The great British dining revolution — why it’s time to invest in restaurants and gastro pubs

The UK may well be known as a nation of shopkeepers, but walk down any high street and you’ll see that it has become a nation of diners. Even the traditional high street pub has changed beyond all recognition and food is the order of the day. Recent statistics show that more than half of all pub visits now feature food, while alcoholic beverages account for just a quarter of drinks sold in pubs.

Since 2012, British pubs have made significant inroads into the UK’s cafe and coffee shop markets by becoming the biggest sellers of coffee and breakfasts. Not only that, but it seems that the nation’s collective mindset is shifting towards a more European style of socialising, with modern British people largely deciding to forego drinking as the primary activity in favour of eating and drinking at the same time.

However, pubs are still closing up and down the country. This could be attributed to those pubs refusing to adapt to Britain’s more European tastes these days. Those that stick with the mentality of offering a typical wet-led boozer will likely fail in this climate. Whereas those that adapt to offer gourmet pub food are far more likely to flourish. And in terms of buying businesses, the rate of failing pubs is good news for those looking to either move into the sector or else expand their current food and drink brand.

For restaurants and breweries, it’s a very different story. In 2015 alone, for example, the number of restaurants in the UK grew by 1.6 per cent. In addition, three quarters of alcohol retailers are now classed as small multifaceted businesses — the number of breweries is at its highest level since the 1930s, with 11,000 different beers being produced by 1,700 breweries. As a result of this phenomenal growth in the food and drink sector, competition is intense as entrepreneurs look to acquire commercial spaces on the high street and turn them into gastro pubs and restaurants.

Tech trends
Technology has played a vital role in the positive growth of the UK’s food and drink sector, too. As well as easily enabling customers to share restaurant recommendations and providing quality control through customer feedback, for example, there has been a veritable explosion in demand for restaurant-quality food delivered directly to customers’ homes and workplaces.

Data from Euromonitor shows that growth in the home delivery and takeaway food markets has outpaced that of restaurants each and every year since the financial crisis. The UK market for delivery and takeaway grew 2.7 per cent to a total of £6.5 billion between 2009 and 2014. During the same period, the market value of restaurant food actually fell five per cent to £17.1 billion.

This high level of demand for restaurant food has largely been driven by mobile apps and associated websites such as Just Eat, which enables diners to order in food from chains and independent outlets all across the country. Then there’s Deliveroo, which offers upmarket, traditional restaurants the option to sell takeaway food by doing nearly everything for them, including handling the transaction, pick up and delivery of food to customers in several UK cities.

In addition to these well-known delivery services, there are also a variety of apps designed to get more people into the restaurants and gastro pubs themselves. Table booking services such as OpenTable, Bookatable and Uncover, to name just a few, have enabled users to quickly and easily book themselves into some of the hottest restaurants and gastro pubs in several major UK cities.

OpenTable has also pioneered a much-emulated Hot Table service, which notifies users of any late cancellations at the most popular restaurants, so they can be squeezed in at the last minute. This ensures that restaurants can maximise their covers (and their profits) on any given night of the week.

Finance options
Although there are many forms of finance available to expand or acquire a business, which we have covered in previous issues, a more recent phenomenon is that of sourcing finance through equity crowdfunding. This is another area where tech has changed the restaurant food and takeaway sector, and it has the added benefit of increasing brand awareness at the same time. This is particularly well shown by some of the biggest names in fine dining taking part in the last few years, with notable investments including River Cottage, Mexican fast food chain Chilango, coffeeshop chain Taylor Street Baristas and London-based takeaway Pizza Rossa.

According to analysis by non-profit organisation Nesta, working alongside KPMG, equity-based crowdfunding reached a total of £332 million in 2015, a three-fold increase on 2014, which is a very positive reflection on current investment trends in the bars, restaurants and casual dining sectors.

Neil Sebba, Tossed’s finance director, had this advice for those looking to run an equity-based crowdfunding campaign: “You need to be able to answer all of your investor’s queries in a timely fashion, get the funding target and pricing right, and promote the campaign to as many relevant people as possible. And do your homework. The platform is a marketplace and it’s up to you to make yourself stand out and appeal to your target investors.”

Location, location, location
So, whether you’re looking to enter the gastro pub and restaurant market for the first time, or you wish to expand your current hospitality/food business, opportunities abound all across the country. And this is especially true if you look beyond the somewhat overheated London market, where commercial rents are skyrocketing and forcing many smaller companies out of business. However, having said that, because the rate of failure in London is higher than the rest of the country, there are plenty of opportunities to buy distressed businesses, although the competition for top locations is fierce.What’s more, many recent opportunities have exceeded their investment targets. These include healthy food chain Filmore & Union, espresso/cocktail bar Grind and tea-selling pub Brew.

Another great example of a well-run campaign is that of Tossed, a salad-based firm offering highly customisable health food options to its ever-growing customer base. At the time of launching an £750,000 expansion campaign through the crowdfunding website Seedrs, Tossed had been in business for around a decade and employed around 250 people in its 24 restaurant outlets.

Tossed informed potential investors that it was looking to expand its health-conscious operation to high street, retail and motorway locations in London and the south east. To lure them in, the company offered investors shares in the company (for £12.33 per share) and time-limited discounts depending on the level of investment they were prepared to make. And it really worked. Tossed ended up netting a phenomenal £1,269,830 — in other words, it was overfunded by 169 per cent.

The key factors to consider in choosing a prime location for a restaurant or gastro pub are as follows: (1) built out market, (2) stable demographics, (3) growth potential, (4) diversified clientele, (5) strong visibility and easy access, (6) heavy pedestrian and vehicular traffic, (7) major market generators in the area, (8) rent affordability and (9) trade area draw. If you can satisfy the majority of these considerations, then you’re onto a potential winner.

Conclusion
The restaurant and gastro pub markets are expanding at a healthy clip, and bringing in more and more profits, aided in particular by technology. Competition in the area is high, but that’s not to say there aren’t a lot of success stories out there. Those who have established a trusted brand, found the perfect location(s) and sourced additional finance to expand will likely succeed. And remember, increased competition means more distressed businesses and acquisition opportunities. So, what are you waiting for? Tuck into the great British dining revolution while it’s still hot.

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