The ‘Naked Chef’ Jamie Oliver has seen his second restaurant group go down in flames with about 1,000 jobs lost. For Alastair Barlow, the sad collapse offers four key lessons for interested observers.
Jamie Oliver shot to fame about 20 years ago and subsequently had a string of successful books, TV shows and other licensing deals. His personal fortune was estimated at £150m in 2017.
But while he has made a vast amount of money from his successes, he’s also had his fair share of failures too, admitting that “40% of his business ventures were failures”. In recent years, he’s also closed Recipease (chain of cookery shops), his Union Jack’s restaurants and Jamie’s (a food magazine).
So, what went wrong? Here are some key points from the collapse of Jamie’s Italian:
The first Jamie’s Italian was opened in Oxford in 2008.
The group enjoyed significant growth which started slowing in 2013.
Despite continued revenue growth, absolute profits started reducing from 2013.
Rapid expansion took it to a peak of 42 restaurants in 2015.
Six restaurants were closed in 2017. The restaurant chain entered into a CVA in February 2018 and closed a further 12 restaurants.
On 21 May 2019, Jamie’s Italian Limited appointed KPMG as administrators for the UK-based restaurant business.
Since appointment, 22 restaurants have been closed and 3 remain open in the short term.
While Oliver had put in more money and the group was seeking additional investment, ultimately, it was too late and likely a combination of market conditions, a lack of staying relevant to consumer trends and, potentially, uncontrolled expansion were to blame.
There are a few lessons to be learnt from this latest high-street administration.
1. Focus on what you are good at
First and foremost, Jamie Oliver is a brand. He has multiple companies in his overall ‘empire’ which broadly span media, licensing and restaurants. His brand is best known for his TV shows and countless books, both of which are core to what he’s always done and are centred around him, where he is in control of the content and the quality.
A natural extension of a personal brand is product endorsements, such as Tefal and Tesco (previously Sainsbury’s), all of which are huge organisations where their management team’s experiences presumably far outweigh his companies’ experience i.e. he can rely on them getting it right.
In pursuit of growth he’s diversified away from what he’s best at. Moving from one industry to another is always challenging (being a chef is not the same as running a restaurant) and especially in an industry that is capital intensive, less agile (to fluctuating market conditions) and where quality control is diluted through scaling.
Interestingly, Jamie’s Italian group also includes the licensing arm of Jamie’s Italian. The international licensing arm, Jamie’s Italian International still appears to be highly profitable (although most recent figures are only 2017) with profits of £2.2m on £4.5m of revenues and a healthy and balance sheet (cash ratio of 5.7).
Lending his name to other relevant products means Jamie can focus on what he’s good at and allow them to focus on what they are good at too. Don’t lose focus on your strengths and be very careful if you do transition into different sectors.
2. Strategic decisions, governance and control
The restaurant group experienced rapid expansion from its first restaurant in 2008 to a staggering 42 just seven years later. Any business that grows that quickly is bound to have infrastructure and governance challenges.
Add to that the operational challenges that come with localising or ‘franchising’ product quality, control and maintaining high-quality customer service matching the Jamie’s Italian price point.
It could also be argued the expansion was at the expense of the right locations and in a market that just couldn’t cope with increasing competition. Other private equity backed restaurant chains had the same appetite for aggressive growth and the market became saturated.
Did Jamie’s Italian have the right strategy? Hindsight is a wonderful thing in ever-changing market conditions. Although, a good strategy and strong governance stress-tests such assumptions.
Overall, with relatively high prices, decreasing quality and second-tier locations, it was not a recipe for sustained success.
3. Know, listen to and evolve with your customers in changing market conditions
The first Jamie’s Italian opened to impressive reviews and queues around the corner. The vision for the restaurants was to disrupt mid-market dining in the UK high-street “with great value and much higher quality ingredients, best-in-class animal welfare standards and an amazing team who shared my passion for great food and service”, which they did. To begin with, at least.
However, in search of growth they took their eye of their core customer market. Bad reviews and concerns over the quality of ingredients increased at many restaurants. They were also involved in a meat recall by supplier Russell Hume, which the Food Standards Agency found was "unable to demonstrate compliance with food hygiene rules".
Consumer preferences changed amid the rise of delivery services such as Deliveroo and JustEat, which could be seen as a huge opportunity to increase sales beyond the covers a restaurant can occupy.
However, when you’re selling a relatively highly-priced experience, that’s harder to match with ‘take-away’ food outside the ‘luxury’ of the restaurant environment. They also had tie-ins with voucher schemes which attracted bargain hunters and devalued the overall brand.
Listen to feedback from your customers, after all, that’s who is you are selling to.
4. Management information
In their financial statements, Jamie’s Italian cites the following as their key performance indicators:
Product cost reports and margins compared to budgets
Labour costs compared to budgets
Sales reports compared to budgets
Monthly management accounts
12 months rolling cashflows
While they clearly reviewed the most profitable restaurants; after all they identified and closed six underperforming locations in 2017 and a further 12 in 2018. But I always question how deep a company goes to understand performance and bring in other non-financial information to understand not just the what, but the why?
I have no insight as to what management information they actually used in Jamie’s Italian but there would have been an absolute wealth of data available to garner insight: from internal EPOS data by day of week, time of day, dish by dish and by location, external footfall, average spend per head (split by food and beverage), number of covers, cover duration, customer survey feedback, TripAdvisor ratings by location and so much more, and all benchmarkable across their portfolio. Even mining the data from their EPOS system would have given so much insight to take action on.
Having this information real-time means actionable decisions can be significantly more timely, leading to management interventions, potentially prior to falling into administration. I wonder how much of this was used. How well are you doing this in your business?
It’s another truly sad story for a British brand but also and much more importantly for the staff involved. It’s the second time one of his restaurant groups has gone into administration so perhaps Jamie should consider keeping his focus on what he does best; writing books, appearing on TV and licensing his name.
If you plan on diversifying, think very carefully about the market, your advisors and what information you need for sustained success.
If you want to know more about better control & governance, better management information or what I mean about ‘not just the what, but the why’ then get in touch or check out my Accountex talk here.
About Alastair Barlow
I am one of the founding partners of flinder. flinder provides accounting services and richmanagement information for growing businesses. As a founding partner, we probably share someof the real life pains of setting up a business with entrepreneurs and so are well placed to advise youon the wider picture than just finance.