The CEO of Oakman Inns has given a candid account of how the turbulence engulfing the casual dining sector can have an “upside” for other operators.
Recent years have seen landlords hike prices as demand for locations among the big chains has grown. But there is evidence that the opposite is now happening – and in one recent instance Oakman estimates it has saved the company more than £100,000.
Founder and CEO Peter Borg-Neal said there were signs that the supply side was easing due to the number of closures and operators scaling back expansion plans.
He said he “takes no pleasure” from seeing any business struggle, but noted that the over-expansion by “big-name brands” did impact on prime and even secondary site rentals, and in the current market those demands may and should ease.
Predicting that rent reviews over the next two years will be “very different”, he went on to describe how Oakman has already benefitted from one such scenario.
“We have a site that has been trading well for nigh on five years we have owned it, and is due for a rent review. Six months ago we faced a situation where a well-known and very good restaurant operator was about to take over a similar, near-by site to ours but had agreed to pay 60% more rent than ours.
“This would have been a serious double-whammy as not only would we have lost trade to the new entrant, we would also have faced a very difficult battle at rent review to resist an increase in our rent to the same very high level. However, they have now decided to pull out of the deal. We believe the combined benefit of this change is worth well in excess of £100k profit a year to us.”
Mr Borg-Neal acknowledged that Oakman was not immune to the cost pressures the industry is experiencing, particularly Business Rates. However, its growing purchasing power means that it is in a better position to be able to mitigate increases in the cost of goods and thereby maintain its operating margins.
“Most importantly of all, our sales remain strong,” he said. “Our LFLs for the year to date stand at 7.1% for the 49 weeks ending Sunday, March 11. Our new site, The Beech House in Amersham, has launched brilliantly, taking over £50,000 net of VAT in its first week – despite the heavy snow – and over £55,000 net of VAT last week – almost 50% higher than our investment target. We believe our performance underlines the attractiveness of a flexible, premium pub model and it is interesting to see that The Restaurant Group are investing heavily into Brunning & Price while scaling back its restaurant divisions.”
Mr Borg-Neal said the pipeline continued to look strong. It will open new sites in Olney and Welford-on-Avon during the next month, followed by a 240-cover site at Ascot in June.
Further sites are planned for Prestwood, Wokingham and Epsom.