Fool's Eye View

[ March 7, 2000 ]

BGR Fish!es For Success

By Maynard Paton (TMFMayn)

Carburton Street, London -- Given the phenomenal investment success of McDonald's (NYSE: MCD) over the last few decades, it's easy to see why investors peruse through the restaurant sector to try and find the next big winner. PizzaExpress (LSE: PIZ), in recent years, has been the great triumph for UK investment restaurateurs, as the company steadily increased its pizza parlours around the country. The key to both companies success has been a very focused approach to a simple, straightforward and good value-for-money menu.

One smaller restaurateur, BGR (LSE: BGR), announced full year results to 31st October 1999 this morning. The company has a handful of restaurants dotted around London, and stated today that there was significant potential to roll out more restaurants nationwide. Are we looking at the next PizzaExpress?

BGR own two restaurant "concepts" -- "Fish!" and "Bank". Both concepts are at a very embryonic stage. The first Fish! restaurant opened in February 1999, in Borough Market, London. Two signs of a good restaurant concept are mentioned in today's Fish! results commentary. Firstly this initial restaurant has an "outstanding" return on capital in excess of 100%, and secondly it offers a "simple menu of classic fish dishes". I'm not sure how the company has worked out the 100% return figure, but PizzaExpress expect anything up to a 50% return from the first year of trading at any of their restaurants. And a simple menu keeps things, well, simple.

A second Fish! restaurant opened in Battersea during last December. A 40% return on capital has been produced in the six week period since trading began. Four other Fish! sites have been secured, three in Central London and another in Birmingham.

With the new Fish! expansion plans, the Bank concept has now been put on the back burner. The original Bank restaurant in London "continues to perform well and like-for-like sales were in line over period under review". In line over the period under review? This very vague comment leads me to believe revenues were flat at best. Two other Bank restaurants have recently opened, one in Birmingham and another in Central London.

As you can see, BGR are right at the start of their restaurant roll-out plan. The group had just three restaurants last October, one Fish!, one Bank and another unbranded venue that broke-even. The group now has six sites that trade. So it's no surprise to learn that current restaurant revenues are 63% ahead of last year.

Certainly ditching the under performing Bank concept, and concentrating on the Fish! brand is a good move. The issue now for any investor contemplating BGR as "the next PizzaExpress" is one of mass market acceptance. Can BGR really roll out the Fish! concept nationwide? It's still very early days, with just two venues operating at the moment.

Affluent customers in Central London may enjoy the Fish! menu, but will those outside the M25 find it to their taste? The company targets the £15-25 "mid spend" market, whereas PizzaExpress, the doyen of the sector, has a current average spend per head of just £10. Certainly, prospective investors ought to hold back, at the very least until satisfactory progress has been made at the prospective Fish! restaurant in Birmingham.

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