• Strategy
  • CFO Europe Magazine

Food Fighters

American restaurant chains have reigned, but some European innovators are gaining ground.

Lounging at a linen-covered table, watching the crowd reflected in the engraved mirrors at Paris’ exquisite art deco brasserie Le Boeuf sur le Toit, one could hardly feel further removed from the hectic Big Mac queues amid the formed plastic tables of “McDo’s” around the corner at 140 Champs Elysée. The famous Le Boeuf, which began trading in 1922, takes its name from a ballet that was composed at one of its tables by Darius Milhaud. A young Pablo Picasso and Maurice Chevalier, an actor and prototype French roué, attended Le Boeuf’s opening, as pianist Jean Wiéner played Gershwin, accompanied by Milhaud and Jean Cocteau on percussion.

Yet, swathed as Le Boeuf is in the Parisian culinary tradition, the brasserie these days is also part of France’s fastest-growing restaurant chains, a distinctly American concept. Groupe Flo, who’s revenue grew 12% last year to €349m, and Ebitda twice that rate to €38m, also owns Bofinger (best known for its stunning beaux arts glass ceiling), La Coupole (a Hemingway favourite in the 1920s) and more than a dozen other classic brasseries throughout France. It is trying to pull off what has, so far, proved elusive: to stay true to European cuisine values while adopting some of the strategies and techniques pioneered, to great effect, by American fast-food chains since the 1950s and scaling it internationally.

To achieve this, Groupe Flo is pursuing a fairly complex brand portfolio approach. Apart from the flagship brasseries, it has a growing list of restaurant brands covering various mid-level price brackets. These include the Bistro Romain group; the family-targeted Hippopotamus chain (its largest segment, with 2006 sales accounting for about 45% of the group’s total); the cheaper Tablapizza outlets bought last year; and this summer’s acquisition, the Maitre Kanter taverns, bought from Kronenbourg, a subsidiary of British brewer Scottish & Newcastle.

Groupe Flo’s CFO, Fabrice Malassagne, describes the company’s business concept as being “the leader [in each price category] in France and to be a platform of brands.” The Flo price points range from an average of around €18 a head at a Tablapizza through to around €30 at Hippopotamus, Bistro Romain and Maitre Kanter, and €50 at the top brasseries.

As with any chain, the central marketing idea is that the umbrella brand stands for a level of product and service quality, but with the various price points offering customers a choice. The Flo group will be pursuing the “choice” idea in a literal, geographic way this year, Malassagne says. “We intend to open new restaurants close to one another,” he explains, and by clustering different restaurant brands, “we will be able to share some of the fixed costs [as well as] the distribution costs.”

Such streamlining opportunities, combined with Flo’s accelerating growth throughout its portfolio, should improve financial performance, according to Sarah Emsellem, a stock analyst at broker Natixis, who follows the company. “[Flo] is improving its control of the restaurant-opening process, enabling it to lift margins more rapidly,” she says. “For example, the Hippopotamus restaurants opened in 2005 generated an Ebitda margin of 18.8% in the first-half of 2007, while those opened in 2006 are already generating a margin of 16.6%.” Emsellem is predicting compound annual sales growth of 15.6% through to 2009 — not including any future acquisitions — bringing it to nearly €540m, with Ebitda CAGR of 23%, to €71m. The improved profitability comes as the higher margin segments — Hippopotamus and Maitre Kanter — grow faster than the other chains.


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