Graham Campbell - Associate

Last year was a low point in the economy but how did the restaurant sector actually perform in 2009 and who were the winners and losers?
 
The ‘casual dining’ sector, including many of the larger corporate organisations such as The Restaurant Group, Gondola Holdings and Tragus appear, from the information available, to have all successfully ridden the wave over the past 12 months.
 
A review of their published results shows that despite the economic climate the majority were perhaps surprisingly able to deliver sales growth in 2009. More importantly, they were able to translate this into small, but still significant, rises in profits. So the question is, how have they achieved this against a backdrop of reduced customer expenditure and weak economic conditions?
 
Much of the sales growth has been driven by extensive marketing campaigns designed to maximise turnover and deliver value through promotions. These companies have a distinct commercial advantage in that they have access to resources and marketing budgets, which would be unavailable to the vast majority of independent or smaller private companies. As a consequence, last year was characterised by the sheer scale and number of promotions available, ranging from 2 for 1, to 40% and even 50% discounts, all designed to fight for a perceived share of a diminishing market. Brands such as Pizza Express, Cafe Rouge, Prezzo and GBK were all engaged in what was effectively a discount arms race for most of last year, with much of the focus on internet based promotions.
 
In addition, they were better placed to generate savings through economies of scale. They are able to drive efficiencies in both purchasing and overheads thus improving their profit conversion to a degree that the independent restaurateur or the smaller private groups could not. Accordingly, it’s no surprise that some of the best results for 2009 were from the casual dining sector.
 
Perhaps the market that faired the worst over the last 12-18 months was ‘fine dining’. A number of the larger players such as D&D restaurants and the Individual restaurant company, all posted poor figures with other top end companies such as Gordon Ramsey Holdings having had well-documented financial problems.

Why should this market have suffered? Usually the top end of any market place is robust when times are difficult. High-ticket items are normally the preserve of the highest earners, who are usually the last to feel the impact of an economic downturn. In part this may be explained by the market in which many of these companies operate. Gordon Ramsey's Holdings and D&D in particular have a high exposure to the London market and the loss of confidence in the financial sector, the impact on jobs and consequently on bonus payments has no doubt played its part.
 
With the country however now officially no longer in recession, what does 2010 hold for the restaurant market as a whole? Will the recent if albeit small return to growth be a springboard for a strong recovery this coming year?
 
One of the key indicators of a returning confidence is the level of corporate acquisitions being undertaken by the mainstream brands.

Having adopted a cautious approach last year, many have now emerged with renewed vigour and are back on the acquisition trail and this sector will continue its drive for growth.
 
The Fine dining sector is also I believe likely to experience a quick recovery this year. Whilst the debate may rage as to the merit and level of bonuses in the City,
the return of the bonus culture and with it, a cash injection for the City of London in particular, will be a welcome boost for the restaurant market.
 
As for the independent operators, who constitute the vast bulk of the restaurant market, 2010 should see a revival in both trade levels and property prices. Many vendors who could not afford to sell last year are likely to benefit from an overall increase in activity and demand in the coming months ahead and whilst the recovery will take time to gain momentum the coming year will hopefully herald more prosperous times ahead.