Where the Smart Money is Going
In our recent piece, Opportunity in Adversity and the Flight to Quality, we examined how a challenging backdrop has reshaped M&A and investment activity across the UK leisure and hospitality sectors, with capital allocation becoming more selective and increasingly focused on best-in-class businesses. Now, we’ll look more closely at where investors and strategic buyers are concentrating their attention – the segments that are attracting interest in today’s highly disciplined deal-doing environment.
QSR: The Defensive Growth Play
QSR continues to solicit strong investor interest. Affordable price points, operational efficiency, low labour cost models, tech-enabled, delivery integration and scalability make the sector particularly attractive in a tougher consumer environment. Investors are especially drawn to high growth, challenger brands with clear identity, cult-like customer followings and ‘easy to wrap your head round’ rollout potential. There’s also a growing view that QSR is increasingly taking share from casual dining. Consumers may be spending less per visit, but they’re still enjoying the eating out experience. The brands cutting through are the ones doing something different. Farmer J. The Salad Project. Wingstop. GDK. SushiDog. Better product. Better experience. Better connection with the consumer.
Pubs with Rooms: Asset Backed and Food Led
Pubs with rooms – whether they call themselves coaching inns, boutique hotels or gastro pubs – continue to attract attention because their business model combines several attractive characteristics in one format. Food, drink, accommodation, and experience all sit under one roof, creating multiple revenue streams and better site-level economics. The addition of freehold property adds another layer of appeal for many investors; with well-run, destination-led estates drawing attention from both private equity and strategic buyers. Brand is less critical here; reputation, customer discovery, guest experience and online reviews matter far more. And while the format is not new, its longevity is part of the attraction – this is a model that has proven its resilience since the days of Charles I and Oliver Cromwell.
Experiential Leisure: Consumers Still Want to Go Out and Play
Have we reached peak competitive socialising? Maybe. Maybe not. What’s clear is that people still want experiences. They want reasons to leave the house, spend time with friends and create memorable moments. That continues to make experiential leisure one of the most interesting parts of the consumer landscape. The businesses attracting attention aren’t just highly creative concepts; they’re formats that can be executed consistently and profitably. The strongest operators tend to have meaningful barriers to entry, whether that’s proprietary technology, unique IP, supply chain advantages, multi-purpose venues or simply exceptional hospitality. Most importantly, they create reasons for customers to come back. Excitement might drive the first visit, but repeatability is fundamental and it’s what builds an investable business.
Pizza Back on the Menu
Our friends at Juniper Consulting recently published an excellent piece on the rise of next generation Italian formats. If there is a pocket of casual dining that is seeing a resurgence, this is it. They say it better than we ever could, check out their article here.
“Bakery is the new coffee shop”
Stephen Grocutt, founder of Cornish Bakery (shameless podcast plug here), described bakery as “the new coffee shop” and it’s a phrase that’s stuck with us. The commoditisation of the americano and de skilling of the barista means that serving great coffee is no longer the preserve of the specialists. Those operators that can combine excellent coffee with cracking food, value for money and community, are taking share from the coffee majors and redefining the UK’s high streets. The challenges in this category are primarily operational leverage (smaller sites delivering lower Average Weekly Sales means optimising labour can be challenging) and competition, but the standout operators have a huge amount of white space to go for and dated rivals to outshine.
Franchise Platforms: Quietly Becoming an Investment Theme
One of the more interesting themes in the market is the growing investor appetite for franchise platforms. Investors like the combination of:
- Established brands with proven customer demand
- Marketing support
- Well-developed operating playbooks
- Product development and supply chain infrastructure
Well capitalised franchise operators with disciplined infrastructure and sophisticated management teams are becoming highly investable platforms in their own right – sometimes even evolving into brand acquirers in their own right, as seen with Karali Group. In a market where predictability and operational execution matter more than ever, the appeal is clear. The same logic applies to brand owners with considerable franchise potential. Look at GDK, a business that is revolutionising the kebab category, it demonstrates how a strong value for money, franchised proposition can scale rapidly – now approaching 200 locations following investment from True Capital.
This Is a Market for Hardcore Operators
The common thread running through all of this is execution. Investors today are looking beyond growth stories and focusing on businesses that can perform consistently, regardless of market conditions. For founders, this means the bar is higher. But it also means that truly exceptional businesses are standing out more than ever. The easy money may have left the sector, but smart money has not. And for the best hospitality businesses – those with strong fundamentals, differentiated propositions and operators who can genuinely execute, deals are still getting done.
