Leisure giants desperate for a slice of the eating-out market

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The Independent Online
The acquisition of Tom Cobleigh's "unspoilt pubs for nice people" by Rank last week, hot on the heels of Whitbread snapping up the Pelican chain of French-style brasseries in August, confirms the increasing desperation of the big leisure companies to muscle in on the fast growing eating-out market.

Bass tried and failed to buy the Pitcher & Piano chain and it emerged last week that Oriental Restaurants Group, the City-based Chinese and Thai restaurants chain, was made an "extremely attractive" offer before it had even got round to announcing its own pounds 14m flotation.

It's easy to see why the big players are so keen to buy in not just the sites but the expertise and vision that created these chains. According to the Henley Centre, consumer spending on eating out is forecast to rise from pounds 16.2bn in 1992 to pounds 29.6bn in 2001.

Eating out is seen by an increasing number of people not as a luxury or extravagance but as a normal aspect of daily life. The pounds 20.9bn we spent this year on eating in restaurants and pubs compared with pounds 15bn spent on beer, pounds 8.1bn staying in hotels and pounds 9.6bn at the off-licence.

Against that background, it is no surprise that Whitbread generates 86 per cent of its profits from retailing and only 14 per cent from brewing. Nor that it should have snapped up so many brands that its portfolio now includes Cafe Rouge, Dome, TGI Friday's, Pizza Hut, Beefeater and Brewers Fayre.

Rank is planning a big expansion of its Hard Rock Cafe chain and now owns Tom Cobleigh. Bass is rolling out its newest bar concept All Bar One as fast as it can.

But with the market growing as fast as it is, the big players are increasingly taking the view that they cannot grow their own brands quickly enough and do not want to take the risk of pouring money into a duff brand while their competitors steal a march on them. While it is proving an expensive option to buy ready-made brands, with a proven track record the big companies are prepared to take a bit of flak from the City initially to eliminate the risk of going it alone.

That, in turn, has been behind a bonanza year for some of the already quoted chains of both pubs and restaurants as the City has played a game of spot the target. As the table shows, the gains over the past year have been breathtaking, ranging from Harry Ramsden's impressive 54 per cent rise to Pizza Express's mouthwatering 150 per cent increase.

Arguably, on price/earnings ratios in the 20s and even 30s, the market has overcooked expectations. To pay a premium to current prices, Whitbread, Bass or Rank would have to stump up prices that their shareholders would be likely to balk at. In investment as in life, the best time to leave a party is while everyone is still enjoying themselves.