Angling for success

11 September 2006
Angling for success

Mark Derry has turned the fortunes of Loch Fyne Restaurants around, but the group chief executive hasn't finished with the business yet. Andrew Sangster reports

Mark Derry is a former roughneck who now runs arguably the most respected seafood chain of restaurants in Britain. But it was not the three-and-a-half years on the oil rigs off the British coast that gave him the appetite for fish. Rather it was the entrepreneur's eye for an opportunity.

Back in 1997, he saw the opportunity presented by Loch Fyne Oysters, a company that was struggling to make its fledgling restaurant business work. In fact, he did not even have to go out and find the opportunity. It was brought to him and his business partner Ian Glyn by Loch Fyne.

The company had opened two restaurants in England: one in Elton "gateway to Peterborough", and the other in the heart of Nottingham. But the combined weekly turnover of these outlets was less than 14,000.

By contrast, the first restaurant opened with the help of Derry and Glyn, in Cambridge, took 30,000 a week on opening, more than double the first two.
Loch Fyne Restaurants then took off in earnest. To fund the first three restaurants under the new team - Cambridge, Twickenham and Barnet - the Enterprise Investment Scheme (EIS) was used and 1.4m was raised.

"We tapped our mates, mostly Johnny Noble," says Derry. Noble was chairman of Loch Fyne Oysters and became chairman of Loch Fyne Restaurants (LFR). Noble, a laird, had founded the seafood supply business back in 1977 and based it on the banks of Loch Fyne, the location of his baronial estate. The quality of his products and a commitment to environmentalism rapidly delivered a dedicated following for the business. And it appealed to Derry.

"It was around the time of BSE, everyone else was doing pizza, so we thought why not try seafood," he says.

The big problem with seafood is the quality of supply. Derry was convinced that to succeed you needed to be certain that this part of the business could be guaranteed. The "almost religious" following that Loch Fyne enjoyed was enough to satisfy Derry that here was a supplier he could trust.

As well Noble, an early investor was Core Growth Capital, a fund that specialises in small- and mid-sized companies. It has a history in the leisure sector, having backed businesses such as Luminar and Henry J Beans, and has put money from its current fund into pub chain Ma Hubbard's.

When we meet, early in the morning at the Covent Garden outlet, Derry is shortly to dash-off to see Core about future ventures. It has been a fruitful relationship. Like other early investors, Core has received five times its original investment.

It had also backed Derry and Glyn in their previous venture, Country Style Inns. This company grew to a chain of 12 coaching inns and was sold to the Old English Pub Company in 1999 for 10.8m. The company had been bought only two years earlier for 6.5m.

It is easy to see why Core was tempted to invest in the first deal with Derry for Country Style Inns. Derry would have made a convincing case with his 12-year track-record at Whitbread, which included turning around TGI Friday's.

After Country Style Inns, Derry went on holiday for 14 months. On return he rented a flat in Bayswater, London, that turned into the first office for LFR before it moved to its current site in Fulham.

It is clear that Derry relishes the thrill of setting up a business. He becomes particularly animated when talking about the challenges and opportunities available to start-ups. He is less keen, however, on dealing with the bureaucracy and politics of large corporates, particularly stock-market-listed ones.

While there was brief speculation that LFR might itself float, Derry himself was never enthusiastic. "My personal view is that we have to be a bit bigger than LFR for a float. Unless you have a market capitalisation of more than 100m, you don't get the interest," he says.

LFR was unlikely to obtain a listing that valued it at much more than 30m. "At this size, you run the risk of people forgetting about you," he says.

The refinancing of LFR, necessary due to the expiry of the EIS support, was therefore unlikely to come via flotation.

Instead, venture capital firm Hutton Collins, a former backer of the Wagamama noodle bar chain, paid 21.8m to take control in October 2005. This was for a business that generated pre-tax profits of 330,000 on sales of 27.9m in 2004. Earnings before interest, tax, depreciation and amortisation were 2.4m, giving a historic multiple of nine times.

A new company, Premium Casual Dining, was set up to do the deal and Glyn and Derry are among its directors. Less than six months earlier, LFR had announced it was undergoing a strategic review that could result in one of four options: a trade sale, a sale to a private equity firm, a float or, a refinancing.

