Headlines heralding imminent disaster in the casual-dining sector are greatly exaggerated. Christopher Walton sorts the reactions from the overreactions
"Eating out less as credit crunch bites" "Dire warnings as consumers shun burgers and beer" "Burger hellish" - these were just some of the headlines that greeted the average results announced by Clapham House Group and Regent Inns last week.
Headlines such as these would seem to suggest that high-street hospitality operators are facing a slowdown, but experts argue that it is actually a storm in a teacup in a restaurant sector that is growing faster than its high-street peers.
Not that Clapham House, the owner of the Gourmet Burger Kitchen and Tootsies chains, is crowing. The group saw its share price plunge by 40% in one day after admitting that sales at 11 of its high-performing Tootsies were poor enough to drag profits below expected levels.
The company admitted that it was planning to slow its breakneck rate of expansion, not just because of concerns over levels of consumer spending but because of worries over food price inflation and rent hikes on its rapidly expanding estate. A 12-month delay in opening two key sites in Spitalfields, in London, has not helped matters.
Executive chairman David Page put a brave face on the results, telling Caterer that the company was focusing on continued profit growth in its 92 outlets across the UK.
"We launched a new menu in Tootsies two weeks ago, along with putting in a new management team, and we have the Annabel Karmel children's menu that is going well," he said. "The restaurants are still very busy - they are just being affected in shopping centres slightly."
Adding fuel to the argument that a consumer slowdown is on the way was a profit warning on the same day from Walkabout and Old Orleans operator Regent Inns, revealing that like-for-like sales for the 21 weeks to 24 November had fallen by 2.8% thanks to increasing consumer caution.
The concerns of these two operators were enough to send the market into a moment of panic. The Restaurant Group, owner of Frankie & Benny's and Garfunkel's, then saw its share price fall despite reiterating that it was on track to meet its profits forecast.
The following day, though, saw two operators quick to shrug off any market concerns. Greene King, which operates more than 2,500 pubs, such as the family-friendly casual-dining pub chain Hungry Horse and the 37-strong Loch Fyne restaurant chain, reported that sales for its food-led businesses had risen by 8% and profits by 7% in the six months to mid-October. Meanwhile, Italian chain Carluccio's exceeded its opening targets in 2007 as store turnover rose by 18% and profits were up by 66%.
Simon Kossoff, Carluccio's managing director, said that although the company still had the critical Christmas trading period ahead of it, it remained confident of the long-term growth potential of the casual-dining market and saw itself as being well positioned to weather a downturn if it came.
"We're a multi-faceted operation serving everything from a morning coffee and pastry to take-away lunch and full-blown evening dinner," he said. "Average spend is £12, and I can't see consumers reining in that level of expenditure even if there is a slowdown in the economy next year.
"Ultimately, we operate in a sector where the long-term structure points to continual growth, with analysts such as Mintel forecasting ever-more people eating out," Kossoff said.
Using Carluccio's and Greene King as barometers of the state of the high-street dining market, it is easy to argue that casual dining remains in rude health. And Peter Backman, managing director at research group Horizons, argued that these groups are indeed an accurate barometer.
"There was a mini-panic last week and there was a bit of an overreaction," he said. "Regent Inns is not really in food and Clapham House is not really a major player in the marketplace, but we had encouraging figures from Carluccio's and Greene King. The market is doing OK, but there is a lot of nervousness among investors, operators and their suppliers. When bad news breaks, people will say, 'I told you so,' but I do not think it is justified at the moment."
These events obviously come in the run-up to the crucial Christmas period for restaurants and food-led pub chains. According to Backman, 10% of all food service business is done in December and, with this significant seasonal bias, it is hard to judge accurately how the industry is performing.
But the forecast for December is upbeat, with Deloitte predicting an 18% increase in Christmas eating-out budgets that, if realised, could result in a £6.8b gift for the industry.
It remains to be seen if the industry has been good enough this year to receive its Christmas presents.