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Morning Briefing for pub, restaurant and food wervice operators

Mon 3rd Oct 2022 - Update: Burger King, Tortilla, red tape
Burger King UK acquires 74 sites from second largest franchisee: Burger King UK has acquired 74 Burger King restaurants from its second largest franchise partner, Karali Group. The deal increases the Alasdair Murdoch-led company’s directly owned portfolio to 266 restaurants, half of its 533 strong UK store estate. The deal was brokered with funds through the business’ two existing lenders NatWest and Rabobank London in addition to new lender AIG. The fixed-term financing replaces the business’ previous credit facility, secured at the end of last year. The company said that the new financing, understood to be valued at £110m, enables it to commit to further growth, supporting plans to expand its owned and sub-franchised restaurant portfolio from 533 to over 700 by 2026. The acquired portfolio comprises 36 drive-thru, nine in-line, 27 shopping centre and two leisure sites. The business, which has a target of opening one restaurant opening per week until the end of 2022, said that the acquired portfolio had performed well in recent years, demonstrating resilience to the impact of the covid-19 pandemic. Burger King UK said it plans to further “energise the newly acquired restaurants, incorporating them into its major remodelling programme to deliver an improved customer experience and new visual identity, including pre-order digital kiosks and digital menu screens”. Murdoch, chief executive of BKUK said: “The acquisition of Karali – the largest consolidation BKUK has made – marks an important milestone for the business, bringing more restaurants under our ownership, enhancing value and driving operational efficiencies. We believe that we have a strong expansion pipeline and are well positioned to take advantage of the clear market opportunities ahead. I would like to thank the team at Karali, led by owner and managing director Salim Janmohamed, for their contribution to the Burger King presence in the UK for over four decades. As one of the longest standing franchise partners, Karali’s dedicated team have ensured Burger King stores continue to best serve our customers while achieving impressive growth. We look forward to welcoming our new colleagues to the core BKUK team and delivering on the exciting growth plans for the business.” Salim Janmohamed, owner and managing director at Karali said: “Over the course of our long-standing partnership with the Burger King brand, Karali worked tirelessly over 15 years to build a substantial, balanced portfolio of Burger King franchise stores and achieve its success today. This nation-wide, 74-restaurant portfolio is performing exceptionally well based on a resilient financial platform and supported by strong operational management, a first-class team, and a growing customer base. We are pleased to support this transaction to ensure Burger King UK can continue to enhance the value of this impressive portfolio with the support of its expert leadership team and the dedicated workforce employed today.”

Number of experiential concepts to feature in next edition of The New Openings Database, 14,500-word report included: A number of experiential concepts will feature in the next edition of The New Openings Database. The database will show the details of 268 newly announced site openings and upcoming launches for Premium subscribers when it is published on Friday (7 October), at midday, including which company has opened a site or plans to open one in the future. It will have details on what type of site it is and its location, and there will also be a website link to the businesses. The database is published on a monthly basis, and the next edition features Lumberjack Axe Throwing, founded by entrepreneur Matthew Griffin, which opened its debut site in Cardiff, in 2019, and has now opened a second site, in Swansea. Also added this month is indoor karting concept Drift Stop, owned by Andreas Aristotelous, which is set to open a site in Leeds. In addition, Mitchells & Butlers’ new interactive darts experience Arrowsmiths, will be featured. Crazy golf concept Caddies, which opened its debut site in Southend and has opened its second site, in Crawley, is also included. Premium subscribers will also receive a 14,500-word report on the new additions to the database. Premium subscribers also receive access to three other databases: the Propel Multi-Site Database, produced in association with Virgate, the Propel Turnover & Profits Blue Book, produced in association with Mapal Group, and the UK Food and Beverage Franchisor Database. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to upgrade your subscription. Subscribers also receive access to Propel’s library of lockdown videos and Friday Wrap interviews and now also have access to a curated video library of the sector’s finest leaders and entrepreneurs, offering their insights on running outstanding businesses in the sector. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before our 6am send-out; regular video content and regular exclusive columns from Propel group editor Mark Wingett.