The new structure leaves Hutton Collins holding just more than half the equity with the rest in the hands of the directors of LFR, which, apart from Derry and Glyn, include finance director Helen Melvin and managing director Richard Morris.

Premium Casual Dining bought a company that not only has 25 Loch Fyne outlets, but also includes five Petit Blanc brasseries.

It was never entirely convincing why LFR bought into Petit Blanc back in June 2003. It was certainly a unique opportunity to acquire four restaurants for just 1.1m. They were bought out of administration in the teeth of other buyers, including coffee bar chain Madisons.

A key appeal of Petit Blanc was its higher margins. Gross profit is about five percentage points higher than at LFR where the GP averages 67-68%. And Derry argues that grouping different restaurant concepts together under one roof can give a business scale. He points to the Restaurant Group where he believes the group is stronger than its constituent brands.

But Loch Fyne is a strong, idiosyncratic brand that sits uneasily alongside anything else. When we met, just before Christmas, Derry hinted that a rethink of the link-up was on the cards. Fortunately, he had planned ahead and set-up the Petit Blanc acquisition via a separate EIS fund and so a separation is much less problematic than it might have been.

Derry has also delivered on his promise at the time of the acquisition to bring a greater focus and discipline to the management of Petit Blanc - adding a restaurant in the process - and it is now a strong enough business to once again stand alone.

So, LFR will again be a single, focused business. In addition, Derry has ambitions to do more with the Loch Fyne name. An early attempt to build a retail concept within existing restaurants, in a style similar to Carluccio's, has largely been abandoned - although the restaurants still feature a fresh seafood counter at the entrance from which customers can buy to take home. "We tried to do retail and we were rubbish at it," Derry admits.

What is planned, however, is to make more of the Loch Fyne name via international licensing and outside catering. This Loch Fyne brand company is the third Loch Fyne business - there are the restaurants, the original seafood business now owned by its workforce since the death of Noble in early 2002, and the brand company.

In some ways, the brand company is back to the future for Derry. He was in the wine and spirit division of Whitbread in the USA for some of the 12 years he was with that company. And his father was an employee of Bell's, hence he grew up in North West Scotland.

An understanding of liquor retailing, particularly wine, has been crucial to the success of Loch Fyne. Its tight margins on food means it has had to make cash elsewhere and one way has been to cut out wine merchants.
"We need help buying wine but we don't need to pay an expert 200,000 a year, which is the difference between using a wine importer and what we do now [buy direct]," says Derry.

Like all good entrepreneurs, Derry can turn problems into an advantage or selling point - and still make money.

Now in his mid-40s and with a young family, he might be expected to want to take things a little easier. But he is too excited about what he does to want to do that.

It is a philosophy he brings to bear in the business as well, insisting that the general managers and head chefs at each outlet make the workplace fun and exciting.

"It has to be an environment where you want to come to work," he says, perhaps drawing from his experience of working on the rigs where teamwork is critical.
But for Derry, it is the restaurant world that has been his oyster and his business skills the sword that has opened it.

LOCH FYNE QUICK FACTS

â- 5 Petit Blancs
â- Group profit before tax in year to 31 December 2004 was 330,000 from sales of 27.9m.

HISTORY
1977 Oyster farm started by Johnny Noble
1987 Restaurant and smokehouse opened at Cairndow
1997 Loch Fyne Restaurants created with Mark Derry and Ian Glyn
2001 Open 11 restaurants in a year
2002 Johnny Noble dies, Loch Fyne Oysters bought by workforce
2003 Purchase of Petit Blanc
2005 Refinancing with Hutton Collins

The Caterer Breakfast Briefing Email

Start the working day with The Caterer’s free breakfast briefing email

Sign Up and manage your preferences below

Check mark icon
Thank you

You have successfully signed up for the Caterer Breakfast Briefing Email and will hear from us soon!

Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.

close

Ad Blocker detected

We have noticed you are using an adblocker and – although we support freedom of choice – we would like to ask you to enable ads on our site. They are an important revenue source which supports free access of our website's content, especially during the COVID-19 crisis.

trade tracker pixel tracking