For most multi-site operators in the foodservice business, the opening of new stores has always been held up as a measurement of success.
It’s one of the reasons why the number of restaurant launches appears to increase every week even though the industry is renowned for its perennially high insolvency rate.
Yet for all the emphasis on securing new locations and swelling the estate, sometimes it’s the outlets you close down, rather than those you open, that end up having the most profound impact on business. The term ‘right-sizing’ is straight out of the corporate dictionary of PR fluff, but it does at least describe one of the most important exercises that any profit-hungry foodservice operator can carry out.
Two examples in particular struck me this month. The first involved The Restaurant Group. It opened 44 restaurants last year and said at the start of 2016 that it was “confident” of eventually being able to expand its 500-unit portfolio to more than 850, all financed out of internally-generated cash flow.
Fast forward a few months and, after a challenging first half of the year, it has put 33 of its worst performing sites up for sale or potential closure, incurring a whopping £39m associated charge as a result of the decision. TRG might still hold ambitions of reaching that 850 figure (it is still opening new sites after all) but eliminating its weakest assets from the equation will undoubtedly have an equally significant impact on its bottom line moving forward.
The same is true of Tasty Plc, owner of the Wildwood Restaurant and Dim t brands. It recorded a £2.3m loss in the first half as a result of impairment costs against five sites. This is a business that grew a healthy 28% in that period and outlined plans to open another 17 restaurants. The fact it decided to take action on sites that were dragging it down is just as key to future growth.
Foodservice operators rightly need to show investors and shareholders they are committed to growth through ongoing site expansion, but sometimes it is recognising the need to address the areas that aren’t growing which will really shape a company’s long-term financial success.