NEWS

Service Not Included

Australians have had a love loath affair with chain restaurants since the first American outpost arrived.  While American’s love familiarity and consistency, Australian’s love individuality and originality.

There is a reason for this, and it has a lot to do with geography.  In the USA, cities were built around industries like Detroit and cars, and Pittsburgh and steel, as a result labour is more transient in the USA moving between cities depending on what industry they are working in, and with that comes the desire for familiarity through the restaurants and food.  In Australia industries are built around our cities, many Australians unlike Americans never leave their home state.

There is a dinner shift change happening, there is now a growing investment market for chain restaurants with two large groups buying up venues.

But while Australian’s are shuffling up to give premium fast food an Aussie “fair go”, are they ready to change the top table, where customers are, well, more finicky and more demanding for their dollar.

Last year Quadrant Private Equity one of the savviest private equity operators in the market and not a newcomer to the “food service” industry (they operated “Red Rooster”)  acquired the Urban Purveyor Group, a collection of signature venues anchored by the Bavarian Beer Cafes.  This was quickly followed by Fratelli Fresh, the gourmet supermarket eatery and high end Neil Perry’s Rockpool Group.

This is an odd collection of restaurants, odd in the sense of its diversity, and odd in the sense that while they have a name in their home states they don’t have an extensive national presence.

It is clear that Quadrant sees this as a potential hospitality listing on the ASX, and is looking to build scale and quickly.  I wonder though when the average payback on a full scale restaurant is 3—5 years, with a build cost of $3.0M and pre-opening costs, including labour at just over a $1.0M, if these are the brands with which you would take on that level of market risk.  The scalability of the brand is essential especially in a market like Australia where perception of  multi venue premiums brands is poor.

There are also a few other factors to consider:

  1. In this country are the necessary national food suppliers able to meet the supply needs of these new national chains. Most of the market players are only just getting used to national pricing structures which factor in transport costs, as even national food brands still operate on a state by state basis.
  2. Despite what we hear there is a lack of skilled hospitality staff in this country both on the floor and in management. When I mean skilled I don’t view wait staff as unskilled, wait staff are the principal point of sale, the very successful restaurants, are those with wait staff that can sell, manage complaints, while being as unobtrusive as the customer requires—they are hard to find and the product of training and time. This is before you get to the different penalty rates and agreements which need to be negotiated state by state.
  3. There are limited options from a technology perspective and each has its pros and cons, and then once you select a system there is the high costs of transitioning and integrating them into the accounting system. The processing of invoices at venue for approval and payment can be up to three weeks depending on the system implemented which is all well and good until you balance that against most critical suppliers like meat being on 15 day terms.

I am anxious to know the outcome of this programme and I wish them every success, but having advised restaurants and hotels in the past I know that to build national presence, maintain service and food consistency and still make a profit will be no mean feet.

The work needed at, at least two of its acquired, or about to be acquired brands will likely mean significant menu streamlining in order to bring wastage in to control and improve profitability.  This may not sit well with those brands current high end customer bases.

On the south side is the Victorian based Dixon Hospitality with its lower end beverage lead hospitality options, it is heading to market with an F&B non gaming option which will likely beat UPG to market.  What will be interesting in this play is how that will stand up in a market that has already been burnt once with failed listed pub groups and where both Woolworths and Coles are looking for homes for their hotel gaming interests in the not too distant future.

Scaling food service in the Australian market, be it fast food or now full service has and will have its successes and failures.  What is certain is that Australian diners’ tastes are changing and as they change so to do the opportunities that come with it.

Australians have had a love loath affair with chain restaurants since the first American outpost arrived.  While American’s love familiarity and consistency, Australian’s love individuality and originality.

There is a reason for this, and it has a lot to do with geography.  In the USA, cities were built around industries like Detroit and cars, and Pittsburgh and steel, as a result labour is more transient in the USA moving between cities depending on what industry they are working in, and with that comes the desire for familiarity through the restaurants and food.  In Australia industries are built around our cities, many Australians unlike Americans never leave their home state.

There is a dinner shift change happening, there is now a growing investment market for chain restaurants with two large groups buying up venues.

But while Australian’s are shuffling up to give premium fast food an Aussie “fair go”, are they ready to change the top table, where customers are, well, more finicky and more demanding for their dollar.

Last year Quadrant Private Equity one of the savviest private equity operators in the market and not a newcomer to the “food service” industry (they operated “Red Rooster”)  acquired the Urban Purveyor Group, a collection of signature venues anchored by the Bavarian Beer Cafes.  This was quickly followed by Fratelli Fresh, the gourmet supermarket eatery and high end Neil Perry’s Rockpool Group.

This is an odd collection of restaurants, odd in the sense of its diversity, and odd in the sense that while they have a name in their home states they don’t have an extensive national presence.

It is clear that Quadrant sees this as a potential hospitality listing on the ASX, and is looking to build scale and quickly.  I wonder though when the average payback on a full scale restaurant is 3—5 years, with a build cost of $3.0M and pre-opening costs, including labour at just over a $1.0M, if these are the brands with which you would take on that level of market risk.  The scalability of the brand is essential especially in a market like Australia where perception of  multi venue premiums brands is poor.

There are also a few other factors to consider:

  1. In this country are the necessary national food suppliers able to meet the supply needs of these new national chains. Most of the market players are only just getting used to national pricing structures which factor in transport costs, as even national food brands still operate on a state by state basis.
  2. Despite what we hear there is a lack of skilled hospitality staff in this country both on the floor and in management. When I mean skilled I don’t view wait staff as unskilled, wait staff are the principal point of sale, the very successful restaurants, are those with wait staff that can sell, manage complaints, while being as unobtrusive as the customer requires—they are hard to find and the product of training and time. This is before you get to the different penalty rates and agreements which need to be negotiated state by state.
  3. There are limited options from a technology perspective and each has its pros and cons, and then once you select a system there is the high costs of transitioning and integrating them into the accounting system. The processing of invoices at venue for approval and payment can be up to three weeks depending on the system implemented which is all well and good until you balance that against most critical suppliers like meat being on 15 day terms.

I am anxious to know the outcome of this programme and I wish them every success, but having advised restaurants and hotels in the past I know that to build national presence, maintain service and food consistency and still make a profit will be no mean feet.

The work needed at, at least two of its acquired, or about to be acquired brands will likely mean significant menu streamlining in order to bring wastage in to control and improve profitability.  This may not sit well with those brands current high end customer bases.

On the south side is the Victorian based Dixon Hospitality with its lower end beverage lead hospitality options, it is heading to market with an F&B non gaming option which will likely beat UPG to market.  What will be interesting in this play is how that will stand up in a market that has already been burnt once with failed listed pub groups and where both Woolworths and Coles are looking for homes for their hotel gaming interests in the not too distant future.

Scaling food service in the Australian market, be it fast food or now full service has and will have its successes and failures.  What is certain is that Australian diners’ tastes are changing and as they change so to do the opportunities that come with it.

 

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