Casual Dining Restaurants: More Than They Can Chew

Written by: Matthew Unsworth

Gaucho, the high-end Argentinean meat restaurant which collapsed into administration in July, is set to be acquired by international banking and finance groups SC Lowy and Investec, a development that has no doubt been welcomed by the relevant stakeholders (read: steak-holders). The future of the associated Carne Argentina Única (CAU) brand was not to be so rosy, however, all 22 of its restaurants having now ceased trading. Chains such as Byron, Carluccio’s and Jamie’s Italian are also struggling, having closed or marked for closure as many as 58 restaurants between them under company voluntary agreements (CVAs) agreed this year.  It is a pertinent time to reflect on the reasons behind the current woes of key players in the UK casual dining sector and see if any similarities emerge.

Increased Competition

Over the last decade especially, casual restaurant competition has exploded, with new challengers cashing in on trends in anything from healthy fast food to pan-Asian cuisine. Add to this the establishment of app-based home-delivery services such as Deliveroo and UberEats in 2013 and 2014 respectively, and it is not hard to see why Matt Smith, joint administrator for the Gaucho Group, described the sector as oversupplied.

Competitor restaurants haven’t just introduced new fare or revolutionized dining, they have often driven down prices, too. Flat Iron offers steak for £10 at six London locations, an appetizing enough prospect to secure it a tasty 2016/17 gross profit of almost £4 million. CAU, meanwhile, where the average steak price was £23, was left to swallow a 2016 loss of over £2 million.

Failure to Connect with Diners

To stand any chance of slicing into this competitive market, a razor-sharp proposal must be formulated and communicated to the consumer. Without this, the brand quickly becomes confused. Jamie’s Italian sought to capitalize on the cult following of the former Naked Chef presenter from whom it takes its name. Oliver himself remains popular, as evidenced by strong sales of his 2017, ‘5 Ingredients’ cookbook, but, as was admitted by Jon Knight, CEO of the Jamie Oliver Restaurant Group, in a speech in February, the restaurant chain lost touch with him.

On the other hand, the statement of administrator’s proposals submitted to Companies House in respect of CAU paints a story of a restaurant chain whose brand was muddled from the outset. The management is said to have attributed the brand’s failure partly to it being ‘challenging to sell to customers’, having a relaxed atmosphere which didn’t marry up with its slight price premium over competitors. The restaurants’ wacky interior design scheme, in which prints of grassy fields and blue skies featured heavily, is unlikely to have helped clarify CAU’s identity.

Location, Location

Also notable in the statement of administrator’s proposals was the management’s recognition that certain amongst CAU’s sites ‘did not complement the brand’. Whilst CAU boasted prime locations in the bustling cities of Birmingham, Bristol and Liverpool, it also operated in the slightly more questionable settings of Wilmslow and Leamington Spa. Jamie’s Italian, too, drifted from its optimum sites, which Knight identified as university towns and cities. The problem is that large urban areas differ fundamentally as trading environments to their smaller counterparts. CAU Liverpool would, for example, not infrequently attract an earlier, leisure-dining crowd (both tourists and locals), followed by a business demographic, straight from work, later in the evening.

It is worth noting the probable link between speed of expansion and poor site selection. This has certainly been mentioned in the context of Carluccio’s. It would also not be surprising in relation to CAU, given its 70% growth in restaurant branches between 2015 and 2018.

Modernisation

Bringing the consumer to your door will be a far harder task if it is attempted in ignorance of current trends. The oft-cited example is social media engagement. On Twitter, both Carluccio’s and Jamie’s Italian boast a healthy 50,000 followers, while Byron has over 30,000, but for CAU a miserable 9,453. While these are ostensibly large numbers, they are dwarfed by restaurants such as Nando’s, with over 1.4 million followers. Nando’s social media presence has certainly contributed to its recent success. Last year, Nando’s bucked the high street trend posting a 13% increase in global revenue to £847.9 million. Effective social media engagement can be overlooked and arguably has been by these struggling restaurants.

On perhaps a less obvious note, there is healthy demand for experiential dining. Consumers are increasingly looking to restaurant venues to not only satiate, but work up their appetite. Travel through Shepherd’s Bush underground station and you are met by gleaming posters for ‘Puttshack’: an ambitious crazy-golf-come-restaurant/bar hybrid. Having said this, sometimes it takes only little touches to satisfy the experience-seekers. The aforementioned Flat Iron presents, on payment of the bill, a meat-cleaver shaped token exchangeable for a small ice cream cone. The traditional dining experience having lost some of its allure in a crowded market, these alternative dining concepts can be a powerful way to draw in customers.

Currency Fluctuation

A weaker pound against the euro in the wake of the UK’s vote to leave the European Union has spelled higher costs for chains reliant on imports. Jamie’s Italian, with its insistence on authentic ingredients such as ‘nduja sausage, is thought to have been particularly badly affected. Many restaurants chose to absorb additional costs rather than pass them on to consumers, with the consequence that these costs have significantly eaten into profits across the sector.

Conclusion

There is some shared ground between struggling restaurant chains in the casual dining sector, which allows us to make a number of predictions. First of all, the casual dining sector will likely have to be pruned of even more chains, or at least component restaurants thereof. Only then can the glut of consumer choice be tamed, allowing the restaurants which remain to obtain a sustainable market share. As for currency fluctuations, these constitute a significant issue, but restaurant chains can do no more than wait and see how the pound rises or falls relative to the euro. The main way to mitigate currency uncertainty would be to make efforts to source more products from the domestic market.

Looking forward, casual dining restaurant must ensure that they choose only the most viable sites for restaurant outlets and painstakingly distil their basic offering to the consumer. With competition in the sector tighter than ever, despite its avant-garde interior décor, CAU simply became lost in the crowd.

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