James Hacon, Partner at THINK Hospitality moderates a panel at the Future Hospitality Invesment Summit in Dubai discussing whether restaurants continue to be an attractive investment proposition, with four guests;
Ramzy Abdul Majeed, Chairman & CEO, Big On Hospitality
H. Ashton Crosby, Managing Director, Capdesia
Mohammed Jawa, Founder & Chairman, MJS Holding Craig
Rachel, Director - M&A, AlixPartners
Here are some highlights;
The panel discusses the growing opportunity in Saudi Arabia with a wave of market entry from restaurants from across the world, particularly in the premium and fine-dining categories. There was a discussion about opening markets, like Saudi Arabia providing a unique opportunity to curate the best brands from around the world, but it also needed time to develop winning concepts of it's own.
The discussion then turned to sub-sectors of the restaurant industry that were most interesting to investors with a general agreement that QSR and fast casual were very attractive due to low CAPEX requirements and lower spend, making them more recession proof. Equally the experiential and high-end of the market with fine dining is also flourishing, as people who have money continue to have money, so this sector is somewhat protected from the affects of economic downturns. The challenge was more around casual dining and the mid-market where people are more likely to trade up or down.
In Dubai there is an opportunity similarly to other heavy tourist destinations to do things differently, with a greater focus on eatertainment, the concept of bringing together food, drink and entertainment, often called experiential leisure elsewhere in the world. The general view was that restaurants come and go, the lasting ones constantly have to evolve and give people a reason to visit.
There are two options for growing restaurants investments, one is to create a brand to scale, the other is to create a portfolio of multiple concepts and brands. Neither is right or wrong, but they are distinctly different and come with their own risks. Successful examples can be found within both models. There was some discussion that having seen the casual dining decline in Europe and the current period of economic downturn, there is a preference to spreading your risk by working with multiple brands and focusing on ones that are omnichannel, being cautious around traditional single focus hospitality businesses.
From an investor viewpoint a key focus for success is incredible people and a brilliant leadership team, having a concept alone doesn't cut it, it needs to be well managed, as margins are thin and the risk of failure high. A great team need to be fantastic at dozens of things from brand building to supply chain, to health and safety to being constantly operationally present.
There was some discussion around why restaurant franchising is considered a more interesting proposition than before the pandemic, being an easier way to scale at speed and reducing risk - whereas private equity players are more likely to want to work with businesses that require more cash, as a key focus of their model is the deployment of cash. The largest restaurant groups in the world all have franchising at the centre of their model.
Partnerships with asset owners, who will invest to increase the value of their asset and potentially gain significant returns elsewhere is always an interesting opportunity, real estate players and hotels are great examples.
The full panel discussion can be watched here on video;