Investor Chris Miller on brand building, Brexit and backing the best new talent
What is White Rabbit Fund?
It’s a venture capital fund but also a hospitality development platform. I provide money and hand holding to early stage restaurant concepts. I help them with all the boring stuff – finance, legals, leases, commercial contracts, debt raises – so they can focus on great food and experiences.
Why did you set it up?
In the tech world, you have these incubator venture capital funds that provide money and an entire support network to start-ups, but it just doesn’t happen in restaurants. You can either go to an Ernst and Young or JP Morgan, which often doesn’t make financial sense, get money from a high net-worth individual who wants to throw a few hundred grand at you to do a restaurant, or use crowdfunding, where people give you the money but no advice.
I realised the knowledge I’d built up in my financial days at Soho House was valuable to people starting restaurant groups.
The industry seems to be attracting more early stage investment. Is this a new phenomenon?
Yes. The restaurant industry was never seen as a sensible asset class. A few people like Luke Johnson and Richard Caring have done incredibly well out of it, but people have traditionally been wary of it – it’s high risk. There are much easier ways to make money than in restaurants. The failure rate is high, but if you get it right, you can do very well.
Have investment opportunities changed in the sector?
Today, there is such a wealth of opportunities to launch and try out a concept, be that street food markets or pop-ups, and to get to the early stages there’s also crowdfunding – you can have a go at it quite easily these days. In the past, funds would look at something with seven to eight sites, with £1m-plus EBITDA (earnings before interest, tax, depreciation and amortisation), before they were interested.
What do you look for in a potential business partner?
An obsession with product. Yianni [Papoutsis] from MEATliquor, fro example, can talk for two hours on how to cook a burger, Will [Bowlby, co-founder] from Kricket can speak at length about his trips across India, and the guys at Island Poke know the co-ordinates of where much of their fish comes from. I also look for people with a strong character and a genuine passion for the industry. Investment is like a marriage; you’re going to be involved in someone’s businesses for seven to 10 years so it’s important to like working with them. There have been deals on my desk where the concept has been great but I knew I was not going to get on with the person. Obviously there has to be an ability to expand, as well.
Do you have to like the product?
I wouldn’t invest in something where I didn’t like the food, but equally I don’t invest just because something is on-trend. I’m not a natural foodie, I haven’t got a great palate but I like to eat. I ate at every single street food market in London last year and at about 275 restaurants. My obsession is in growing businesses. As long as someone else is obsessed by the quality that’s fine.
How long is your involvement with partners?
There is no exact time when I’m looking to exit. The typical length is three to seven years. Island Poke is expanding very aggressively at the moment – it is constructing site three and opening number four early next year. I will work with them to grow to the target of five to 10 sites, and then there’s the option of selling to a more grown-up player such as Piper Private Equity or Graphite. But I’ll worry about that in five years.
What’s makes you think you’ve found a successful brand?
It’s a gut feel based on numbers but, ultimately, you roll the dice. You often don’t know for a year whether it has worked or not. At Island Poke, no one came through the doors for the first couple of months, no one knew what poke was. But you have to trust in the quality of your product and that when people try it they will come back.
Which is why you’re backing Madame Wong in Bloomberg Arcade?
A Wong is one of my favourite places to eat, but I thought there could be a more accessible version of it. I’d like Madame Wong to emulate what Dishoom has done with Indian food but with Chinese. Chinese is one of the most popular cuisines in the UK. I thought Andrew [Wong, the founder] would hate the idea, but he didn’t. I spent a long time trying to understand why no one has done it before. I went to Shanghai and Hong Kong and discovered that to do Chinese food properly, you need roast masters and wok masters, it is hugely technical at the very high end. So we did a lot of research to find ways to do those for an accessible price at the right level without having to hire a huge team of specialist Chinese chefs. A Wong will remain the flagship where Andrew can create his art and Madame Wong will be the naughty little sister. It will serve Chinese food that we Brits know and love, such as good-quality shredded duck and sweet-and-sour chicken but in a beautifully designed location. It will be £30 to £35 a head at dinner, less for lunch.
So it’s scaleable then?
I’m interested in delivery. Will we open five Madame Wongs a year? Probably not. But if we get it right as the flagship there is nothing stopping us creating a great delivery brand from it. Island Poke will make another great delivery brand.
What about Kricket? You got involved when it moved from Brixton to Soho...
There’s something very special about Soho. Yes it’s fucking expensive and you have to be very busy to make money there, but if it fits with the brand it really works. Kricket is very Soho. I would never take a brand like Kricket and put it in a glass box in Holborn.
But it’s opening in the new BBC TV Centre development...
