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Franco Manca chairman David Page reports rents dropping as much as 30% on re-let: Franco Manca operator Fulham Shore has reported sales rose 17% to £64m in the year ended 31 March 2019. Profit before tax was £1.4m (2018: loss of £0.1m). Four new Franco Manca pizzeria were opened and one closed during the year ended 31 March 2019 in the UK. Since the year end three further Franco Manca pizzeria opened in Greenwich, Birmingham and Exeter and two further Franco Manca pizzeria are being built in Leeds and Edinburgh. On the current property situation, chairman David Page said: “Landlords are facing falling retail and restaurant demand for their sites, due in part to the continued move to internet shopping, the contraction of some large restaurant chains, and the challenging economic backdrop over the past three years. Many of these landlords and their commercial agents continue to suggest we are at the bottom of the cycle. However, we believe there is a way to go. Consequently, we feel the longer we wait for properties the better value we can achieve. Holding out for lower rents feeds through to continued low prices on our menus, which is excellent for our customers. We have sometimes seen as much as a 30% fall in rent where an existing tenant ceases trading and the landlord re-lets the property. We believe this decline will continue. This has happened only once before in my 46 years of restaurant and property experience – during the 1989-93 UK recession. I believe we are due for a longer period of rental decline this time around. Commercial agents, who have historically been aligned with institutional landlords’ interests, should realise the boot is now firmly on the other foot. These agents should start to truly represent successful tenants’ interests as that is where the power and their interest now lies.” Page added: “Much of the capital invested in the UK restaurant sector over the past five years has not been spent wisely. However, a number of restaurant businesses have succeeded and expanded over this period, The Real Greek and Franco Manca amongst them. Successful restaurant businesses continue to be those that offer consistent, delicious and reasonably priced food made with quality ingredients. These businesses are likely to be operating from a well-chosen modern estate, avoiding the demise of the old prime high street and instead favouring restored markets, destination locations and unpretentious interiors. As long as successful restaurant operators keep their menu pricing right and their financial structure stable, they will continue to succeed where some larger operators have failed. There are many disrupters in the casual dining market that are competing well with the incumbents. A good restaurant can still open in a difficult, secondary or ‘brave’ tertiary location if the offer is good enough and time is invested. Not only will the public find it but other restaurant operators will follow it and the location can grow organically into a popular destination. This is the natural evolution of a new area of restaurant excellence in a town, as opposed to an engineered environment created by a planner or a developer which sometimes misses the mark. Rising costs, such as goods purchased following the fall in the value of the pound, rent and labour will present issues if sales cannot mitigate these increases. If sales are a problem because of a lack of demand for a restaurant operator’s menu, or there is a resistance to the restaurant’s pricing policy, then that operator is in trouble. Against the background of the capital lavished on the UK restaurant sector over the last five years, we at Fulham Shore have improved Headline Ebitda in every reporting period since our admission to AIM in 2014. We are pleased to report the demand for both of our businesses continues to grow. We will continue to open new restaurants in carefully chosen locations, conscious of the property pitfalls that others have fallen into. Whilst the four new pizzeria we opened during the year contributed to our reported revenue increase, the group’s growth was primarily driven by improved trading and increased customer numbers within our existing restaurant estate. With this sound platform of continued sales growth and increasing customer numbers, the board has taken the decision to increase the group’s restaurant opening programme with a target of between eight and ten new restaurants in the financial year to March 2020. Each of these new sites will be as compact as possible, with appropriate rent levels for its location. Our mission to create delicious food at reasonable prices has been supported throughout the year by continued menu innovation delivered through the hard work and dedication of both The Real Greek and Franco Manca operating teams, who are constantly focussed on improving their menus whilst keeping prices affordable. During the period we introduced highly popular new menu items including the seasonal pizza number 7 in Franco Manca and the vegan menu in The Real Greek.” On Franco Manca, Page said: “As we predicted, the sales erosion in our London suburban branches that had been caused by opening new Franco Manca pizzeria in close proximity has reduced. During the year we opened four new Franco Manca pizzeria, in the cities of Bath and Cambridge and in London, off the Aldwych and opposite St Paul’s Cathedral. All of these new restaurants have started brightly. The two new openings in London had a negligible effect on our existing restaurants nearby. We now have 36 Central London Franco Manca locations. We have queues at peak times in many of our Central London pizzeria and in other major cities where we are located around the UK, reflecting the popularity of our sourdough pizza. As a result, this year, we will continue to search for new sites both within London and throughout the UK.” On current trading and outlook, he added: “The current financial year to March 2020 has started well in both Franco Manca and The Real Greek. Since the year end, we have opened three new Franco Manca: in Greenwich in South East London, Birmingham and Exeter, bringing our restaurant numbers to 47 Franco Manca and 16 The Real Greek. We are currently building new Franco Manca in Leeds and Edinburgh, have committed to a further Franco Manca in Manchester and are in final stages of negotiation on two new The Real Greek sites. This takes us well on the way to our target of eight to ten new restaurants by the end of the financial year, which would result in a group total of more than 68 restaurants by March 2020. The opening of our Greenwich Franco Manca in April 2019 was one of our busiest yet, serving more than 3,000 customers a week in its opening weeks. Franco Manca also took £1m net revenue in a week for the first time in early July 2019. Both our businesses are building customer numbers and they both continue to have significant growth potential. We are confident that the group will perform well this year and we look forward to further financial and operational progress.”