Richard ReedThe packed lunch just doesn’t cut the mustard any more, according to a new survey – and that could make for an appetising investment in the fast food trade.
Research from Mintel shows the number of people buying lunch out regularly has risen to 76% in 2017, up from 64% in 2016 – with two out of five doing so at least once a week. That’s a rise of more than a third (35%) on 2016.
And two in five (41%) Brits who have bought lunch out in the past month say they eat more takeaways than sit-down meals, rising to half of those who work full-time.
So the rumours that Pret A Manger, one of the high street’s biggest success stories, is planning an initial public offering (IPO) – albeit in the US – might be tempting, if the price is right.
Private equity stake
Pret, founded in 1986 by Julian Metcalfe and Sinclair Beecham, is currently privately owned, with private equity firm Bridgepoint holding a majority stake in the business.
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Pret A Manger is rumoured to be preparing for an IPO Photo: Wikimedia CommonsPret has nearly 450 shops in six countries, and group sales rose 15% to a new high of £776.2m in 2016, with pre-tax profits of £93.2m – an increase of 11%.
Leon, another privately-owned fast-food company, was started in 2004 by broadcaster David Dimbleby’s son Henry, John Vincent, and chef Allegra McEvedy. Figures from Companies House show turnover in 2016 was £42.1m, up an astonishing 58% on 2015, while profits also rose by a mouth-watering 66%.
While it’s probably some way off the size it would need to go public, it does show how fresh ideas and a sprinkling of entrepreneurial spice can bring home the bacon in a buoyant market.
Price not the issue
They say there’s no such thing as a free lunch, and Mintel’s research shows Brits aren’t scrimping on price when it comes to lunch. Of those who buy lunch out, less than a third look for the cheapest option during the week. And at the weekend, just one in five (22%) look for the cheapest buy.
Mintel’s senior leisure analyst Helen Fricker believes consumers are choosing to eat lunch out for a variety of reasons.
“The range of options for lunch on the high street has grown, which means those with dietary needs are far better catered to than in previous years,” she says.
“State of mind is also a key driver behind lunchtime food choice and the increased availability of healthy, mood-boosting and functional foods is tapping into this need.”
Greggs has revamped its most of its stores to a trendy new look Photo: GreggsSo how should you go about investing in a tasty takeaway firm if some of the best are still private?
Greggs, the traditional baker
Well, let’s not forget that traditional British baker Greggs, which has upped its game in recent years and taken on the young trendies with considerable panache.
As of 2016, 92% of its shops had been transformed into a new food-on-the-go format, with 145 new shops opened (offset by 79 closures), bringing the total number of high street outlets to 1,764.
Total sales in 2016 were up 7% to £894.2m, with pre-tax profits of £78.1m – a rise of 8.6%.
Not only that, by buying into a healthy plc such as Greggs, you could have your cake and eat it. Not only has the share price increased steadily, the company also pays out regular dividends.
If you had bought 1,000 Greggs shares at 459.3p on 4 January 2013, they would have cost you £4,593. At the current share price (19 October 2017) of 1275p, they would now be worth £12,750.
During that time they would have paid healthy dividends: £195 (2013); £195 (2014); £220 (2015); £286 (2016); and £310 (2017), making a total income of £1,206.
M&S and Starbucks
Marks & Spencer’s is another lunchtime favourite, and while the clothing side of the business has faltered, chief executive Steve Rowe is changing the focus towards food in search of meatier profits.
In the last financial year, the company opened 68 new food-only stores, of which 38 were franchise, taking the total to 636.
M&S Food produced revenue of £5.6bn in 2017, up 4.2% on the previous year, although that was offset by a fall in group tax profits of 10.3%. That profit figure was still a respectable £613.8m, however, producing a dividend of 18.7p per share.
For those happy to shop across the Atlantic for shares, Starbucks is another stock to whet the appetite. Total global corporate profit in 2016 was $4.2bn compared with $3.6bn in 2015, an increase of 16.7%, while the dividend per share was $0.85 in 2016 versus $0.68 in 2015.
Crowded market
However, some analysts feel you should take all the hype with a pinch of salt.
Graham Spooner, investment research analyst at The Share Centre, feels the marketplace is getting crowded.
“Looking around the high street, we’ve almost got this coffee shop mentality now,” he says.
“There’s just so much choice, and when there is that much – particularly if there is a bit of a downturn – it will put pressure on the consumer and it will become more cutthroat, and the margins will begin to creep a little.”
He accepts Pret has an “absolutely incredible business model” but is cautious about jumping into an IPO should it go public.
“When the private equity bods get out, I don’t always consider it the time for private investors to get in,” he says. “They know when growth is slowing.”
Tax issues
He also warns that Starbucks may face increasing difficulties, internationally, over the way it dodges corporation tax – among other issues.
Starbucks may face government crackdowns on tax issues Photo: Shutterstock“One or two governments are beginning to look at them more closely over tax issues, you’ve got green issues, the minimum wage in some countries. I just see some clouds on the horizon.”
However, Mr Spooner does feel Greggs might have the right ingredients as part of a balanced portfolio – as always, you should never put all your eggs in one basket.
“Greggs has been doing well,” he says. “They are a really concentrated lunchtime provider – they’ve been changing their business model a little bit over the last year or two, going slightly upmarket, and their shares are up about 30% [since June 2016].”
Food for thought, then.
