Over-expansion, cheap money & fabricated demand

September 8 2016

Restaurant Group & Ed’s Easy Diner have said that they are to dispose of units:

  • Restaurant Group has said that it is taking ‘catch up action on underperforming sites’
  • It is to close 33 units
  • Ed’s has also said that it is to consolidate its position & exit 3 units
  • RTN and Ed’s are unlikely to be the last operators to trim their estates
  • But it’s one thing to announce an exit from (presumably underperforming) leasehold sites and quite another to achieve it
  • Having said that, having a tail of poor or shut sites didn’t do Spirit much harm in the end

If sites are available, better we have them than the competition:

  • That (and cheap money) has got us where we are now
  • Operators may well have scrambled for sites that they would not otherwise have sought out
  • Retail parks with 8, 10 or 12 casual dining outlets arguably have too much cutlery on site
  • Poor operators (undifferentiated, entitled and/or lazy) will do least well but all operators will suffer as the cake is sliced more thinly

So what’s the answer?

  • Here’s the thing with answers, there sometimes isn’t one.
  • Macro and micro incentives may remain out of line for some time.
  • The market may not have a braking mechanism. It may only have a crashing mechanism.
  • Making the best of a bad job entails having a superlative & relevant offer, attractively priced
  • Ultimate takeaway may be to slow leases, buy freeholds. That’s what JDW/MARS are doing