Pizzas-to-mezes specialist Fulham Shore (FUL:AIM) has defied the downturn in the restaurant sector by saying trading is still healthy. The owner of Franco Manca and The Real Greek chains says business is booming in both London and the regions.
Full year pre-tax profit has increased by 170% to £1.1m and it plans to add more restaurants over the coming year despite the industry pressures.
The casual dining space is suffering from oversupply and various restaurant chains are now slowing down expansion, closing sites or even going bust. Read our article on Fulham Shore from April 2017 to learn more about the sector’s problems.
WHAT MAKES FULHAM SHORE DIFFERENT?
Franco Manca, Fulham Shore’s flagship brand, benefits from having a low price point of £9.50 spend per head.
It has simple menus with limited choice, helping to avoid stock wastage and enabling customers to order quickly, receive their food swiftly and complete their meal faster than a normal restaurant.
That model helps to drive up sales volumes as Franco Manca can do more ‘covers’ than a typical pizza restaurant, categorised as the number of customers who eat a meal served by a waiter.
HOW IS IT DRIVING SALES?
Chairman David Page says both Franco Manca and The Real Greek are becoming clever at having different types of menus depending on demand each day.
For example, it has a special lunch menu for The Real Greek if a site is extremely busy, so customers have less choice which helps them to order more quickly.
‘If the restaurant manager has got their wits about them, they can switch menus on an hour-by-hour basis,’ says Page.
‘If someone comes when it is less busy, we can have a more extensive menu and they might order more items. In the latter situation, we’re adding to the experience, rather than intentionally trying to get people to spend more money.’
WHERE IS IT EXPANDING?
Fulham Shore intends to open more Franco Manco and The Real Greek sites in London and the UK’s regions over the coming year. It has found particular success with using spare space inside Debenhams (DEB) stores, converting areas such as store rooms into a restaurant.
It says the agreement is good for both parties, as Debenhams earns money and Fulham Shore gets a good deal on the rent.
‘We will only open more sites with Debenhams if they can guarantee that we look like a standalone unit, not a concession inside their store,’ says Page.
WHAT DO THE ANALYSTS THINK OF THE PERFORMANCE?
Allenby Capital says Fulham Shore isn’t immune to the pressures on restaurant businesses, namely slowing consumer spending and rising input costs.
However, it says: ‘Fulham Shore is handling the difficult market conditions admirably - we believe driven by its straightforward product offering, value price point and an experienced management team with a tight control on costs.’
Mark Brumby at Langton Capital comments: ‘Fulham Shore has more than doubled in size in the last two years and there are no indications that its expansion period is coming to an end.
‘Indeed recently, whilst London may see something of a pause for breath with regard to Franco Manca, The Real Greek has seen renewed new-openings activity.
‘Whilst the company is still in a period of rapid expansion, its valuation measures are likely to look somewhat stretched. Although, even here, arguably year two projections on market cap to sales, sales to book and EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) measures look fair to good value when compared to the peer group.
‘The group is basically selling the right things to the right people at the right price. It markets “affordable treats” from relevant venues. It adds some theatre and it is genuine. Growth is set to continue.’
