It’s a hive of activity in the crowded head office of Rockpool Dining Group in Sydney. Chefs, finance, marketing and reservations people toil away with a sense of urgency alongside the senior leadership team. The office feels more tech start-up than one of Australia’s biggest restaurant groups whose brands include Rockpool Bar & Grill, Spice Temple, Saké, Fratelli Fresh, Bavarian Bier Café and Burger Project.
Perhaps it’s the rapid expansion of the group in the past three years, and its brassy global ambitions, which give it that growth-on-steroids tech vibe. Or maybe it’s the goal to be a $1 billion listed company on the Australian sharemarket by the end of next year. “I want Rockpool Dining Group to be one of the premier dining groups across the world,” enthuses Tom Pash, Rockpool’s chief executive, who’s sitting in a small room at the group’s office in The Rocks area of Sydney. He adds there’s potential to develop the organisation into “a two, three, four-billion dollar company over the next five to 10 years”.
Such grand plans are bound to get you noticed and understandably Pash has become the most talked about man in Australia’s hospitality industry since moving here from Austin, Texas three years ago. “The balls on that bloke!” is a common refrain among his restaurant industry peers. Such comments are offered up with equal parts admiration and aversion to how Pash and Rockpool’s owners, Quadrant Private Equity, are reshaping the Australian restaurant scene.
Critics question whether quality, a sense of individuality and experience at each of the restaurants can be maintained as the group grows. Then there’s the question of how management will balance the demands of shareholders and customers when it becomes a public company.
“There are a lot of people betting against us,” admits Pash, who has worked in both hospitality and private equity. “We hear we’re ruining the industry by buying these great brands and commercialising them. We hear that private equity is ruining the restaurant business.”
Pash says it’s been Quadrant’s capital that has allowed the business to grow. “They’re an important piece of the puzzle, especially for a mid-market company of our size to get to the next level.”
He adds that when private equity-backed companies list on the sharemarket and do poorly, the blame should be at management’s feet, not the backers. “Once you get there you have to grow; we have to execute and deliver shareholder value. If we don’t then it’s not Quadrant’s fault, it’s our fault.”
Merivale rivals Rockpool
Rockpool is not the only restaurant group to have emerged with real scale in Australia in the past decade. Justin Hemmes’ Merivale rivals Rockpool for size. It has 70 restaurants, bars and pubs and 3000 staff compared with Rockpool’s 54 restaurants and similar staff numbers. Rockpool will overtake Merivale if it continues with Pash’s plan to add up to a dozen restaurants each year for the next five years.
Another restaurant and pub group is Solotel, owned by pub baron Bruce Solomon, a third-generation publican, in partnership with celebrated chef Matt Moran. The group has about 30 establishments. At the smaller but vibrant end are the innovative and eponymously named restaurant groups run by Leon Fink and Chris Lucas, which along with the others have transformed dining habits and the look of restaurants across the eastern seaboard.
It used to be that the only big restaurant groups in Australia were the fast-food chains such as McDonald’s, Burger King or Red Rooster. However, soaring costs across Australia from rents to wages has helped drive a consolidation in pubs, bars and restaurants. The loser has been the young chef with the romantic dream of running his or her own small restaurant, which is getting harder and harder to do, particularly in the central business district of any of the capital cities.
“It’s gotten to the point where it’s incredibly expensive to open a restaurant in places like Sydney, Melbourne, Brisbane because of real estate values,” says Australia’s most feted chef, Neil Perry, who has opened and closed numerous restaurants over the years and is now Rockpool’s director of brand and culinary development. “Rents are so high and there’s a concern that small operators might find it difficult without a really sound infrastructure behind them.”
Large restaurant groups have also been emerging overseas. In Britain and the United States, there are companies such as D&D; London or Danny Meyer’s Union Square Hospitality Group, though neither of those companies are listed. The listed restaurant groups in the US, such as Darden Restaurants and Brinkers International, are more focused on the fast casual or casual dining markets rather than the multi-platform model that is popular in Australia, where restaurant groups own a diverse mix of venues. This could be a group of restaurants across different dining categories or a mix of pubs, bars and restaurants in different states. Rockpool’s Pash likes the multi-platform model because it mitigates risk, such as when the global financial crisis hit, causing a slump in fine dining.
Sepia team heads to Melbourne
Martin Benn and Vicki Wild, the founders of fine dining restaurant Sepia in Sydney, know too well the challenges of managing a stand-alone restaurant and just how fragile the economics can be. They have run the 66-seat Sepia successfully for almost a decade, managing 34 staff.
