Private equity firm Apollo succeeding with its takeover of Restaurant Group (RTN) would represent a major turning point for the UK stock market. It would mean investors could no longer access a high street-focused casual dining chain operator on the London Stock Exchange of any scale.

Restaurant Group’s primary asset is Wagamama, a 165-strong nationwide chain offering Asian-style food. Investing in the company’s shares meant taking a view on consumer appetite for eating out and backing a brand with scope to open more sites in the UK and potentially abroad.

Remaining among UK stocks would be a mixture of pub restaurant companies which are not a pure play on the casual dining sector because a chunk of their earnings come from selling pints of beer to people who are not eating.

Mitchells & Butlers (MAB) would be the closest substitute to Restaurant Group because it owns Harvester, a family-friendly restaurant chain with the same number of sites as Wagamama, and slightly fewer number of Miller & Carter steakhouses, albeit only a few situated on the high street. What distorts the investment case is the parent company’s large pub estate.

Consumer-facing companies are popular with investors because of brand familiarity and the opportunity to personally experience their products and services. If you like going out to eat, you will have your favourite places and if their owners are on the stock market you might want to own their shares.

Restaurant operators can do incredibly well in a strong economy. Consumers paying £25 to £50 a head on food and drink can generate a decent income for the restaurant owner, particularly if the sites are busy at lunchtime and squeeze in multiple sittings per table in the evenings.

For example, Restaurant Group’s shares went up by 577% in value between January 2009 and February 2015 as the business did well – more than 11 times the return of the FTSE 100 index over the same period.

Names like Nando’s, Pizza Express, Prezzo and Gourmet Burger Kitchen are privately-owned and are inaccessible to retail investors. The Real Greek and Franco Manca-owner Fulham Shore recently left the UK market after Japan’s Toridoll bought it. Smaller chains Comptoir (COM:AIM) and Tasty (TAST:AIM), which own Comptoir Libanais and Wildwood respectively, do trade on the UK stock market and have a high-street presence but they are tiny businesses.

If Restaurant Group delists, the choice for larger eating-related listed companies will narrow to fast food joints or pubs/bars/cafes. There are options among US-listed ‘food on the go’ companies with a presence on the UK high street including McDonald’s (MCD:NYSE) and Wingstop (WING:NASDAQ), although their earnings are sourced from multiple countries so you could not buy their shares as a direct way to play UK economic strength.

UK companies relevant to the theme include UK franchise owner Domino’s Pizza (DOM) and Wetherspoon (JDW), the pubs business which sells millions of burgers each year.

While the rise of takeover food delivery platforms gives people more reason to eat at home, there will always be an appetite for a night out in a restaurant, particularly when the economy is doing well. For that reason, investors are going to have to be more creative in how they gain exposure to the sector if we bid farewell to the Wagamama owner.

‹ Previous2023-10-19Next ›