U.K. investors embrace buffet conceptsU.K. investors embrace buffet concepts

Until recently, the word “buffet” conjured up for U.K. consumers insalubrious images of vacationers on cruises, in hotels and at casinos gorging themselves.

Unlike for you, our friends across the pond, the buffet was never really a well-respected concept in its own right on the U.K. high street. For town-center restaurants here, the buffet had been the special offer on occasional nights or a sure sign of desperation akin to an “everything must go” sign being hoisted above the front door.

It is not that it is a new or unknown concept. Indeed, I can remember being taken to buffets as a kid, myself — and I am old enough for that memory to include Vera Lynn playing on the radio in the background.

But over the past 10 to 15 years, the buffet seemingly has become more acceptable — most notably in real estate. When faced with large, vacant restaurant or bar locations, the recent economic climate had resulted in a dearth of occupiers to lease to. The last throw of the dice for landlords would typically have been a buffet operator, with questionable covenants and uncertain life expectancy. But as big-box retailers have fallen victim to the recession, landlords have found few other takers than the all-you-can-eat operators.

And as consumers have warmed to the concept — not least of all due to the time-price value effect — so too have private equity and bank financiers.

And no investor is more highly regarded in our sector here in the United Kingdom than former Pizza Express chairman Luke Johnson. Fresh from the sale of Giraffe restaurants to Tesco for about $75 million, Johnson’s Risk Capital Partners is now understood to be investing in the Red Hot World Buffet chain, which has been given a valuation of more than $45 million.

But what makes the buffet category suddenly attractive to more “institutional” investors? Red Hot is a template for how buffets have evolved. It offers value for money, mixing freshness with experience in an easy and quick self-service environment. For a fixed fee diners can fill their plates with foods from countries including China, Mexico, India, Italy and the United States. For Johnson the added attraction will be opportunities in delivery, carryout, franchising, smaller formats and branding.

Having previously established and exited a highly successful Indian brand, Helen and  her husband Parmjit Dhaliwal launched the Red Hot brand in 2004. The couple has ambitions to grow it to 25 sites in the United Kingdom by 2015 and believes that the U.K. can accommodate 80 Red Hot units eventually — with backing.

The business is the stellar performer in the all-you-can-eat sector, contributing greatly to the improvement in the sector’s image. But the market generally has become more sophisticated and competitive as consumers watch their pennies. 

Fans have no doubt that the sector will not fall away once the economy improves and consumers look to trade up. Helen Dhaliwal recently put it, “You only have to look around to see who’s copying us to realize that this sort of thing is here to stay.”

And it is a highly capital-intensive venture these days. Gone are the times when all-you-can-eat meant a couple of thousand square feet with a table of hot plates.

Red Hot served over 80,000 people during the first 10 weeks of trading at its new Nottingham restaurant, which encompasses 27,000 square feet and cost over $3 million to create. Whereas previously, buffet operators could not offer a rent high enough to convince landlords to lease to them, real estate owners are now banging on buffet chains’ doors to offer sites — triggering a desire to move to the highly competitive London market later this year.

Interestingly, the Dhaliwals have been working with adviser BDO for two years to find an investor to bankroll their expansion plans for the seven-strong, $45 million business. So why now the competition from investors? Johnson is rumored to be beating three other parties to the acquisition.

It is a sign of the times that the leisure sector generally is commanding more attention from investors than at any time in the past five years. Having waited for their moment and maneuvered into position, experienced investors have returned as the U.K.’s dining sector gathers vibrancy, in direct contrast to the retail sector. Over the last month alone, M&A and private equity talk in the leisure sector has returned to pre-Lehman levels.

The attraction is the strength and growth prospects of the U.K. restaurant sector, with new casual concepts and established brands all performing impressively.

Experienced investors with real understanding of the sector — such as Johnson himself and the likes of Oak Hill Capital, Piper Jaffray and Isis — are able to mitigate the risks of early-stage investment to fuel growth and realize end value.

With few other homes for their funds, it might not just be this buffet-operator that is red hot to investors.

David Coffer is chairman of London-based The Coffer Group, a 40-year-old consulting firm specializing in the leisure sector and comprising Davis Coffer Lyons, Coffer Corporate Leisure, Coffer Hotels and Coffer Leisure Investment Advisory.