Empty Tables

Whitbread’s decision to unload big chunks of its restaurant chains signals overcrowding in the market. Only one in ten eateries is now taking more than £10,000 a week. With supply outstripping demand and diners spoilt for choice with menus and

French-style restaurant chain Café Rouge was once the toast of virtually every high street in the UK, with new outlets opening their doors every week. But last week Whitbread, which bought the chain in 1996, announced plans to sell off up to 50 of the 103 cafés as it attempts to jazz up a lacklustre range of restaurant brands that also includes Bella Pasta, TGI Fridays and Beefeater (MW November 1).

Whitbread admits that the performance of the Café Rouge and Bella Pasta chains – which will also see some closures – has been “disappointing” with like-for-like sales down 0.9 per cent in the past six months.

But Whitbread is not the only one struggling to draw diners to its branded eateries.

Many mid-market chains that cashed in on the eating-out boom of the late Eighties and early Nineties are having to rethink their strategies if they are to survive in Britain’s increasingly crowded restaurant market.

While the British public last year spent £20.5bn on eating out – an increase of 24 per cent since 1994 – only a tenth of the country’s 20,000 full-service restaurants take more than £10,000 a week, and more than half of these are in London. In short, there are too many mid-market branded restaurants, and many will close.

Luke Johnson, a founder of Pizza Express who is now chairman of Belgo Group, says: “I think that while demand is increasing, supply is increasing at such a rate that the weaker players that have tired concepts, or are offering uninspiring food and poor service, are finding life more difficult. I would put Deep Pan Pizza, Pizza Hut and other brands such as Café Rouge, that have not been kept fresh, into that category.

Forgotten raison d’être

“Too many of the operators have lost sight of why people go to restaurants. They go out to eat good food, and I think a lot of them have forgotten the importance of the meal on the plate. The crux of any meal out is how good the food is. The service and the environment matter too, but a lot of them have got weak concepts where the food takes second place.

“People will continue to spend an increasing amount of their budget on eating out, but as in any market, the stronger players will get stronger while the weak will fade away.”

The companies which put more emphasis on speed than quality when rolling out their restaurant brands are those now fighting to survive.

When these chains grew up in the mid to late Eighties, people were prepared to pay for mid-market food, but since then consumers have become a lot more demanding and, because there is so much choice, they can afford to be.

“The economy is quite buoyant at the moment, and there is a lot of disposable income out there, but because the restaurant market is so competitive it does suppress prices,” says Chris Butcher, restaurant analyst at Mintel.

The explosion of high street coffee shops and the growth in pub and bar meals has left some mid-market outlets struggling to attract customers who are becoming increasingly discerning in their choice of eateries.

The wealth of choice across all restaurant sectors means consumers are not prepared to put up with paying £10 or £15 for a heated-up frozen meal in a restaurant when they can get a decent meal for half that price in a pub or coffee shop.

“Although demand is growing steadily at about five or six per cent, in the past few years supply growth has been moving about one per cent ahead of demand growth,” says Alan Millar, restaurant analyst at Greig, Middleton & Co.

“The market is becoming saturated, and while there has been a move towards brands we are now starting to see some fall-out. Whitbread has not really got a strong high street concept and has failed to capitalise on its brands, some of which, only a few years ago, were close to being market leaders.”

For the axe

Granada Compass recently put its chain of seven Wheeler’s fish restaurants up for sale, and the beleaguered City Centre Restaurants – whose brands include Deep Pan Pizza, Caffe Uno, Garfunkels and Wok Wok – last week rejected a £126m takeover bid from rival Pizza Express.

The bid followed the resignation three weeks ago of City Centre chief executive James Naylor, who left after the group’s share price collapsed to its lowest level for almost a decade.

The company is carrying out a strategic review. Analysts expect this will lead to a significant slimming down of City Centre’s portfolio so as to focus on its developing brands – Caffe Uno, Wok Wok, Est Est Est, and Franki & Benny’s.

Such a move would mean the sale of the troubled Deep Pan Pizza chain, as well as mature brands such as Garfunkels – which has 43 outlets – and the 25-strong Chiquitos chain.

City Centre blamed bad weather and Euro 2000 football tournament for its poor performance in the first half of the year, when pre-tax profits fell 13 per cent to £5.06m from £5.9m the year before.

But the group, which recently sold or rebranded 32 of its Deep Pan Pizza outlets, has come under fire from analysts, who say it has too many concepts and lacks focus.

Among the group’s 307 restaurants, the long-established Garfunkels traded strongly, but its younger high street brands struggled to compete against the numerous new restaurants that have sprung up.

