Calling time for growth

Ted Schama, Joint Managing Partner at Shelley Sandzer

First published in MCA on June 23 2023

Inflation driving up prices and driving down customer spending power, the staffing crisis, rising interest on loans, energy bills. The rolling coverage of negativity in the market should in theory be putting businesses off investment and expansion. However, the reality of the moment is something entirely different: it’s time for growth.

The best operators, and the landlords with a clear vision, see it. Fitted units, more than ever before in my many years supporting hospitality leasing, are coming into the market. When valued correctly, usually meaning a fair rent without premiums, potential operators are expressing strong interest. Even those that aren’t really considering expansion are revising their plans, such is the opportunity landlords and asset managers are providing. Costs are indeed spiralling, so reducing the need for initial capital makes the timeline to profit that much shorter, and the attraction considerably larger.

Most landlords are patently aware of the struggles, and are looking closely at the incentives on offer to translate a great opportunity into an even greater tenant mix. Cashflow simply isn’t where we’d all like it to be, and therefore available capital isn’t either, but enlivening places cannot wait for these issues to resolve themselves. By factoring in bigger incentives – often combined capital and rent free versus a more traditional rent free only bargain – we are genuinely able to invoke conversations with operators that otherwise wouldn’t be able to convert genuine interest into a palatable lease. Grosvenor (and some others) have even gone so far as to create funds to assist.

It isn’t just landlords adapting to make things happen. On the operator side, the word ‘franchise’ has come back to the fore. It’s a word that historically you wouldn’t associate with a quality brand, certainly more QSR than casual or fine dining. I’m delighted to say this is no longer the case. There is still some trepidation – landlords would often rather work with the main company than a franchisee – but it is increasingly a legitimate route for growth in the UK, and internationally.

The great news for London-based brands is that they still carry serious clout the world over. We recently spent some time in the Middle East, and there’s no doubt there are places clamouring for best-of-London. Franchising is often the best way to get there, and while it’s not a guarantee for success, a London born operation acting through a franchise agreement has the swagger and desirability to make a good go of it internationally.

That partner is crucial. A reputable brand in the UK cannot assume their offer translates to an international audience, so they need someone who can adapt it to a different territory, while maintaining all of the most important elements that define the master brand. Some great examples are out there of just that happening, again showcasing just how knowledgeable hospitality entrepreneurs are, understanding what it takes to grow overseas.

And then, we have investors. The mergers and acquisitions sector is bubbling up nicely, barely a day goes by where I don’t see news of a UK staple operator involved in an M&A deal. Plenty have happened, plenty more are in the pipeline. They can take an awfully long time to complete, but when they do, they can open up serious scalability for the brands involved. Take Toridoll, the group behind the rapidly expanding Marugame Udon. Their acquisition of Fulham Shore will no doubt turbo charge an already ambitious growth strategy for Franco Manca and The Real Greek.

Speaking of things that take ages to complete…

While all of this is positive, and everyone involved should take a huge amount of credit for the work that’s being done in difficult circumstances, we have to get a grip of the time taken over deals. I’ve never known them to take so long. When I chat with counterparts in other forms of retail, offices even, they all say the same thing. For different reasons, at some point in the process we hit a roadblock that shouldn’t really exist, and so much energy is expended getting through it. Put it down to a lack of urgency, a nervousness to make big calls against this economic backdrop, or simply not wanting to be held accountable. I have sympathy, but still a lot of frustration.

Decision making is intrinsic to success, and given all the hard work landlords, operators, and investors are doing to open new opportunities and get around the table, it seems such a shame to me that it all gets so unnecessarily halted just as the excitement builds. We all have to take some of the blame, and work harder to avoid these issues, and use a combined wealth of experience and passion to get deals over the line in good time. It’s not about rushing things through recklessly, a middle ground has to be achievable in this day and age.

That aside, it’s clear the fightback is on. Right across the spectrum, people and businesses are willing to do what it takes to give hospitality a chance. Growth opportunities are out there, and momentum is strong. Let’s keep it going.