Business profile: Clapham House Group

By Paul Wootton

- Last updated on GMT

Related tags: Clapham house, Chairman

Business profile: Clapham House Group
The Clapham House Group surprised everyone by calling the downturn early. But the resulting changes the company made to its business strategy have paid off, says its chief executive Paul Campbell

December 2007 – that was the month when the Clapham House Group brought what its chairman David Page describes as a “dose of reality” to the restaurant sector, issuing a profits warning and effectively predicting the downturn. That its announcement should have prompted such an almighty hoo-ha just shows how fast the economy has deteriorated since. Back then, it was greeted with widespread disbelief, along with considerable panic. The AIM-listed company’s share price lost 40 per cent in one day and other investors in the restaurant sector got very jittery. Page and executive chairman Paul Campbell came in for a lot of stick – not just from the stock market but from the media and some of their peers.

As we now know, the pair were right to be concerned. And while it’s unlikely either of them feel any great satisfaction from knowing the economy has unravelled as they’d foreseen, their early calling of the downturn has enabled them to prepare for it more thoroughly than some of their rivals have been able to do. Consequently, a year on, Clapham House’s interim results, announced in December 2008, were a rare bright light in an otherwise gloomy sector. Sales for the six months to the end of September 2008 increased 21 per cent to £30.3m, with pre-tax profits more than doubling to £1.5m.

“I think the position we’re in now goes all the way back to December 07 when we took some of the hard decisions very, very early,” confirms Campbell. He insists they were simply acting
responsibly, while others chose to ignore the warning signs. “A number of operators were still in denial last year, opening restaurants at a rate that we thought was inappropriate,” he adds. As he recalls, in late 2007 the economy was already looking increasingly uncertain, food inflation was picking up steam and there was a frothy property market in which landlords’ demands were getting higher and higher.

Slow down

So the company decided to slow down. In 2007, it opened around 25 new restaurants in the UK. In the current financial year, it will have opened eight.

The Clapham House Group, which owns the Gourmet Burger Kitchen, Tootsies and The Real
Greek brands, was set up by Page and Campbell in 2003 “to identify the next generation of Pizza Expresses”. The pair, who had worked together at Pizza Express, felt the market was still very fragmented. †“The only bit of casual dining that had been built to scale was the Italian segment, with Pizza Express and ASK and Zizzi, etc. We looked at cuisines like burgers and Indian and we felt there was a great opportunity,” says Campbell. The GBK concept, which many commentators, including Altium’s Greg Feehely, see as Clapham House’s “jewel in the crown”, ticked all the boxes in Page and Campbell’s search for a scaleable casual dining concept.

“It’s a great food, it’s a food that everyone understands and most people like,” explains Campbell. “It can be executed relatively simply but you can get very high quality; the price point is very good, and it’s relatively uncompetitive.”

With 49 GBKs in the UK (plus 10 overseas), Clapham House has always stated the brand can grow to 150 UK sites, though Campbell thinks that’s “conservative”. It’s a strong performer: average site turnover within London is £18k-20k.

The acquisition of Tootsies has proved more of a problem, it being an older business that needed attention, as Campbell admits. “The menu had got tired and the restaurants needed some money spent on them, but that’s been addressed. All of the restaurants have been refurbished over the last couple of years. The brand is in a good spot now,” he claims.

With just eight sites, The Real Greek isn’t big enough to talk about an average turnover but its
50-seat site in Covent Garden does a respectable £16k a week, suggesting the brand’s potential.

The focus on GBK

Some analysts, like Altium, believe Clapham House should concentrate on GBK, suggesting the
company sells off Tootsies to improve its balance sheet. (Last year, it sold the Bombay Bicycle Club for £4.4m.) Certainly the next two years will see Clapham House’s UK expansion focus on GBK, as the company continues to be cautious in the face of the downturn. “You want to concentrate on where you get your best and quickest returns and that tends to be GBK,” declares Campbell. Even with GBK, the company will only target really strong sites, “leaving the missionary stuff for a couple of years”.

But as Campbell makes clear, while it may not be growing as fast, the company is far from standing still. Along with the decision to slow expansion in December 2007, Page and Campbell adopted a different strategy for running the business. In the UK that meant two things. Firstly, a more intensive focus on stimulating sales, particularly through promotions. And secondly, it meant looking at driving costs out of the supply chain.

“There’s a lot of promotion going on at the moment and we’ve been at the heart of that in terms of developing innovative sales promotions at different times of the week to get more bums on seats at quieter times,” says Campbell. And he revealed the company would be going further, with the soon-to-launch GBK Gang, a membership-type scheme that would offer “above and beyond” the kind of 50 per cent off and two-for-one deals currently prevalent in the market.

As for the supply chain, Campbell claims the company has been able to make considerable cost savings by improving efficiency. As an example, he cites the consolidation of their bread supply. Previously three bakers supplied them with their needs. Now, there’s just the one. “There was no change to the quality whatsoever but we managed to get a better price on bread and that broadly offset some of the inflation we had on meat, because beef prices were rocketing last year.”

With the business in good shape and a share price that still seems rather low, there has been growing speculation that Nando’s owner Capricorn, which already has a 24.9 per cent stake in Clapham House, will launch a takeover bid. It hasn’t escaped the notice of commentators that when Capricorn bought Pizza Express in 2003, Page was the pizza giant’s chairman and Campbell its finance director. In other words, they’ve been here before.

Unsurprisingly, Campbell would make no comment on talk of a takeover. But he insists that
the eating out sector is still a great place to put your money. “The dynamics that made it such a great place to invest a few years ago haven’t changed. It’s still fragmented, UK consumers are
going to eat out more and more over the next decade, there’s still going to be a trend towards
quality,” he explained.

Right now though, he’s more concerned with knuckling down and riding out what will inevitably be a tough 2009. “Consumers will become more discerning,” he says. “In a slowdown people keep asking themselves, is it worth spending money on that? And that’s our task – to make sure that when people come out of our restaurants, they say, “Yeah, that was money well spent.`"

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