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How are restaurant groups diversifying to grow?

As the saying goes, you’re either growing or you’re dying. In uncertain times a lot of businesses talk about “taking stock” or “consolidating”, while others push through, innovate and ultimately deliver growth. The past two years have been tough, to say the least, with many casualties. However, amid it all some companies are adapting and winning via strategies that go beyond the traditional growth path of bricks and mortar. I’m going to look at three ways companies are ripping up the rule book to follow alternative paths in pursuit of growth.

Diversified formats

Faced by a costs headwind and saturated casual dining market it isn’t surprising to see companies look to spread their risk and trade in different occasions. The continued growth of the food-on-the-go market coupled with the lower cost base have made this the first stop for many full-service brands looking to diversify. Just this week we’ve seen Wagamama launch Mamago in Fenchurch Street, London, offering an all-day menu of grab-and-go food with an Asian twist.

YO! has taken an even bolder approach, with an array of new formats designed to take the brand from a casual dining operator to the leading Japanese food company outside Japan. These formats include its first two conveyor belt-free restaurants under the YO! Kitchen brand, in which signature dishes are joined by 40 additions, and an express format designed for customers on the go that launched recently at Manchester Piccadilly train station.

It’s not only casual dining brands diversifying either – bar operator The Alchemist created a new concept last year. Aether launched at Liverpool ONE in a bid to further build on the innovation and creativity in cocktails the brand has become famous for but in a smaller format and featuring live music.

Even heavyweight McDonald’s has been playing with its concept despite leading the world’s foodservice sector for almost 65 years. In January the company launched it’s first takeaway-only restaurant, in London’s Fleet Street, leveraging its success in digital ordering to deliver on the small-format store. Later in the year McDonald’s followed that move by opening its first dark kitchen, in Hounslow.

Of course diversifications don’t always work. Leon’s secondary brand, Tuk Shop, was a casualty last year after its debut site closed despite the proviso it would return to London. More than a year later, it has yet to re-emerge.

Facility utilisation

I first came across the term “facility utilisation” when asked to lecture on the subject while living in New Zealand. I was running a small investment portfolio of hospitality businesses at the time and, until the professor at the university approached me, had no idea what I was delivering successfully was, in practice, “facility utilisation”. Back then, for us, it was about building a dynamic meeting space-come-cookery school that could be converted back and forth. It was about transforming spare space in the form of a storeroom into a beach-side ice-cream counter and turning our best hotel suite into a rooftop bar during low-occupancy periods.

Fast forward ten years and hospitality groups in the UK are fully embracing the concept of facility utilisation, with some degree of creativity. One of my recent favourites is from The Coaching Inn Group. The company’s offer of great coffee in its lounges and bars had grown increasingly successful as those spaces became a place for people to meet over a coffee as well as for dinner or a drink. This led the company to convert an underused breakfast room at one of its inns into a standalone coffee shop with its own access, driving an impressive incremental sales uplift. I’m sure this is a move we’ll increasingly see community pubs take in the coming years as trends continue to change.

Continuing with optimising front of house for additional sales, YO! seems to have nailed this too with well-designed grab-and-go fridges combined with bar or reception counters, which maximise incremental sales without additional staff costs. I often visit the YO! site at St Pancras International and I’m always impressed to see the dual nature of this operation working in harmony.

From front of house to back of house, making effective use of kitchen capacity has become the focus for most hospitality businesses in recent years amid the boom in delivery. Part of this has led to the emergence of virtual brands as a way to create greater online presence and diversify offerings out of the same kitchen as a full-service restaurant. Companies driving growth through this strategy include Casual Dining Group with Bella Italia, Café Rouge and Las Iguanas; The Restaurant Group with Frankie & Benny’s; and Mitchells & Butlers at its Castle pubs.

It’s not only big businesses making use of virtual brands, smaller independent companies are also making the most of the opportunity. One such example is Erpingham House, the Norwich-based vegan restaurant created by entrepreneur Loui Blake, who has launched virtual vegan pizza brand Vegan Dough Co.

Eatclever, a German company that operates no restaurants at all, has taken it one step further by creating a healthy-eating delivery brand that takeaway and restaurant operators can license to drive additional sales to their own stores. The business is run by three young entrepreneurs (one of whom we recognised in the Restaurant Marketer & Innovator 30 under 30 earlier this month) who seem to have found a real niche having taken their concept to more than 50 cities in Germany, Switzerland, Austria and the UK.

