In 15 years, Bristol-based café/restaurant/bar group Loungers has quietly grown to more than 100 suburban sites across the UK. Co-founder Alex Reilley and chief executive Nick Collins discuss their ambitious expansion plans and the casual dining market with Neil Gerrard
You have remarked in the past that part of Loungers' success was that customers didn't know their local Lounge or Cosy Club was part of a much bigger business. Now that you have hit 100 sites is that still the case?
Nick Collins (NC):
You have avoided London and surprised some people in the industry by opening in suburban locations that other operators may not have considered desirable and made them work. Is it fair to say that?
Alex Reilley (AR): Yes. If you look at the top 10 best-performing Lounge sites in our business you'd just be amazed, slightly shocked and puzzled. You just wouldn't see any correlation between any of them. It's quite exciting.
NC: I think when a lot of people talk about us and compare us with other casual dining brands that are rolling out across the country, we are so different in terms of the types of locations that we operate in. Here [in Staines] we are trading alongside loads of the big brands - you've got Ask, Turtle Bay, Limeyard GBK, Wagamama. But you typically find a Lounge site up against a Costa and a JD Wetherspoon and a PizzaExpress, and those brands more closely correlate to the potential scale of the Lounge brand.
Each Lounge site has a name ending in an 'o'. Are you running out of ideas yet?
AR: We did have this debate as to whether we should change the final letter when we get to 100 Lounges.
NC: It gives people something to talk about. Sometimes they are relevant and sometimes they are completely random words we have thought up. We have Renato Lounge in Mere Green, just outside Birmingham. It's a relatively small place, but we found out that Renée and Renato, who had a hit in the 1980s with 'Save Your Love', actually came from Mere Green. So we thought it would be great to call it Renato Lounge. Renée came to the opening.
Renato has unfortunately passed away, but his family came and we have a great big mural of Renée and Renato on the back bar. Anything we can do to recognise the locality of a site and give a nod to its history, we will do.
Where are your most successful sites? Have you got a standout site that you can say is the best performer of all?
AR: Keynsham is our third-best-performing Lounge site. It's a relatively small town of 15,000 people between Bristol and Bath. It is just not the kind of place where you'd imagine there would be a Lounge that is top three in the UK. The nice thing for us as a business is that we are more often than not completely surprised ourselves when certain sites just charge off like a train and never look back.
NC: One thing we have seen a lot, particularly over the past three or four years, is that our sites have got different maturity profiles. Some sites open and are really busy. We call it the UFO effect - no one in the local community has seen anything like it and everyone visits us. Then some realise it's not for them and we lose a few, and we settle down to a mature level of trade. Other sites open, they are a bit quieter and it takes us one, two or three years to build up to a higher level of business.
You haven't revealed your top locationâ¦
AR: That's a closely guarded secret!
NC: I'll give you a clue - it ends in 'o'.
The other recent change is Lion Capital coming on board at the end of last year as your new private equity partner, buying a majority stake in a business it valued at £137m. Has the way in which the business runs or how it feels changed since Piper, your previous backer, exited?
NC: Not at all, really. Piper invested for almost five years and right from day one, there was an appropriate focus on exit. Alex and I spent the best part of two to three years getting to know the likely private equity houses that would be involved when it came to exit, so we had a good feel for who we wanted to invest.
The relationship is really important and, of all the people that we met, we clearly got on the best with Lion Capital. Equally, it is important that we get challenged on a regular basis; we get asked tough questions and Lion does that very well.
What sort of questions do they ask?
NC: They challenge us - not in terms of what we are doing now, but in terms of what we are going to be doing and the decisions we are making now that will affect us in the future.
What is it going to look like in 50 sites' time or 100 sites' time? What decisions do we need to make now to allow us to get there and achieve all the success that we want? So what do you think the business might look like in 10 years' time?
NC: I look at it in two ways. One is the operational scale and how we achieve that: how does the business need to function when it is twice the size and what do the roles look like? What resource do we need? More importantly, we need to look at what is special about the business now and how we protect that when we double in size in the next five years. That's the real challenge. If you look at what makes the business special, it's the people culture and our ability to work really well in communities. We need to think about how we protect that as we get bigger.
It looks as if consumer spending is being squeezed slightly, with the potential for tougher economic times ahead. Are you seeing that on the ground in any of your sites as yet?
NC: Not at all.
