Wagamama owner to shut dozens of restaurants as losses mount

The cost of living crisis has taken a bite out of drab but pricey middlemarket dining with some brands likely to vanish from high streets

THE owner of Wagamama and Frankie & Benny’s is to close 35 sites as losses mount and activist investors pile pressure on its chief executive.

The Restaurant Group (TRG) wants to offload unprofitable sites, a mix of its Frankie & Benny’s and Chiquito restaurants, and convert a handful into more profitable Wagamama sites. Sales at the company rose by more than £200m to £883m in 2022 as families returned to restaurants following Covid lockdowns.

However, its losses more than doubled from £35m to £87m as it grappled with the soaring cost of food and drink, energy and wages. Shares plunged 15pc yesterday following the announcement. Andy Hornby, chief executive, said customers who tend to dine at Frankie & Benny’s and Chiquito had been hit harder by the cost of living crisis.

He said: “The average leisure customer – let’s say Frankie & Benny’s – is probably a family of four working incredibly hard that has been hit very hard by the cost of living crisis.

“That is where the fact that your petrol costs have gone up, your utility bills have nearly doubled, your supermarket shop has gone up, they have been hit hardest and definitely cut back more.”

Wagamama appealed to younger people with cash to spare, he said. “They often aren’t running a car, they often aren’t paying the utility bills, and even if they are they might be sharing a house with five or six people and sharing that pain. You can see from the size of the figures, there’s clearly some genuine volume growth, and people are going out.”

Activist investors have accused the management of failing to deliver for shareholders. Oasis Capital Management has bought up shares and called for a strategic review by an independent bank. It has also asked for a board seat. TRG has rejected both these.

In February, the hedge fund accused the board of TRG of presiding over a “strategic stagnation” after a torrid five years for its share price which saw it plunge as much as 78pc. Irenic Capital Management was reported to have been in contact with TRG recently, but has not yet formally disclosed a stake.

If Egon Ronay was alive today, it is unlikely he would mourn the passing of a handful of Frankie & Benny’s restaurants. The Hungarianborn gourmet, who Marco Pierre White said “did more for gastronomy in Britain than any institution or individual”, may have considered the American-italian eatery beyond saving.

The chain claims to serve “a glorious choice of moreish recipes”, though a quick glance at its menu of unimaginative 1990s classics like pasta carbonara and chicken parmigiana suggests that’s more of a case of hope triumphing over reality.

It may also want to revisit a boast that “every day’s a celebration”, given plans by parent company Restaurant Group to close 35 lossmaking restaurants, with Frankie & Benny’s sites among those earmarked for the chop. Some of those trading under the equally retro “Tex-mex” Chiquito brand are also expected to close.

Apparently this is what counts for “a strong operating performance” as well as “very encouraging” trading, in the words of Andy Hornby, chief executive. Look beyond the spin, however, and a clearer picture emerges of what life is really like for many of the chains that have taken over Britain’s high streets.

Yes, turnover is up – by a respectable 38pc from £637m to £883m – but surging costs of everything from energy to ingredients and wages pushed the company to a £50m operating loss. Throw in £117.5m of one-off costs largely related to the planned closures and it ended the year with £86.8m of pre-tax losses.

The cost of living crisis has taken a bite out of the casual dining market and it is unlikely to stop here. Fuelled by cheap money, rising disposable incomes and private equity owners looking for the usual quick returns, Britain’s high streets and town centres have become utterly saturated with overpriced yet largely forgettable brands serving the same unimaginative fare.

There are now so many faux-italian pizza and burger chains that it is often impossible to distinguish one from the other. Give me a local independent restaurant serving original food and providing good service any day of the week and I’d be happy to pay a decent premium.

There was a real cynicism to the land grab that occurred in many cases. Time and again, greedy owners, emboldened by the success of their first restaurant, become fixated with empire building and creating “a brand”.

Too many make the mistake of selling out to private equity, venture capitalists, or corporatisation – expanding too quickly, and inevitably sacrificing quality along the way, so that the characteristics that distinguished it in the first place are lost. It is a soulless, commercialised version of cooking, barely a step up from Burger King in some instances, but many times more expensive and without the parking.

But as quickly as large numbers swept across the UK, seemingly opening a branch in every town they could find, sites may have to be abandoned just as quickly.

If everything favoured the big boom, now the opposite is true. Interest rates have shot up, ditto rents, and debt has become a lot more expensive, prompting a private equity retreat.

The pandemic delivered the first real major blow to a bloated industry, starving many over-stretched businesses of income. Many city restaurants had been sustained by the office culture and staff on lunch breaks or eating out after work. With millions of people working from home that trend is in danger of dying. Meanwhile, weekend trade was propped up by people going out shopping but, as the high street becomes increasingly hollowed out, there are fewer reasons for people to be there.

The cost of living crisis is likely to be the death knell for many of those that crowd the drab but relatively pricey middle ground. There is growing evidence that people are opting for cheaper fast food like Mcdonald’s over restaurant dining, or simply eating out much less.

Where customer numbers have held up, it hasn’t been enough to save some businesses from rampant energy bills. There were more pub and restaurant closures last year than at the height of the pandemic, according to data from consultants Alix Partners.

The rise of Deliveroo, Just Eat and even super-fast grocery deliveries have a lot to answer for with many families choosing a takeaway or cooking at home over their local pizza place.

On the face of it, a clear-out of yet more businesses is the last thing the high street needs. We should certainly spare a thought for the hard-working chefs, the waiting staff and those toiling away back of house who will inevitably bear the brunt of any downturn, rather than the senior managers with whom the buck stops, but a proper shake-out may be the catalyst for the rejuvenation of our homogenised high streets. Nobody whoops when a Wagamama opens in their area. By the same token, will anyone shed a tear if one closes?

The revival of the dreaded retail park may offer something of an alternative for those in trouble but the high street is still rammed full of these places so it will require the closure of hundreds of half-empty premises first.

But what we may be witnessing is the beginning of a rejection of an entire concept from consumers tiring of mediocrity and demanding more substance as well as value for money. In the same way that shoppers have largely called time on the old-fashioned department store, diners may no longer have the stomach for average restaurant fare.

‘Towns are saturated with overpriced yet largely forgettable brands’