It feels right. It is below offices and near active BBC studios, which will mean a good lunch trade. That Kricket will be a bit more grown up and have more all-day feel to it. It won’t be the same as in Soho. We are also looking at a site in Brixton to take the brand back home (it launched in Pop Brixton before moving to Soho). There it will be more of a drinking den. We are making sure the core ethos of the brand is at each location.
How can a very involved concept like Kricket grow?
Will is such a creative chef. We were fearful that it could not be scaled because he was at the pass every single day at the start. The challenge is how we get him away from it, but ensure the quality stays the same with quite a complicated menu. We’ve tried to make Will’s job as redundant as possible so that he’s checking the quality rather than cooking everywhere. White Rabbit employs two development chefs who help set up all the kitchens and systems. We have to take Will’s creativity and put it into an Excel spreadsheet.
Is restaurant expansion, in general terms, changing?
Unlike the tech world, scalability is very expensive. We are seeing a move away from brands opening 30 restaurants a year – those days are gone for most. These days you have to be a lot more creative in your expansion. Restaurants are going the same way as retail – a business builds a flagship store that, with staff costs and rent, won’t make a lot of money but is more of a branding exercise. You need that place, but it’s the diffusion brands that will make money.
What are the pitfalls of expansion?
It’s very easy to destroy your brand, that is part of the weakness of finance people taking over restaurants. I had it beaten out of me by Nick Jones. We had lunch a few weeks ago in Soho House and a waiter poured him a glass of Coke. He called them over and said they had to add one more ice cube and fill the glass up to a certain level. That’s a man running a £1bn company. It is that obsession with quality that some restaurant groups lack when they start focusing on the rollout rather than the customer experience.
Bloomberg and BBC are both new developments. Is this the future for nascent brands looking for a foothold?
Landlords historically based what brands they wanted on the strength of their covenant (how likely they are to pay their rent), now they want the most exciting operators on the ground floor to drag people to an area. That’s good if you only have one or two sites, but when you get to five or more it gets difficult to keep that excitement. One of the biggest challenges at the moment is staying relevant.
But with so many new developments in London alone, are they a sensible place in which to open?
Certain developments have really struggled. Nova [in Victoria] is an example of one that has been a slow start. A landlord’s main interest is filling the office space above them and that can be a challenge. Bloomberg managed to get a great group of brands together but it has also filled the offices above with its own headquarters so, worse-case scenario, there will be a decent lunch trade. If I was a large corporation trying to fill these big offices, I’d be nervous – a lot of people are retrenching and delaying decisions.
What’s the current trading picture?
The market has come off a lot in the past six months. There has been a palpable change. When looking for sites it’s a wild west out there. People are bidding up rents, which is a symptom of too much money in the system. A lot of people are throwing money at ridiculous valuations and paying such high rents they will never make money with some of the deals. For some London sites with rents of £500,000 and million-pound premiums, some people can only be money laundering.
And Brexit isn’t helping...
Brexit is a fucking disaster. Exchange rates have changed dramatically and, rightly or wrongly, every supplier has a great excuse to say everything has gone up by 15%. At Island Poke, our supplier tried to raise fish prices by 25%. We were under pressure to go for lower quality fish or change suppliers but we had to absorb it in the end. A double fish portion went up by 50p to £3.50 though – we had to take a hit otherwise it wasn’t worth our while.
What does 2018 hold?
There will be a fallout, and it will come in March, although you won’t hear about it for a couple of months afterwards. The first quarter’s rent is due in March and it follows the big Christmas trading period so businesses get a huge VAT bill in the first part of the year. If it’s gone quiet early on it could be a disaster. That said, a positive side is that in times like these is there’s a flight to quality.
What advice would you give to would-be restaurateurs in this economic climate?
Get someone with grey hair on your board to look at the deals out there. Also, when opening a restaurant, it is always sensible to have a decent amount of debt there. And choose
your location wisely. A bad location can destroy a brand.
What are the biggest mistakes they should avoid?
A failure to understand costs. There are all manner of pre-opening costs that first-time restaurateurs aren’t aware of. Launching a restaurant can often cost almost double what people first thought it would. A lot of early stage guys don’t know about all the surprises such as stamp duty, legal costs, and creating a team before launch – all this has to be built into a plan. You need to be able to lose money for a good few months.
It’s a number game...
I was approached by someone looking to open a dumpling restaurant with a massive rent. He’d not done the maths on how many dumplings he’d have to make, how many staff would be required to make them and how many hours they would have to work. It often never adds up. A street food trader with a great brand can try and raise £400,000 on Crowdcube saying they’ve been offered a site and this is the rent the agent wants, but has no idea what it really needs to do to cover it – 50% of this game is property, finding the right deal on a rent that adds up.
And finally, what are the brands you think have perfected their growth?
Dishoom has nailed it. And Franco Manca is still the poster child for the perfect roll-out business.