AR: We are an unusual business in the sense that what is apparently happening across the sector often is almost the opposite in our business. Probably less so in the Cosy Clubs. I think you could say they are much more of a casual dining, drinking experience, so you can see some correlation between how the casual dining sector is performing as a whole. We are in a very good place from a like- for-like sales perspective and have been for 36 months. A lot of the London brands, as they got a bit of confidence in their offer, came charging out of London and started blitzing the provinces. You got to the stage, looking at some of those locations, where you think there just isn't the demand to warrant the supply.
What generally happens then is you have winners and losers. We work really hard to ensure that, where we are in a competitive situation, we never look second best to other brands.
When we spoke in 2012, you said you thought a lot about the recession and viewed it as an opportunity. If another one came along now, would you view it the same way?
AR: We are seeing elements of what happened in the recession in 2009/10, not necessarily in the way customers are behaving and the way they are spending - although obviously there is a lot of noise in the sector about it.
What we are beginning to see are property opportunities definitely back on the table. We can see those brands that rolled out in the provinces reining themselves back in a bit and disposing of sites. We will probably seize the opportunities that present themselves. You signed a letter at the end of last year, asking the government to address business rates, VAT and living wage issues.
Has much been done to alleviate your concerns?
NC: I think everyone has recognised that something needs to be done about the business rates system, but that hasn't translated into anything.
AR: The big frustration for me -and I was having a rant to a taxi driver about it this morning - is the government's aspirations around controlling net migration. I can understand why they want to control the number of people coming into the UK, but when they bleat on about how we want the doctors and the nurses and the surgeons and the scientists. The economy has, for a long time now, been propped up growth-wise by the service sector, and what has happened in our industry is a large part of the reason why the economy has, by and large, been reasonably steady and successful.
The reality is that we need people. We need people who can make coffee, who can mix cocktails and who can prepare food. We are all under pressure with recruitment.
Unfortunately, our industry as a whole is just not taken seriously enough by government. The only way that is ever going to hit home is when they can't get a latte because there is nobody to serve it to them
What's the workforce make-up at Loungers?
AR: We actually have a reasonably low percentage of non-UK resident workers compared with lots of other businesses, which surprises me, because we thought anecdotally that we had a larger percentage than we actually have. It is 15% non-UK workers and 12% of our staff are from the EU.
What are your ambitions for the scale and size of the business you want to be?
NC: We are looking at 400-plus, but a timescale is not something we talk about much, to be honest. We have rolled out 20 sites a year for the past couple of years. We will probably see a few more than that this year - we see 25 as being very achievable, and that won't disrupt us in any way. The most important thing is not opening sites at the expense of anything else in the business; in particular the customer experience or the people who work for us.
Could we accelerate that beyond 25 in the future? Possibly. But like-for-like EBITDA growth is much more important than the number of sites we can shout about.
Alex Reilley co-founded Loungers in 2002, along with Jake Bishop and Dave Reid. is career started in Case restaurant in Leicester as a student. Such was his enthusiasm for hospitality that he dropped out of university to get more serious about the profession.
In the mid-1990s, he went to work for BYO Restaurants in Bristol before becoming operations manager for Glass Boat Co/Byzantium Restaurants.
In 2002, while still working in his full-time job, Reilley got together with Bishop and Reid to buy a small site in Bristol that became the first Lounge, borrowing from family, credit cards and a remortgage on a house to fund it. From there, the business has grown rapidly over 15 years to in excess of 100 sites, winning Reilley the 2014 Pub and Bar Award at the Cateys.
Collins was finance director at the Capital Pub Company for three years before joining Loungers as finance director in 2012 and working his way up to chief executive. Prior to that, he owned and ran a sandwich shop business in the City called Fuzzy's Grub, which grew to eight sites before it was sold in 2008. He is an accountant with a passion for the hospitality sector and the operational side of the business.
Loungers by numbers
Annual turnover £48m (year to April 2015)
Pre-tax profit £1.7m (year to April 2015)
Chief executive Nick Collins
Executive vice-chairman Alex Reilley
Group commercial director Jake Bishop (co-founder)
Loungers managing director Justin Carter
Cosy Club managing director Amber Wood
Cosy Club operations director Paul Alexander
Average gross weekly turnover per site From £16,000-£17,000 to £45,000-£50,000
Lounge sites 84, plus three to open soon
Cosy Club sites 19, plus two to open soon
Typical Lounge size 3,000-3,500 sq ft
Typical Cosy Club size 4,500-5,500 sq ft
Typical Lounge launch cost £500,000
Typical Cosy Club launch cost £800,000