Having overseen more than 500 restaurant and pub openings in his career, serial entrepreneur Luke Johnson — the current chairman and part-owner of Patisserie Holdings and Feng Sushi among others — is nothing short of an industry legend.
The man who is perhaps best known for his involvement with Pizza Express, and who has just invested in the Gaucho Group, is well-versed in running successful restaurant empires irrespective of the economic climate.
So when he talks about the implications that Brexit might have for the industry, it is concerns around labour and staffing that trouble him rather than the fiscal impact on sales and profits. “It could be harder for EU citizens to come here [the UK] and work,” said Johnson during a recent keynote session at the Lunch! trade show.
“And clearly a good chunk of the staff, particularly in London and the south east who work in restaurants, bars and hotels and so forth, are from the EU. If the government were to introduce serious barriers to entry for new immigrants that would be a problem — and an even bigger problem for the industry would be if they insisted if those who were currently living and working here weren’t allowed to stay.”
“I think for a lot of concepts it’s no longer economic to operate in central London — it seems to me that you can enjoy better margins and higher returns in the provinces”
Although Johnson agrees that ‘staycations’ and the increasing number of foreign tourists visiting the UK have been good for business post-EU referendum, he predicts that things are going to get harder before they get easier.
“Even those pro-Brexit economists are not digesting the growth next year will be as high as the growth this year. I think that was already in the system, frankly,” said Johnson, who cites Leon and Wasabi as two chains that really stand out for him right now, primarily because they are consistently busy and offer a good customer experience.
Aside from concerns over EU staff, Johnson’s main worries for the near future are the rates revaluation in April and the proposed increase in the national living wage.
“The rates revaluation, certainly for operators in London, could be very scary indeed. I’ve seen some truly terrifying figures of rates bills going up by several hundred percent in some places. And that will be very difficult for some operators to bear. I think you’ve had a slight rollercoaster. I think in the immediate aftermath there was an opportunity in certain places for tenants who hadn’t committed to renegotiating a deal. Certainly one situation I’m involved with, we managed to do that on the agreement and in the terms.
“Some landlords have played hard ball and in quite a lot of cases they’ve found alternative tenants. I think there have been some people who have pulled out of schemes who are reining back. I think a lot of that probably would have happened anyhow, Brexit is the excuse.”
He fears that rates in central London are becoming so prohibitive that, for a lot of concepts, it’s no longer economic to operate in the city. Better margins and higher returns can be found in the provinces, he suggests.
However, for all the wobbles that occurred post-Brexit, he does think the market is “normalising”.
He said: “My view is that there have been a number of transactions in the sector over recent months since Brexit, with people maybe not seeing the sort of valuation figures we expected. Overall, so far, even on consumer confidence I think weather has had a bigger impact over the last few months in terms of trading in my businesses and what I can detect in terms of consumer confidence and spending.”
Although the ripples of uncertainty from Britain’s impending EU exit may be felt for some while, Johnson is of the opinion that entrepreneurs have to keep moving as they remain one of the major drivers of growth in the industry.
“They’re restless souls and they don’t like sitting on their hands for very long. In due course they will start placing their bets again. And that’s a good thing. I think that as long as interest rates remain low, as long as sterling doesn’t go to the floor, which it doesn’t look like it will, things will be alright.”
Johnson believes that the stock market is a good indicator of the economy and that it appears reasonably stable and hasn’t fallen materially, which should mean the economy won’t suffer too much. “I think we have a fundamentally strong economy, I think that this is a particularly entrepreneurial sector, it is growing, and according to Allegra and others it’s worth £75 billion a year. It’s very diverse, it’s very innovative and I think all those conditions still prevail, which is very healthy.”
Appetite for investment
Britain’s impending exit from the European Union will not deter Luke Johnson from investing in UK restaurant businesses. He still has an appetite for the foodservice market regardless of changes to the economic and political landscape. “I’ve been investing pretty consistently for decades and I’m not going to stop now,” he said. “I think that you’ve got to take a view that if money’s sitting in the bank, it’s earning you nothing, so I would rather put it to work in businesses that we believe can grow and we can help.” Johnson’s most recent industry investment came in April when he became a shareholder in steak chain Gaucho. Johnson said he had invested a “substantial” sum in the business.
Luke Johnson: Current industry interests
Luke Johnson is the chairman of private equity house Risk Capital Partners LLP. In terms of foodservice interests, he is chairman and part-owner of Patisserie Holdings, Bread Ltd — the firm behind the Gail’s Artisan Bakery chain — and contract catering firm Genuine Dining. He is also chairman and part-owner of Feng Sushi, a London-based chain of Japanese restaurants specialising in home delivery, casual-dining chain 3Sixty Restaurants, which comprises Ego Restaurants and Rocket Restaurants, and the Gaucho Group. In the pub and bar sector he is chairman and part-owner of The Draft House and Grand Union.