Partnerships and joint ventures

With challenging sales and declining profitability comes uncertainty for investors. We’ve seen many of the biggest players in banking all but turn their back on our sector and non-sector-specific private equity players pull back. This creates a tougher environment in which to expand footprint but the entrepreneurial spirit in many of our leaders means they still find a way. For many this has come through joint ventures and partnership opportunities, looking to the retail, cruise and hotel sectors as well as internationally. Many of our projects in the past year have been in this realm, considering the gaps and opportunities for our clients.

With major supermarkets looking to close meat and fish counters we’ve seen many brand partnerships with established operators, particularly in the sushi category. KellyDeli led the charge by rolling-out franchise-based concept Sushi Daily into Waitrose, while YO! is on track for 50 counters with Tesco and you can find Wasabi on the shelves at Marks & Spencer (M&S).

However, it’s interesting to note even the high footfall supermarkets offer is no guarantee of success. One example is Zizzi’s trial of a counter at a Sainsbury’s store in Balham, south London. The counter was launched with great fanfare in late 2017 but seems to have disappeared.

One area gaining a lot of traction in supermarkets revolves around growing consumer demand for favourite restaurant brands on the shelves in the form of FMCG product ranges. There are many examples, from early adopters such as PizzaExpress and Nando’s to ambient ranges from Bella Italia and Mexican kits from Wahaca. It’s not only in food either, I’m hearing whispers of bar brands talking to retailers about launching ready-to-drink cocktails and experience packs.

However, there are examples where supermarkets’ moves into food to go infringe on our sector. Look at almost any convenience store format in travel hubs and you’ll see they are fundamentally food-to-go stores with a limited grocery range on the side. M&S is even partnering with British Airways on grab and go – it’s such an integral part of its business. Another overlap is delivery companies partnering with supermarkets to deliver their own pizza range, including Asda’s deal with Just Eat that was announced in July.

Our sector isn’t alone in falling foul of changing trends, of course, with many supermarkets seeing footfall declines due to the growth in online shopping. One challenger format has been that of the recipe box, which offers weighed and measured ingredients for people to cook meals at home from scratch. Just last month we saw Wagamama announce a partnership with recipe box provider Gousto offering a range of its dishes from recently launched Wagamama cookbook Feed Your Soul.

A brand that’s no stranger to supermarket shelves is that of Jamie Oliver, who has licensed his name to many products and cooking paraphernalia over the years. While his UK restaurant operation may have failed to overcome these challenging times, it’s fair to stay the brand still pulls a punch and gets people buying. Just as its UK restaurants were closing, the business was rolling out the Jamie’s Deli range across Shell’s network of petrol stations. Since the collapse the business hasn’t stayed still for long – signing its UK travel hub sites over to SSP and a continued agreement with a contract caterer while brand roll-out continues in its international franchise business. It’s fair to say, just because something doesn’t work in one format or location doesn’t mean it won’t work in others.

When working internationally, it’s important to look at each market individually without being swayed by trends or failings elsewhere. Last month we started fine-tuning a contemporary Italian brand for scale in Poland, where research points to a huge opportunity for such a concept.

Another chef-led business doing well through licensing internationally is Jason Atherton, who continues to grow his business through partnerships with hotel companies. Others are leveraging this opportunity too, most notably Black and White Restaurants licensing Marco Pierre White concepts to hoteliers.

The hotel sector is fascinating – for the most part it’s in growth globally with a focus on tourism and filling bedrooms but is in need of good food and beverage brands and operators. We are increasingly getting briefs from these companies looking for the right brands and operators to partner with – an area to watch.

It’s fair to say we’re living in an ever-changing world, one where digital and convenience play an increasingly important role. Even the world’s biggest brands are changing to meet the shift in consumer demands and behaviour – remember, as an existing brand we’re not entitled to our customers, we must earn them and, as I’ve shown in this article, there are many players willing to step in and lure them away. Those truly successful businesses not only focus on brilliant execution but staying relevant by constantly adapting and innovating. It’s about thinking differently, finding the gaps, and recognising the opportunities. 

It takes foresight and creativity to stay ahead of the market and strong leadership to manage the required change to bring teams on the journey with you. This is what keeps me enthralled day in, day out while working with our partner brands and clients.

James Hacon is chief executive of Think Hospitality Group, innovators and strategists that empower the growth of hospitality brands as consultants and venture partners.

First published in Propel Premium Opinion.


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