With a host of classier competing operations, such as Fish! and Chez Gerard due to expand nationwide, this pressure is unlikely to ease.

City Centre marketing director Tina English admits some high streets have reached “saturation point”, but insists the “market is still buoyant and we have faith in our brands”.

Industry insiders say both Whitbread and City Centre have failed to manage their brands effectively – preferring to roll out their concepts “cookie-cutter” style instead of tailoring them to meet customers’ demands.

“If you look at what Whitbread has done in its restaurants over a number of years it has quite successfully completely ruined them,” says one rival.

“Now it is saying it will improve its restaurants by management focus – you have to wonder what it has been doing for the past few years.”

Over-ambitious

He also pours scorn on Whitbread’s target of five per cent like-for-like sales growth in all its restaurants in a highly competitive market where only a few main players – notably Pizza Express and Chez Gerard – recorded profits in the first six months of the year.

“It just doesn’t stack up. Whitbread lacks a clear strategy and focus. It may be the single largest operator, but it is certainly not a significant force in the market.”

As for City Centre, sources say it’s a case of “too many brands, and no clear strategy”.

“It has a fairly strong portfolio in terms of embryonic brands, but it has also got some dead brands and dead sites. You look at Garfunkels and you just have to ask ‘has this brand any reason to exist?’ The business really needs to be broken up to get some focus.”

One of the first casualties of over-expansion was French bistro-style chain Pierre Victoire which opened in the Eighties and rapidly grew from a single outlet in Edinburgh to 108 branches across the UK, mainly operated by franchisees.

Food and service quality

Inconsistency in quality of food and service at the various outlets led to huge losses, and ultimately undermined the brand which went into receivership in June 1998 and was broken up four months later. A survey carried out by Mintel last year shows the restaurant market is dominated by independents and smaller restaurant groups, with the Belgo Group – which last year saw a 55 per cent increase in group turnover to £27.1m – and the Chez Gerard group classed as two of the most successful operators.

While people seeking upmarket dining are likely to avoid a restaurant that feels like a chain, David Williams, chief executive of Chez Gerard – which this month opens its first Livebait and Chez Gerard outside London with 20 more planned by 2002 – believes there is a huge demand for premium branded restaurants.

Chez Gerard charges on average £30 per head including drink, although Williams says pricing will be tweaked according to location and local chefs will also be allowed a degree of autonomy.

“The Livebait in Manchester is different from the one in the City of London, for example. It is very easy to fall into the trap where you are simply rolling out a generic concept. We are extremely conscious that to be successful we need to match what we offer to the needs and demands of customers whether it is a matter of price, environment or menu content.”

Another chain poised for expansion is Pizza Express, which is on target to make pre-tax profits of £40m in the year to end June 2000, compared with £32m last year.

As well as eyeing the City Centre portfolio, the company is bringing out 50 new restaurants this year Рten of them abroad Рand expanding its new brand Caf̩ Pasta, currently being tested in 13 sites in the UK.

Brand development

The company says a successful branded restaurant has to constantly evolve – a brand that was launched in the Eighties can’t be left frozen in time.

Ian Eldridge, chief executive of Pizza Express, which has 260 restaurants across Britain, says: “We have stayed true to the concept right from the beginning, we have not muddled the brand in the way so many others have. At the same time it is constantly evolving so that by the time our competitors have copied us it is already out of date.”

Current estimates indicate that 30 per cent of meals in Britain are eaten outside the home, and while analysts predict this will grow to 40 per cent in the next decade, the country still lags behind countries such as the US, France and Italy, where the figure is closer to 50 per cent.

More sophisticated diners

While spending on eating out increased by 56 per cent between 1989 and 1999, a more sophisticated dining public is now seeking individuality and diversity rather than mass production.

According to Mintel, as long as supply continues to outstrip demand, the smaller restaurant groups and chains, which are able to offer a fresh approach and respond more quickly to problematic trading conditions, are the most likely to survive.

So what does the future hold for Whitbread as a restaurant operator?

The company this week announced it is rebranding 90 of its Beefeater sites as Banter restaurants aimed at the C1/C2 customer aged between 25 and 45 and offering a “complete eating experience”.

But it is unclear whether Whitbread can satisfy consumer demand for simple fresh food in a vibrant contemporary environment while still placing the emphasis on “mass market appeal”.

Today’s discerning diner will continue to seek out branded chains if only for the quality assurance implied by a brand name. But the growing preference for individualistic, rather than formula, catering means those companies which can instil a sense of individuality and character in their restaurants will survive. And the food better be good.

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