31%
the proportion of UK consumers who eat out at least once a week
3.8%
earnings by 2018
Quach at EY says: “There has been and continues to be a great deal of activity in the small to mid-cap restaurant space, largely driven by private equity. Investors are look- ing for good management teams and scal- able growth concepts, which can be rolled out across the country and beyond. Banks are also increasingly comfortable with lend- ing to the industry, which has driven deal flow and valuations.”
Share prices
Share prices in some of the publicly quoted restaurant and food-led pub groups have been spectacular performers in recent years as branded chains such as Domino’s Pizza have established a strong presence and larger pub and brewery groups, notably Greene King and JD Wetherspoon, have taken advantage of scale economies and the growing fashion for eating out. Share prices across the licensed retail sector rose by an average 37% in 2013 and according to broker Numis Securities
lying demand in the sector.
Unveiling annual results showing a 5% rise in like-for-like food sales, Greene King CEO Rooney Anand recently said: “There are now clear signs that both the UK eco- nomic outlook and consumer confidence are improving although consumers continue to spend cautiously.” Meanwhile, food sales at Fuller, Smith &
Turner rose by more than 10% in the year to March and like-for-like sales at JD Wether- spoon increased by 4.9% over a 10-week period
www.thecaterer.com
some 30% of this was due to a re-rating as investors warmed to the sector. In recent months, fears about higher interest
rates have taken some of the shine off the sector although shares prices have risen in response to positive trading updates over the summer. Investor enthusiasm for Domino’s, for example, peaked in summer last year when its shares touched 710p (having climbed from around 160p towards the end of 2008) and they currently trade at 589p.
to early July, although sales were slightly weaker during the World Cup.
Independents v groups Today, there are around eight times more independent restaurants than chain out- lets, providing scope for consolidation in the sector and deal activity as the larger groups streamline their brands and cut debt. Last November, Gondola sold its upmarket burger chain Byron (pictured above) and Tragus is currently selling its Strada chain.
9
Simmering anger over VAT on food The 20% VAT levied on meals bought in pubs and restaurants and on other food ser- vices is a major bone of contention for the restaurant and food-led pubs sector. According to the Jacques Borel VAT Club, a group of 40 firms that lobbies for a lower VAT rate to be applied to the sector, the flat rate puts pubs and restaurants at a disadvan- tage to alternatives like supermarket ready meals. It argues that if the rate on food ser- vices were reduced from 20% to 5%, it would create 290,000 to 670,000 jobs and would actually boost Treasury receipts. A separate campaign by the British Hospitality Associa- tion is lobbying for a lower VAT rate for hotel accommodation and tourism. Supporters of th eJacques Borel VAT Club include Tim Martin, chairman of JD Wether- spoon, and other major pub/brewing groups including Fuller, Smith & Turner, Heineken and Wadworth. The campaign highlights the sector’s potential for creating new jobs, not- ing that licensed hospitality accounted for one in eight new jobs created in 2011 and one in six for 18-24 year olds. The sector also gener- ated 11.5% of new business start-ups. The VAT Club also makes its case with compelling overseas examples. When the VAT rate on restaurant meals in France was cut from 19.6% to 5.5% in July 2009, employment in the sector rose by 75,000 over the following two years (although the VAT rate has since risen to 7%). Ireland, Bel- gium and Finland have all cut their VAT rate on foods services, with positive results on trade and jobs. But there seems little likelihood of the campaigns achieving their goals in the UK any time soon. Despite cross-party support among MPs for a reduced rate during a Commons debate on the subject earlier this year, Treasury minister David Gauke said the government had no plans to introduce a VAT cut for the sector. He pointed to ONS figures showing cutting VAT on food in restaurants, pubs and cafés would cost the Exchequer £9-10b a year. The Labour shadow exchequer secretary also declined to commit to a VAT cut.
September 2014 | Restaurant Insight Report
the predicted growth in average
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