases at five loss-making sites at a cost of £3.6m and to re-gear four other leases in exchange for a small net rent reduction. Together with a further lease surrender completed in H1, these transactions are anticipated to deliver annualised cash benefits of £1.3 million. Half Two has started well with like-for-like sales at +1.6% and the board currently expect to deliver Adjusted Ebitda in line with market expectations.” Chief executive Rob Pitcher said: “We have continued to make significant progress revitalising the Revolution brand and further improving the performance of Revolución de Cuba. Having stabilised the business in FY19, FY20 is about consolidation and the benefits of the many actions that we have taken are beginning to be realised. Half Two 2020 has started encouragingly and should we continue on our current trajectory then the board is confident the business will be well-positioned to resume site expansion in FY21.”

Wetherspoon chairman Tim Martin warns on EU deal: Wetherspoon founder and chairman Tim Martin has warned UK and EU negotiators that the UK public will not be fooled by a deal that fails to achieve a real restoration of democracy. He believes that if any deal ties the UK to EU laws, or fails to regain fishing rights, the public will shun EU goods. He said: “If the public is tricked or cajoled it will have the power to drive imports from France and Germany down to zero, irrespective of any agreement. In my opinion the public is fed up with repeated warnings from French president Emmanuel Macron and EU Chief Negotiator Michel Barnier, in areas such as fishing rights and prospective delays to a deal beyond the end of this year. It’s truly pathetic of the EU to imply that a deal can’t be done by December 2020. Brussels is a laughing stock in most of the world for its bureaucracy and sclerosis. If Macron and Barnier don’t want a deal, or make threats, consumers will simply reject EU goods and will buy from the rest of the world – as Wetherspoon has shown by swapping French brandy and champagne, and German spirits and beers, for UK and new world alternatives. Anything that is bought from Europe can be bought from elsewhere. Scare stories about planes not flying, blocked ports or loss of jobs in the City of London, have proved to be cobblers, and consumers won’t fall for Macron and Barnier’s baloney. The UK public genuinely regards the European peoples as friends and allies, but are fed up with this palaver.”

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