How to gain investor interest in your business

The proliferation of the eating-out sector is attracting increased interest from investors, but gaining their attention and cash requires more than just a great idea, four leading investors have revealed.

Investors, on-hand with their insight, spoke at the ALMR Autumn Festival of Food and Flavour Conference and Study Tour in London earlier this week and included Steve Croswell, relationships director for hotel and leisure at Natwest; Luke Johnson, co-founder at Risk Capital Partners; Jason Katz, founding partner at Kings Park Capital; and Steven Kenee, partner at Downing LLP.

Those seeking a cash injection to get an idea off the ground would be wrong to think the crux of an investor’s decision lay with just the concept. “It’s about management,” said Kenee at the conference, which was run in association with the Publican’s Morning Advertiser.

“If there are the right teams in place then they’re going to work well together and be working towards the same goal. It’s not always about the concept,” said Kenee, who mainly focuses on pub businesses. “We tend not to invest in a business that just says ‘this is a great concept’.”

Competent management is attractive, echoed Johnson, whose company’s investment portfolio included Patisserie Valerie, Giraffe, PizzaExpress and other food and drink businesses.

“Management must have aligned interests,” he added. “We look for businesses that aren’t too esoteric and that can be replicated across multiple sites nationally, are cash generative and can endure. Though, the biggest risk for us is that a business doesn’t stand out.”

To put it simply, most investors look for businesses they can buy into for one amount and then sell on for more. But Johnson also wants longevity — up to 10 years — in the businesses he invests, he said.

“It’s got to be a business that has broad appeal and will last, which, obviously, is quite hard to find.”

Ready to grow their reach​

Katz, whose company’s portfolio spans restaurants, pubs and leisure, said the firm seeks ventures that had one or two sites, but were ready to grow their reach.

“Typically,” he said, “We focus on how we align our interests with management and the value that we can add.”

Adding rooms to pubs, for example, is an opportunity Kings Park Capital is interested in, because it can make food and drink offers in such venues work harder, said Katz.

There is no doubt among the leaders that foodservice had benefited from the growth in digital. More sites had become available as a result of the retail sector’s retraction, driven by fewer customers shopping in traditional bricks and mortar stores, said Johnson.

But property rates in cities such as London are still high despite this, which has resulted in investors looking for opportunities outside the M25. “We’re looking quite hard [for places outside London] because the rents are going to make things move from easy profit to break even,” he explained.

“It’s going to be a shock to some businesses. We are tending to avoid those super-prime central London sites.”

Yet, he added, London was a creative place and it was often difficult to find such talent elsewhere because the majority of driven entrepreneurs craved sites in London and were attracted to the City.

“It’s about us going out there and trying to discover that originality in other places and having the chance to grow those businesses.”

In the coming years, Johnson predicts, rents across the country will come down as sites become too expensive for businesses to rent. “Landlords will become grateful for these sorts of businesses in years to come.”

Despite high rent and some issues discovering unique and creative businesses, the eating-out sector is attracting a lot of investment, the panel said. However, the change in the way younger consumers approach alcohol means it has to work harder to stand out and survive.

This was something the pub sector has so far reacted to particularly well, according to Simon Stenning, executive director at M&C Allegra Foodservice.

Combined spend of £85bn​

Stenning, who told the conference the eating and drinking-out sector commanded a combined spend of £85bn, which is expected to grow by 2.9%, said pubs were using innovation to take back the market they had lost to coffee shops.

“Pubs, having lost their ‘mojo’ during the past seven years because of the smoking ban and cheap booze in supermarkets, have reinvented themselves.”

Although pubs haven’t yet managed to reclaim the market that coffee shops had taken, which is lunch time and the time between work ending and going home, he added.

“But we are seeing a reinvention and they are working harder to reclaim that space. Pubs are making themselves appeal to customers throughout the day.”

Many pub chains are driving their own coffee offers and it has been a long time since going to a pub in the morning for coffee and breakfast has been unacceptable. Stonegate Pubs’ Common Room concept, for example, had evolved the student bar into something beyond a place to get drunk.

“Customers get free printing, free [technology] charging and it [Stonegate] is reclaiming that space [from coffee shops] by giving consumers more reasons to come back to pubs,” said Stenning.

While the number of pub sites is down by 1.9% to 49,786 for the period between December 2014 and December 2015, the total turnover is up by 2% for the same period, he added. “This implies a like-for-like growth of 4.9%.”

This isn’t a trend expected to disappear quickly because consumers have more disposable income than in previous years. For example, the eating and drinking-out sector is outperforming GDP.

But, despite increased disposable income, low inflation and cheaper food and drink, consumer confidence is inconsistent. This is mainly due to negative events across the globe, as well as a fear that the UK economy could take another dive. He added: “It’s almost as if consumers can’t believe they can have it so good.”

• The ALMR Autumn Festival of Food & Flavour Conference & Study Tour was organised in partnership with the Publican’s Morning Advertiser, Heineken, Orderella, Sky, Frobishers, Salty Dog, Elliots, Nestle Professional, BNP Paribas Real Estate, CPL Training and Polaris.​