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High street casual dining chains have “no future” after coronavirus, according to the entrepreneur who turned PizzaExpress into the UK’s first midmarket restaurant chain.
Hugh Osmond, who with fellow entrepreneur Luke Johnson took PizzaExpress public and expanded the chain to more than 200 sites during the 1990s, said private equity firms buying casual dining businesses at risk of bankruptcy because of the Covid-19 crisis “fail to understand the business they are acquiring”.
The model for midmarket branded restaurants was “absolutely broken”, he added, because of massive oversupply in the sector, high overhead costs and a decline in visitor numbers even before the pandemic.
At least 15 casual dining chains in the UK are exploring restructuring processes or have put themselves up for sale as a result of the months-long lockdown with smaller private equity houses picking some up for much-reduced prices.
Last week Azzurri, owner of the Ask and Zizzi brands, was bought by TowerBrook Capital Partners in a £70m deal that will see 75 of the group’s 300 sites close and about 1,200 people lose their jobs. The company was previously bought by the private equity group Bridgepoint for £250m in 2015.
Carluccio’s, the Italian chain that fell into administration in the first weeks of the lockdown in March, was bought by rival restaurant owner Boparan Restaurant Group for £3.4m in May.
The chains had already been hit by a cocktail of above-inflation rent and wage increases and a glut of competition on the high street, following the success of PizzaExpress. Discounting to lure customers only increased the pain.
Several businesses, including Prezzo, Giraffe and Byron, had undergone restructuring processes to cut underperforming sites and reduce fixed costs before to the pandemic.
Mr Osmond, who is planning to list a special purpose acquisition company on the New York Stock Exchange in the coming weeks, said the opportunities were now in upmarket chains such as millionaire Richard Caring’s The Ivy, saying those places would survive.
The new investment vehicle, which was first reported by Sky News, will be called Broadstone Acquisition Corp and aims to raise up to $400m to target distressed assets in the hospitality, leisure or insurance sectors — all of which Mr Osmond has invested in before.
The entrepreneur has not been immune to the casual dining crisis. According to the most recent accounts available, his company Various Eateries — which owns the six-site dining-cum-hotel chain Coppa Club and the Italian brand Strada — made a pre-tax loss of £16m in 2018.
It has since sold the majority of its Strada restaurants and converted the remainder into Coppa Clubs. One will be rebranded as an upmarket Italian restaurant called Tavolino, which is due to open next week.
Before the pandemic, the company forecasted earnings of £5m this year. Trading at the company’s central London restaurants has only been about 50 per cent to 60 per cent of last year’s levels since reopening, although sites outside the city are back to operating at close to 2019 figures.
Despite the difficulties faced by retail and restaurant chains, Mr Osmond said he was still a “massive believer in the high street” but called for an overhaul of rent structures.
“You have to set the rent at a place where an averagely good operator can make a reasonable return on his or her capital . . . [Landlords] have completely ignored that idea for the last 10 to 15 years,” he said.
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