The AlixPartners Growth Company Index, now in its eighth year, has become a beacon for the UK’s very best restaurant, pub and bar companies, highlighting excellent financial performance.
This year’s list highlights that both fledgling and established businesses can thrive, through offering a strong customer experience and an innovative approach, allied to operational discipline and robust management—despite the ongoing headwinds buffeting the eating and drinking out sector.
New entrant Sticks‘n’Sushi, the Copenhagen-based restaurant group backed by Maj Invest Equity and specialising in premium sushi and yakitori sticks, topped this year’s list, generating a compound annual growth rate (CAGR) of 129.2%. Its position at the summit follows an impressive recent performance from the company, founded in 1994 by the Danish-Japanese brothers Jens and Kim Rahbek Hansen. It joins previous distinguished winners of the 50-strong index such as Bill’s, Côte, BrewDog and New World Trading Company.
Sticks‘n’Sushi emerged ahead of its competitors in a period in which the group opened in Victoria and launched its biggest site to date in Chelsea. The company also operates sites in its homeland Denmark and launched in Berlin last year, and has a further opening lined up in central London, in Beak Street. That would take its total estate to 22 sites, including nine in the UK. The company says this culture of what it calls ‘measured expansion’ allows them to fully focus on giving guests a great experience alongside a great product.
A look at the 2019 index shows that all parts of the diverse eating and drinking out sector are represented; from the fast-growing trend of experiential and competitive socialising formats to traditional family brewers; from exciting new entrants to the long-established perennials of the list—Loungers, TGI Fridays and Pret A Manger. While the cost environment remains testing for all operators, the list serves as a roll call of leading companies, large and small, that tackle these challenges through a culture of innovation, creativity and commitment to excellence.
Collective sector profit growth dips
Given the (up to) nine-month lead time between a company’s financial year end and accounts being posted at Companies House, the numbers analysed for this latest index broadly capture the three-year trading period from 2016 to 2018. This period has witnessed the so-called ‘casual dining crunch’ with market conditions deteriorating to become the toughest in many years, characterised by hundreds of outlet closures and several high-profile Company Voluntary Agreements (CVAs) across the sector. Given this state of affairs, how does growth compare to previous years?
Looking back, the 2017 index was a high-water mark for the level of growth required by companies to make the top 50: That year, D&D London, in 50th place, delivered CAGR of 10.6% and last year TGI Fridays took the final spot, with CAGR of 6.9%. In this year’s list, new entrant Gusto recorded CAGR of just 2.7%, illustrating the challenges of delivering consistent growth.
Across the list, there is further evidence of growth being dampened by headwinds, with the licensed sector now in net outlet number decline—albeit a very modest one. Average Profit across the top 10 companies (£4.6 million) and the entire index (£11.9 million) has dipped slightly year-onyear, and significantly since 2017 levels when average Profit across the top 50 stood at £17.0 million.
What about the growth rate required to make the top 10? Smaller operators dominate this tranche, including three new entrants, reflective of the challenge to maintain the pace of growth as businesses expand. This year, the 10th placed company Flat Iron delivered CAGR of 38.1%, below the level in the majority of prior years, but a small uplift on last year’s figure (35.9%).
New entrants reflect evolving market
Our top-ranked company Sticks‘n’Sushi wasn’t the only notable new entry to this year’s index. Fresh, exciting concepts continue to feature prominently among the 12 new entrants (2018:13), illustrating the dynamic and evolving nature of the market, with Flat Iron joined by Arc Inspirations in 11th place (delivering CAGR of 36.7%), Honest Burgers in 22nd place (16.9%) and Hickory’s in 38th place (8.3%) all making their debuts. Flat Iron secured funding from Piper Private Equity two years ago and has continued to grow its impressive steak-led concept across the capital. Hickory’s, the north west and Midlands-based BBQ concept, also Piper-backed, has returned to the expansion trail. Arc Inspirations is gearing up for the next stage of growth by appointing AlixPartners to advise on future funding options, following the opening of landmark sites in Leeds, Manchester and Newcastle. All have added to their estates over the index period following investment in key new sites—expect more of the same this year.
A word here on Oakman Inns, which debuted in this year’s list in third spot with a very impressive CAGR of 95.8% and is rapidly adding to its estate of premium pubs across the south under the leadership of Peter Borg-Neal.
Wet-led resurgence and diverse ownership
A resurgent drinking out sector continues to dominate the top 50, spanning 60% of index constituents for the first time. This more positive outlook is demonstrated by the buoyant M&A activity in the sector with trade and private equity buyers turning their gaze to pub and bar assets. This reflects not only the saturation of certain parts of the restaurant market, but also the combination of reduced supply and the continued rise of quality wet-led pub and bar operators. Growing wet-led operators such as Fever Bars (acquired by Stonegate) and Redcomb Pubs (acquired by Young’s) are likely to have debuted in this year’s index, had they not completed successful sales in the lead up to the index closing date.
The highest climbers in this year’s list were north west brewer and retailer Joseph Holt’s, up 14 places to 30th and Palatine Private Equity-backed The Alchemist, up 13 places to fifth. Holt’s growth has been driven by a combination of concentrating on its core activities and developing the five pubs it acquired during the previous year. The Alchemist has been a key player in the bar sector’s renaissance and evolution over the past 18 months, and the period saw the group increase its presence both regionally and in the capital.
The ownership of the list constituents remains as diverse as ever, with private equity-owned businesses featuring alongside family-owned and privatelyowned companies. While PE’s share of the index has increased significantly since the first edition, it dipped in percentage terms compared to last year (42% versus 48%) as many PE-backed businesses are having to re-trench following a rapid initial roll-out, with a greater number of privately-owned firms featuring.
Beyond the new entrants, re-entries and highest climbers, it is the companies on the index that have become perennial constituents that never cease to impress. Loungers, which has just floated on London’s AIM index, has been an ever present and remains rooted in the top 10; TGI Fridays and Pret have also made their homes on the list (alongside Amber Taverns, Glendola Leisure and St Austell Brewery, who have also featured in all eight editions). This is testament to the exceptionally high quality of these businesses, in regards to their consumer appeal, consistently high standards, financial management, and the fantastic guest experiences they deliver.
Also a note of recognition for McMullen and BrewDog who have both featured in the last seven editions of the index, having missed out on the inaugural index in 2012
This perhaps serves as a lesson to all those new to the list and those companies aspiring to appear on it. A diverse group of relative newcomers such as Flight Club, Daisy Green, Urban Pubs and Bars, Island Poké and Swingers are all tipped to feature in future editions. The Growth Company Index demonstrates that, despite the well-documented industry challenges, the bar remains set at a very high level.
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