AlixPartners to restructure Prezzo while Carluccio's hires KPMG
Consultants from AlixPartners and KPMG have been tapped by two ailing members of the UK casual dining scene. Prezzo has confirmed Alix Partners will oversee its Company Voluntary Arrangement, while fellow Italian restaurant chain Carluccio’s has brought in KPMG to advise on its options, amid sluggish sales.
Last year, analysis revealed that the number of stores closing in the UK had fallen to 14 a day – the lowest level since before 2010, prompting optimism among the retail sector for the New Year. However, the start of 2018 has seen UK high streets stung by several high-profile liquidations. In February, Toys R Us and Maplin both filed for administration within a matter of hours of one another, inevitably drawing comparisons with the retail crash of 2008/9.
Indeed, the conditions which led to the credit crunch seem to have been replicated to an extent, as stagnating wages have led to spiraling consumer debt, as lending has been used as a crutch to boost consumer spending power for some time. On top of this, the erratic value of the Pound has sparked fears that post-Brexit Britain could be prone to heavy inflation. While a number of reports have recently suggested that these factors will not see a tightening of belts over coming months, poor sales growth seems to have hit a number of indebted firms, while the effects have not only been confined to the retail sector.
The food and drink sector in the UK has also taken a severe dent – despite a report from Deloitte last year indicating a growing number of the public intended to up their spending on eating out. 70% of shoppers meanwhile told researchers at RSM that they would continue to frequent bricks-and-mortar stores to eat out, rather than order in, suggesting food and drink outlets were to be the variety of stores least hard hit by digital disruption – which took a large share of the blame for the collapse of Toys R Us and Maplin.
In spite of this speculation, however, late 2017 and early 2018 have seen a growing number of dining chains floundering, amid poor sales figures. Notably this saw both gourmet burger store Byron and TV chef Jamie Oliver’s Jamie’s Italian chain enter into Company Voluntary Arrangements (CVAs), in a bid to secure their futures. In the case of Byron, this is likely to lead to 15-20 closures out of 67 sites, while Jamie Oliver has announced 12 Jamie’s Italian closures in 2018, on top of seven closed last year, leaving the chain with 25 surviving locations.
Prezzo & Alix Partners
Following this alarming trend, which threatens thousands of jobs across the UK, two more well-known brands have found themselves in similar trouble. Prezzo has become the latest casual dining group to enter a CVA, which will be handled by Alix Partners, and while fellow Italian restaurant Carluccio’s has officially denied its intent to restructure, the group’s panicked hiring of KPMG to explore the chain’s “options” has seen many speculating otherwise.
Although CVAs are an insolvency procedure, they enable companies to stave off administration by gaining approval from landlords to take back loss-making sites, and accept a trim on rent for marginal sites. Prezzo is expected to close as many as 100 of its 300 outlets as part its restructuring, putting up a third of its 4,500 strong workforce under threat. TPG Capital, Prezzo’s US private equity backer, is tipped to axe 1,500 jobs across the UK, after documents revealed the business has racked up debts of £220 million to banks and suppliers.
Prezzo, which was founded in London in 2000 by the Kaye family and later floated, was taken private by TPG in January 2015 in a deal valuing the business at £304 million. After the buyout, the group expanded from about 250 restaurants to 300, revamped its Prezzo brand and launched a third brand, Mexico. In October, there were reports that TPG was grooming the loss-making business for a possible sale, with analysts tipping the Casual Dining Group, the private equity-backed owner of Bella Italia, Las Iguanas and Café Rouge, as a potential suitor. With no such progress on that front, however, the proposed Prezzo closures are now understood to see the overstretched chain exit all 33 of its Chimichanga Tex-Mex restaurants, and three eateries which opened recently under the fledgling Mexico name.
AlixPartners, the group overseeing the process, is a consulting firm which specialises in restructuring services. Recently this saw the organisation tapped by Poundland owner, Steinhoff, with the beleaguered retail holdings group asking AlixPartners “to assist on liquidity management and operational measures”, as the South African group attempted to deal with major financial difficulties.
Carluccio’s & KPMG
Carluccio’s, the Italian restaurant chain co-founded by Antonio Carluccio, has also struggled to make ends meet in recent months. The chain has 102 outlets in the UK as well as locations in Turkey and the United Arab Emirates, with its principle backer being the Dubai-based Landmark Group, however it has been slow to improve its poorer sites, while its efforts to return to firmer footing have been hamstrung by a period of management change. At the turn of the year, this saw Neil Wickers, the group’s CEO, step down after three years in the top job. He was replaced by Mark Jones, a former chief executive of Goals Soccer Centres, who previously led Pizza Hut’s UK business.
The chain’s most recent accounts from last June revealed that, while revenue climbed 2.7% to £140 million for the year leading up to September 25th 2016, its pre-tax profits took a catastrophic tumble from £5.2 million to £982,000. While growing labour costs in the food and drinks sector are often cited for such plummets in profitability, this particular fall was actually largely due to exceptional costs related to impairment charges for assets of £4 million. Carluccio’s has since declared itself “principally debt free”, making it able to offset softer trading conditions, the company closed its two restaurants in the United States, in the same month its fall in profits was unveiled.
Now it has emerged Carluccio’s is working with KPMG to look into options to help the chain. While the hiring of a consulting firm in such a context is rarely a sign of good corporate health, the chain waved of claims that it would soon enter its own CVA, stating, “there are currently no plans to restructure.”
KPMG has not been a prominent name in the world large-scale corporate recoveries of late, due to the firm’s role as internal auditor at collapsed outsourcer Carillion. Most recently, the Big Four firm was appointed for the high-profile liquidation of UK airline Monarch. After the airline became the largest ever in Britain to enter administration, KPMG and the Civil Aviation Authority (CAA) were forced to arrange emergency flights to the UK for an estimated 110,000 customers overseas, while a further 750,000 still on UK soil were informed that their bookings have been cancelled – in some cases, just minutes before they were due to board planes.