Tortilla reports 19% like-for-like sales growth: Tortilla Mexican Grill has reported revenue increased by 30% to £26.9m (H1 FY21: £20.8m) in the 26 weeks ended 3 July 2022. Like-for-like revenue growth was +19%. Adjusted Ebitda was £2.5m (H1 FY21: £4.9m) and profit before tax was £300,000 (H1 FY21: £2.6m). Five sites were opened across the UK, and one delivery kitchen, taking the total number of sites, including eight acquired Chilango sites, to 84 at the period end. Five further sites are planned to open in H2 FY22, with new store roll-out expected to increase to 12-15 per annum from FY23. Four university sites opened through franchise partnership with Compass Group and one further site opened with SSP Group in Bristol Airport bringing the total to four, with multiple record sales weeks achieved at Gatwick Airport over the summer months. London’s recovery continues unabated, with sales trending at 98% of pre-covid FY19 levels across our Zone 1 central London sites, giving us great confidence in the Chilango acquisition. The company stated: “Since Period end, we have commenced a non-exclusive delivery trading arrangement to enable us to work with multiple delivery partners. Our new loyalty scheme, ‘Tortilla Club’, was launched which has almost doubled our loyalty customer database and driven a 29% increase in visitation frequency amongst loyalty customers. We have converted five of the eight Chilango sites to trade under the Tortilla brand and opened a further two Tortilla sites in Lincoln and Leicester. We also published our first Environment Social Governance (ESG) Report (for 2021/22). We will open ten sites in the current year and will increase our new site opening rate to 12-15 sites per year, starting in FY23, to take advantage of: (1) the depressed commercial property market; (2) our excellent performance outside of London; and (3) the considerable new site ‘white space’ opportunity identified in a recent report produced by CACI, a leading business consultancy. Sales over the summer period were more challenging than anticipated, due to a combination of train strikes, the heatwave, and pent-up consumer demand for overseas holidays. We estimate that the impact of the first two factors is c£0.25m in lost sales. We remain very encouraged by the underlying sales performance of the business, with the like-for-likes in September already close to pre-summer levels. Our new loyalty scheme presents great potential to drive customer visit frequency. Inflationary cost pressures remain the biggest challenge across the industry. Whilst we have taken decisive steps to control the factors we are able to and have successfully mitigated cost increases where possible, we estimate these will result in a three percentage points reduction in gross margin for FY22 (approximately £1.8 million). This is driven primarily by a c.40% increase in protein costs, which account for approximately one third of our cost of goods sold. We also expect a further £0.5m adverse full year impact from increased utility costs. These industry headwinds will have a material impact on profitability in H2, and it is prudent to assume that inflationary cost pressures will continue beyond FY22. We have several initiatives and strategies in place to help us to continue to partially mitigate this impact and, in particular, we see opportunities in technology around labour and forecasting and are also exploring ways of driving increased efficiencies our supply chain. We remain cautious over significantly increasing our menu prices and/or resorting to heavy discounting. We believe that it is important to resist making short term gains, as history tells us this is a quick way of undermining the offer and causing customer dissatisfaction. Our value for money proposition is extremely important in the longer term and this must be protected. We are in a strong financial position with strong top-line momentum underpinned by our very relevant product proposition and growth strategy. Whilst mindful of the near-term sector-wide challenges, we continue to ensure we do not lose focus on delivering our exciting, long-term and sustainable growth opportunities.” Richard Morris, chief executive of Tortilla, said: “Against a backdrop of challenging macroeconomic conditions, I am really proud to report that we have continued to make great progress against our ambitious growth plans laid out at our IPO last year. Our strong top-line growth was significantly ahead of the broader market, again reflecting Tortilla’s growing reputation for great value, high quality food. We continue to focus on our plans for strategic expansion, accelerating our new site roll-out to locations across the UK through both our acquisition of Chilango and organic roll-out programme. We are pleased to be ahead of our expansion targets set out at IPO, adding 18 sites this year, and excited by the opportunity to increase organic roll-out to 12-15 sites per annum from FY23. Times remain tough across the industry at large reflecting the extent of recent cost pressures. However, we remain confident in our ability to successfully navigate our way through these industry-wide challenges whilst continuing to deliver against our ambitious growth strategy. Our long-term progress will continue to be underpinned by a firm focus on consistent operational excellence, ensuring a great value proposition, and the continued broad appeal of our offer. The board is highly confident in achieving the group’s exciting long-term growth potential.”

Companies ‘to be freed from red tape’: Forty thousand medium-sized businesses will be freed from future red tape, the government said yesterday. The Times reports that from today, the threshold at which businesses are exempt from certain new regulation is being raised from firms with under 50 employees to those with 500 or fewer. Billing the move as the start of sweeping reforms to stimulate growth, Jacob Rees-Mogg, the business secretary, said: “Our enterprising medium-sized businesses are being buried in pointless paperwork, preventing them from reaching their world-leading potential.” Some business groups expressed scepticism about the scope of the changes, saying those most affected would be the 4,000 companies with between 250 and 500 employees. This is because those which are classed as small and medium-sized enterprises (SMEs), employing fewer than 250 people, already do not have to comply with certain corporate governance and reporting requirements. The government said the changes would affect new legislation, such as the ban on junk food advertising on television before 9pm, due to come into force in October. It said they could also affect European legislation that applies to UK businesses, which will be reviewed from next year. Experts say the inclusion of companies that employ up to 500 people as SMEs would benefit service-based companies such as care homes which are labour intensive and often employ close to 250 people. Of the 5.6 million businesses in the UK, almost all, 99.9%, are classed as SMEs and only 7,655 are considered “large”, with more than 250 employees. Large businesses had 10.6 million employees last year, 39% of the total, and their turnover was £2.1 trillion, just under 50% of the total. Medium sized businesses had three million employees. Craig Beaumont, chief of external affairs at the Federation of Small Businesses said: “Expanding the scope of SMEs in this way removes regulations from nearly 4,000 businesses. It should prevent ‘bunching’ as firms reach the 250 threshold and take their foot off the pedal to avoid falling into regulatory scope.”

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