ANALYSIS: What sort of state is The Restaurant Group in today?

TRG operates across three business divisions: Leisure (381 units), Pubs (66) and Concessions (64), including brands such as Frankie & Benny’s, Chiquito, Coast to Coast and Garfunkel’s.

It employs more than 15,000 employees and made annual sales of £679m and pre-tax profits of £57m in its last financial year.

Two years ago, TRG’s trading performance exposed certain issues across its Leisure business. As a result, TRG conducted a comprehensive operating strategy review of the business and, under the leadership of Andy McCue, developed a turnaround plan, which involved re-establishing the competitiveness of the Leisure brands, serving customers better and more efficiently, grow the Pubs and Concessions businesses, and building a leaner and more focused organisation.

Over the past two years, TRG has made significant progress towards each objective of this plan and, as a result, has created a more competitive and balanced business, which is more closely focused on the growth segments of the markets in which it operates.

In TRG’s 2018 H1 results, its Pubs and Concessions businesses contributed approximately 51% of TRG’s Outlet EBITDA.

These businesses have consistently performed well over recent years and TRG continues to see significant potential for growth in these areas.

TRG’s Pub restaurants benefit from being situated in strong locations with attractive market dynamics and from TRG’s strong operational capabilities in Pubs.

The healthy organic pipeline of TRG’s Pub restaurants is now being supplemented with bolt-on acquisitions at the premium end of the market, recently evidenced through the acquisition of Food & Fuel Limited in August 2018, comprising 11 pubs predominantly located in affluent London neighbourhoods.

TRG’s Concessions business, which is primarily focused on UK airports, continues to benefit from passenger growth and TRG is exploiting opportunities for new space as airports invest further in terminals, capacity and food and beverage offerings.

Furthermore, given TRG’s strength and capability to develop and operate a broad range of formats, TRG sees potential over the medium term for growth into international airports, as well as further UK Concessions away from airports, in other transport hubs.

In the first half of 2018, TRG’s Leisure business contributed 49% of its outlet EBITDA. Within the Leisure division, TRG has a strong site portfolio and over the last two years has made significant progress in re-establishing the competitiveness of its Leisure brands by investing significantly to give customers improved food quality and better value and service.

TRG’s Leisure business does, however, remain exposed to headwinds, which include the well-documented retail structural decline (with 57% of TRG’s Leisure sites directly neighbouring retail sites), exposure to saturated local markets and property costs, which in some instances do not reflect current local market conditions.

Given this context, TRG recognises that investing in differentiated propositions that are aligned to consumer trends is critical to its future success.

TRG is focused on consumer trends such as the demands for speed of service, convenience (both at the restaurant and through delivery) and healthy options.

It continues to expect the delivery market to grow quickly, with delivery being a disruptive force that may create significant strategic opportunities, particularly for operators with the right scale, brands and capability set. It is with these structural trends in mind that the company pursued the opportunity to acquire Wagamama.

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