Consumer Sector Comment May 2016

Consumer sector comment – green is good

Despite the fact that fast food continues to dominate, times are changing and healthy food is very much on the rise. Consumers are becoming more health conscious and since the introduction of calories and fat content on everything from a Starbucks coffee to a Pret sandwich, the rate of people eating fast food has declined. Double Whoppers, Big Macs, and footlong subs are definitely facing major competition from an increasing number of healthy, fast-casual outlets which have seen strong growth in the last few years.

Healthy fast food chain Leon is just one of a number of these. The company has recently revealed it plans to sell a stake to outside investors as it gears up for major European and US expansion, taking it beyond the UK for the first time. A year of strong sales saw significant growth with stores numbers increasing by 12 to reach 33. The company, which launched its first store in 2004, will open its first Scottish store in July this year, in Glasgow.

Sushi chain Itsu, which was launched by Pret A Manger co-founder Julian Metcalfe in 1997, is also expected to expand internationally over the next couple of years. The company, which operates 60 Asian inspired fast-casual shops, received €52m in funding from HSBC in October 2015, following strong growth in both turnover and EBITDA.

It’s therefore no surprise that the market continues to be attractive to corporates and investors alike. Earlier this month, Costa Coffee and Premier Inn owner, Whitbread, acquired a 49% stake in upmarket London food chain Pure, the grab-and-go store specialising in fresh, natural and healthy meals. Whitbread, who has the option to acquire the remaining 51% in the next 5 years, said that the deal enables them to “become part of a business that specialises in the exciting growth market for natural, healthy takeaway food and drink.”

Furthermore, at the end of April, LDC, the UK-based mid-market private equity firm, also entered the space with the purchase of salad bar operator Vital Ingredient. LDC invested over €10.5m into the business, while Santander provided further funding to help the business double in size to 35 outlets over the next three years. Vital has already doubled its turnover in the last three years and now operates 17 locations across London.

LDC is just another in a long line of private equity firms that have been investing in the healthy eating market for years:

  • Mayfair Equity Partners backed the €106m management buy-out of Japanese sushi chain YO! Sushi in November 2015. The company serves over 7 million customers a year via 91 restaurants worldwide; 75 in the UK, 4 in the US, and 12 franchised restaurants in international airports and the Gulf.
  • In May 2014, Bain Capital, the US private equity firm, spent €135m on the purchase of The Retail Zoo, an Australia-based quick-service restaurant franchisor. The company operates four brands; Boost Juice Bars, Salsa’s, Cibo Expresso and Hatch Chicken Shop. At the time of the acquisition, Retail Zoo had 294 stores and now has over 400 worldwide.
  • Sweden-based private equity firm Valedo Partners acquired Joe & the Juice, the Denmark-based high street juice bar operator, in December 2013. At the point of acquisition, Joe had 50 juice bars across Denmark, Germany, Iceland, Norway, Sweden and the UK. The company now operates 136 bars in further countries including France, Hong Kong, Korea, Singapore, Switzerland, and the US.
  • UK-based mid-market private equity firm Kings Park Capital acquired Fuel, the operator of juice and smoothie bars, in December 2012. At the point of acquisition the company had 12 outlets. The chain now operates 33 outlets in shopping centres across England, Scotland and Wales with three more planned openings coming soon.
  • US investment firm, The Carlyle Group backed the management buy-out of health food retailer Nature Delivered, trading as Graze, in November 2012. The healthy snack box company, launched in 2008, has since undergone massive expansion, including the move from online only to a roll-out in retailers including Boots, WHSmith, Waitrose, Booths, Tesco and Asda.

At Clearwater International we expect to see a continuation in the rise of healthy restaurant chains over the next year.

Selected UK consumer deals – cross border dominance

Prestige Personal Care, subsidiary of Prestige Brands Holdings, the US-based marketer and distributor of over the counter healthcare, personal care and household products, acquired HMC Health & Beauty, the UK manufacturer of contract brand / private label personal care products and toiletries.

US technology start up EVA Automation, purchased well-known brand Bowers and Wilkins, the UK-based manufacturer of loudspeakers and home theatre speakers, from Caledonia Investments Plc, Sofina SA, and Joe Atkins, for a consideration of €158m.

Through its wholly owned subsidiary Orkla House Care Norge, Orkla ASA, the Norwegian listed branded consumer goods, aluminium solutions and investment company, acquired L.G. Harris & Co, the UK supplier of DIY painting tools, for a consideration of €71m.

UK-based online marketplace for fashion, luxury goods and beauty products, Farfetch, received €95m in a funding round from Eurazeo SA, the listed France-based private equity firm, Temasek Holdings Pte Ltd, the Singapore-based firm owned by the government of Singapore; and IDG Capital Partners, the China-based venture capital firm.

Premium UK chocolate brand Elizabeth Shaw was acquired by Polish confectionary producer and distributor Colian Holdings SA, for approx. €3m.

Leading international venture capital company 3i sold its stake in Mayborn Group, owner of Tommee Tippee®, the number one feeding brand in the UK and Australia, to Shanghai Jahwa (Group) Co., Ltd, the parent company of leading Chinese consumer products organisation, Jahwa United Co. Ltd.