Restaurant chains find sustenance in supermarket ranges – Financial Times

Restaurant News

PizzaExpress is struggling with a £1.1bn debt burden and a slowdown at its restaurants, but its business is growing on supermarket shelves.

The chain has about 520 restaurants in the UK but sells most of its pizzas in supermarkets.

Annual retail sales accounted for £120m of its £543m group revenue in 2018 — a 4 per cent annual increase — and it will sell 33m of its pizzas in grocery stores this year. It sold about 20m pizzas last year in its restaurants.

“We have had to take a step back and say we are no longer running restaurants, but that we’re a multichannel brand,” said Zoe Bowley, the chain’s UK managing director.

Restaurants are struggling to find new revenue streams and keep customers as home delivery from aggregators such as Just Eat and Deliveroo becomes easier and cheaper. The sector is also grappling with increasingly high business rates and wage burdens. Gourmet Burger Kitchen, Strada, Prezzo and Giraffe are among several casual dining chains to have closed outlets and restructured debts in order to stay afloat.

Chris Elliott, insight manager at consultancy Edge by Ascential, said that PizzaExpress led a growing trend “as the ailing chain restaurant industry shifts focus away from the dining experience by diversifying not just into retail but even outside of primary products in a bid to secure additional revenue”.

For casual-dining groups, grocery ranges offer a way of reaching customers without the capital expenditure required by a restaurant. They have the additional benefit of marketing the brand in stores, which have a much higher footfall than restaurants.

The benefit for supermarkets, as they try to fight off the encroachment of discounters such as Lidl and Aldi, is that it provides customers with a premium product to choose from beyond the supermarkets’ own label ranges.

PizzaExpress first launched its dressings in stores in 2000, with ready-made pizzas following a couple of years later. It increased the number of its grocery lines by 10 per cent at the UK’s top six supermarkets up to October, according to Edge by Ascential.

“[Retail] is not as talked about as it should be for PizzaExpress because it’s a great success story and a great stable income for them,’’ said Graeme Smith, managing director at the consultancy AlixPartners.

Mr Smith added that a retail range can help inspire confidence about the quality and consistency of a brand’s food.

Other restaurant brands that have successfully launched supermarket ranges include chicken chain Nando’s, whose peri-peri sauce is the UK’s best-selling chilli sauce with £14.4m sales last year, sushi brand Yo! and Gourmet Burger Kitchen, which sells a range of patties and relishes in stores.

Sam Frost, category director at All About Food, which manufactures sauces and meal kits for Nando’s, PizzaExpress and Wahaca, said customers liked such ranges because it meant they could have “authentic” food “without the risk of cooking from pure scratch”.

Mr Smith said: “It’s a winner-takes-all market. You need to corner whatever your cuisine is. Be the brand that becomes the ready-to-make at home brand because supermarkets don’t like to stock multiple brands of the same cuisine.”

J Sainsbury, which launched a £2m joint venture with fast-food chain Leon in October, said that Leon’s aioli sauce had exceeded sales forecasts by 60 per cent. From January, the supermarket is also set to offer sushi by Yo! alongside its own range in more than 300 stores. 

“We know that working with high-quality, trusted brands helps attract new customers to our stores,” a Sainsbury’s spokesman said.

But selling such grocery ranges poses challenges.

“The supermarkets are very savvy and if you were to put an offering in there, there’s a good chance they would copy it and you would lose the benefit,” said Martin Williams, chief executive of the steak chain Gaucho, who added that his group would never do a grocery range but might consider cooking equipment such as steak knives or a barbecue kit. 

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Mr Elliott warned that brands should not “overcommit too early”, pointing to Wahaca, which scaled back its supermarket products in 2018 after it lost listings in Tesco and Ocado because of low demand. In December, Bella Italia delisted a range of take-home raviolis and tiramisu that it launched last year.

“You can’t do a grocery business by halves, but you have to do it in a way that doesn’t take away from the restaurant,” said John Vincent, chief executive of Leon. Leon has employed a team of former Sainsbury’s staff to manage its ready-meal range, which Mr Vincent said he hoped in 10 years would be worth as much as the restaurant chain.

Quality is also key. “If a customer buys something and is disappointed, they won’t forgive you in the way they might have 20 years ago,” said Richard Hodgson, chief executive of Yo!, who is trying to reposition the brand as more than just a restaurant chain.

He remains wary of devaluing the visit to a Yo! kiosk or restaurant, however. “There is,” he said, “only so far a brand can stretch before it snaps.”

Source: Thanks