Reflecting on a site visit with The Restaurant Group (Buy, TP: 860p), Douglas Jack of Numis is impressed by the “depth of the business in relation to management and the range of successful brands that can be rolled out to potentially take the company to 1,000 restaurants (from c.480) over the next eight years”, pointing to a number of key indicators on which this is based:
- Frankie & Benny: KPIs are as high as they have ever been. Breakfast sales are growing strongly and in its children’s menu, the £1.95 Ice Cream Candy Shop is performing very well. Promotions still account for under 10% of sales.
- Chiquito: new design is proving to be highly successful. This has helped cocktails’ share of drink sales to have risen to 35% from 25% over the last 18 months. The site visited is generating £40k of AWS. Within 12 months, all the sites should have the latest design. With a mostly 18-35 year old female customer base, Chiquito is not cannibalising Frankie & Benny’s.
- Coast to Coast: not cannibalising Frankie & Benny’s either, targeting the 23-45 age range (although without being exclusive). Food accounts for 70% of its sales; 25% of drink sales are cocktails, which are growing quickly. Coast to Coast’s menu is being improved through becoming narrower, but with more healthy options.
- Brunning & Price: premium in relation to location, building, range and service, but not price. Two-thirds of these units are freehold. The pace of expansion is limited by the availability of people, not sites, but this limiting factor should ease as the brand becomes bigger. The site visited generates £40k of AWS.
- Investment in digital marketing is increasing. The company wants to get to know its core customers better (e.g. 25% of Frankie & Benny’s customers account for 80% of the brand’s sales), encouraging loyalty and frequency of visit. The new App will enable payment by mobile and possibly geo targeting.
In conclusion
“We believe management is particularly confident on 2016E prospects, reflecting building momentum and increasing scope for gradual price increases. Comps are easy in June/July 2015, Q4’15 and Q1’16. Costs are benign and the broadening portfolio of expansion brands means that the self-financed expansion rate could reach 60+ new sites pa in four to five years.”