Go big or go home seems to be the mantra of the premium dining Goliaths in the industry, opening sites that are simply so large and so expensive that failure is not an option. And despite the eye-watering CapEx, the best operated are generating very strong returns. Troia / the holding company of The Ivy Collection, reported an 18% adjusted EBITDA margin in their accounts ending Jan 2023, and one only needs to visit any of their sites to see that they are money printing machines. All this means that Caring’s billion pound target valuation, at 18x FY23 adjusted EBITDA (perhaps 16x current year?), though punchy, doesn’t seem all that crazy. The positives are compelling - the concept has proven itself in Chichester and Guildford alongside more densely populated urban areas, indicating strong further UK headroom, and, more importantly, there’s the rest of the world to go after. That said, with international something of an unknown, and very few restaurant deals in recent years transacting at that level, there is a high degree of risk, and the final price may fall more in line with the top-end for highly profitable premium dining groups.
The expansion model for high-end dining groups is complex, and there is no “one size fits all” approach. The Ivy Collection is unusual for reaching north of 50 sites by following a strictly UK approach. This model replicates very large US steak house groups who have focused predominantly on the US – Bonefish Grill and Fogo de Chao for example, have 166 and 69 US locations respectively, but this is not typically an option for the UK, given the population size. The Ivy Collection has circumvented this limitation by nature of its price point – straddling casual and fine-dining; its versatile formats to flex the ATV in different locations; its popular menu format – brasserie with international influences; and its irreplicable brand collateral having been THE celebrity hangout of the 1990s and noughties.
The other, more common model for premium concepts, is to plant a flag in key cities and destinations with sufficient pockets of affluence to support the concept – exemplified by the Nobus, Robuchons, Zumas, Sushi Sambas and Jason Athertons of the world. This model has the benefit of diversification across various economies and markets, but the challenge of maintaining consistent quality, customer experience and unit economics across different cultural and regulatory environments can be significant. With either model, growth must be carefully managed to maintain a sense of exclusivity and aspiration that is key to their success. On paper, this is easier to manage with a London – Paris – New York style expansion, which sounds a lot sexier than London – Cobham – Tunbridge Wells for example (nothing against those lovely parts of England!), but operationally, it is much harder to maintain standards and quality when you are operating in multiple time zones and continents.
For many of these restaurants, part of building and maintaining aspiration lies in building a lifestyle brand. Iconic interiors, celebrity clientele and glamorous locations are a big part of the appeal, with food and service playing a crucial but often secondary role. This is what the original Ivy restaurant did so well, and what the more accessible Ivy Collection restaurants continue to trade off. Meanwhile, other restaurant groups replicate their luxury establishments, ensuring they continue to attract a good number of footballers, actors and influencers, and that everyone knows about it. The international expansion model is somewhat similar to luxury fashion brands – building high profile flagships, and working hard on product placement. For many of these luxury brands, whether fashion, food or leisure, consumers are drawn not just to the product but to the brand’s identity, which they incorporate into their own self-expression and personal image.
Nobu and Nikki Beach are particularly well positioned as life-style brands since they are able to leverage their hotel and beach club businesses in high-end destinations like Santorini, Marbella, Ibiza, and Miami to offer a full experience - great food combined with glamourous locations and ample people-watching. Interestingly, even though Nobu is named after its founding chef Nobu Matsuhisa, the brand has transcended the individual. Achieving cult brand status is easier for brands like STK, Zuma, and Hakkasan than for chef-centric brands like those founded by Gordon Ramsay, Joel Robuchon, or Jason Atherton. The later tend to be a lot more focused on the food itself and what the chef is known for, rather than a particular lifestyle. It is easier to translate an aspirational lifestyle into multiple markets than a chef-led concept since you don’t need to rely on the presence or reception of a particular chef, and luxury lifestyle brands tend to resonate well in different geographies. In terms of outlook for this end of the global restaurant scene, the fine dining industry must also navigate the uncertainties of economic and geopolitical instability. With potential economic downturn / stagnancy on the horizon in the UK and US, with some macro-factors in common with the 1989 recession (rising oil prices, low wage inflation etc.), the trajectory remains uncertain. Fine dining is typically more sensitive to economic pressures than other parts of the market such as QSR, and less resilient to future pandemics given the reliance on physical experience over delivery. There is a concern that inflationary pressures might not be entirely passed on to consumers, leading to margin erosion, or, if they are passed on, volume decline. However, international groups with diversified geographies are somewhat insulated from these risks, depending on their portfolio mix and profitability profile.
Despite these challenges, there are significant opportunities for growth. Rising middle classes in emerging markets present new and previously unconsidered opportunities. Meanwhile, increasing globalisation is opening up markets such as the US for international entrants. Typically a very challenging market for UK brands, the success of restaurants such as Hawksmoor, Zuma, Hakkasan and Jason Atherton’s concepts, is heartening for the sector. As the largest restaurant market in the world, if the US is proven, there is considerable headroom to go after.
In conclusion, the expansion of high-end restaurant brands presents significant opportunities and challenges. While there is immense potential for growth, brands must navigate the fine line between scaling their operations and maintaining exclusivity and prestige. This requires careful planning, a deep understanding of local markets, and a commitment to preserving the core identity of the brand.
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