At Ortus we follow leisure industry trends quite closely, however we do this almost entirely for general interest purposes. We never fall into the trap of using industry trends to second-guess how a specific business will perform.
The reason is simply that a trend-based analysis will take you from delight to despair and back again depending on what data youre reviewing.
A good example is fast food. By this were not just talking about burgers and chips. Sandwich and salad shops also fall into this category. Basically anywhere you can grab some food quickly.
Well, first there is good news for everyone: Allegra Foodservice reported that the eating out market generally increased 2.7% in the final quarter of 2014. However, there is a feeling that the healthy boys are benefiting most from this upside.
For example Leon saw a 22% like-for-like sales increase during 2014 for its healthy gourmet fast food (Nathan Pearce, www.eatoutmagazine.co.uk). Furthermore, Rick Jones, director of Calculus Capital who invested pound;2m into Chopd (the salad bar concept) feels positive about the prospects for his investment and said lsquo;Healthy eating is an increasing part of our daily lives and we all like to know where our food comes from. (http://www.calculuscapital.com/calculus-capital-invests-in-chopd/)
Throw in the plight of poor McDonalds who reported weak earnings in the fourth quarter of 2014 (revenue dropping 7.3% to $6.57bn) (www.marketwatch.com) and it paints a positive picture for healthy fast food and a negative picture for traditional fast food.
And intuitively this feels right. In the past people thought nothing of a trip to Burger King and McDonalds, however now they talk about feeling guilty afterwards.
However, as always, the devil is in the detail.
The Guardian newspaper recently cited research by the University of Cambridge which looked at the growth in places selling ready-to-eat food off the premises, including Indian and Chinese takeaways and fish and chip shops. They focused on the 797,000 people who live in Norfolk.
The figures being used were historic (1990-2008) so the 45% increase in outlets over that period should be viewed in that context. However, the key takeaway (excuse the pun) was the marked difference in growth in affluent as opposed to deprived areas. The biggest absolute increase (43%) was in the most deprived areas (as judged on the Townsend Index) and the smallest (30%) was in the affluent areas.
Therefore, a good decision on the success prospect of a Norfolk takeaway would require more detailed analysis than a glance at the upward trend.
If we switch over to coffee shops we see similar pitfalls in using a trend-based analysis. On the one hand the market is flying and Pinders recently reported sales growth of 10.7% in coffee shops, which is now a market estimated at 18,832 outlets (Allegra Strategies). Therefore, this would seem good news for all the boutique and trendy coffee shops opening up in the affluent areas of most towns. However, the fact is that the second biggest seller of cups of coffee in 2014 was McDonalds (after Costa).
So, at Ortus we treat industry trends with caution and, instead, place our faith in experience and detailed research.
For example, when we analyse a business we look at the competition in the local area in terms of quantity and type. For example, zero competition sounds good but it might be a sign of zero demand. On the other hand high competition signifies high demand so then its a case of studying the existing players and spotting the gaps.
Particularly with pubs we look at demographics, the number of benefit claimants (large numbers are not necessarily a bad thinghellip;depends on the pub) and we even count the number of nearby betting shops. Above all we look at the quality and experience of the operators along with their business plan and projections.
This sort of analysis pre-dates the age of trends and internet researchhellip;in fact its been the bedrock of sensible lending since the beginning of time. And in our view, it still works.
Attributed to Nick Stewart, Business Development Manager