When they started, however, they were almost wiped out by the GFC, which left them staring at empty tables instead of businesspeople spending $100 a head on lunch. It took them years to recover, working seven days a week, juggling the operational side with the creative side. Their talent and persistence delivered them a three-hatted, profitable restaurant with an international reputation. But would they do it again?
“There’s nothing wrong with the restaurant on the corner and that’s fine when you’re in your 20s and 30s,” says Benn. “But when you’re looking at the stepping stones and asking what’s next, then in my eyes it’s completely financially inept to do a single restaurant in the city at our level. It doesn’t work. As successful as we are, we can’t afford to do the next big thing.”
It’s why Benn and Wild’s next move is to Melbourne in 2018, where they will join the Chris Lucas stable of restaurants. Lucas owns seven venues including Kisumé, Chin Chin and Hawker Hall. His restaurants are known as much for their food as for their individualistic and innovative designs.
“I want to constantly reset the bar and explore what’s new or what hasn’t been before and that’s what predominantly drives where we are today,” explains Lucas during a visit to the heritage building in Surry Hills where he will open a Sydney Chin Chin in August.
Success is about legacy
Lucas is the son of Greek immigrants who ran a pub and didn’t want him following in their footsteps. He was encouraged to go to university and became a pharmacist. Later he worked globally in sales for IBM then became a technology entrepreneur before returning to his passion: hospitality.
He doesn’t harbour ambitions to build his group to the size of Rockpool or Merivale. “For me success would be measured by the legacy of the restaurants I leave. If people say ‘I love going to his restaurants’ then that’s the true measure of success. Of course, you want your business to be growing and profitable too.”
Benn and Wild had rebuffed numerous proposals from suitors keen for them to do another restaurant but say the fit was right with the Lucas Group. Their decision to join Lucas is one that Perry says other chefs understand only too well.
“I have a whole lot of contemporaries who have no financial stability even though they have given so much to this incredible industry. Every young chef has to think about their future and make sure they get financial stability and have an idea about how they’re going to grow and an exit strategy.”
Remaining independent versus being part of a restaurant group is a conversation Perry says he’s been having with award-winning Attica chef Ben Shewry, who’s 40 and owns and runs “one of the great restaurants in the world”. In June, the Melbourne venue was ranked second in the Financial Review Australia’s Top 100 Restaurants awards. “You can’t cook until you drop,” Perry warns his peers.
Winners and losers
All of these dining groups are in expansion mode. But there are others that have gone before them, tried and failed to make the restaurant and bar conglomerate work. One was Keystone Hospitality Group, which owned a string of restaurants and bars, among them Jamie’s Italian chain and the Kingsleys steakhouses, which were spread across different states. The business was placed in receivership last year after it was unable to renegotiate lending arrangements with its financiers KKR and Olympus Capital.
Keystone’s collapse hasn’t deterred the other groups that are capitalising on an explosion in Australians dining out. A report in May by the Commonwealth Bank of Australia’s economics team found that Australians in the past year had been buying less at supermarkets, despite strong population growth, with the reason being that we’ve been spending more at cafes and restaurants. The expansion at the restaurant groups has been mostly organic, but there have also been acquisitions, with Rockpool having the biggest appetite to buy.
Rockpool only three years ago was known as Urban Purveyor Group and was owned by John Szangolies. He recruited Pash to help him manage and sell his business. After assessing the group, Pash’s early advice to Szangolies was to double his asking price. There were 18 parties interested in buying UPG; Quadrant was the successful buyer, for a reported $175 million in 2015. The new owners kept Pash on as chief executive.
In 2016 UPG added the distressed Italian chain Fratelli Fresh to the group. Then later that year the prize: Perry’s Rockpool Group. That acquisition gave UPG a bigger profile and status, so much so that the entire group, which now turns over $350 million, was renamed Rockpool Dining Group.
Pash says there could be more acquisitions ahead of next year’s listing. “There’s a couple that we’ve got our eye on.” However, he’s very focused on ensuring that the businesses they have already bought are integrated well. Fixing Fratelli Fresh is understood to have taken longer and been more difficult than the management team initially thought. Pash says all the group’s restaurants, except those that are in start-up phase, are profitable.
A pairing of brands
The marriage of Rockpool and UPG is described by Neil Perry as “a really great combination of brands that speak to each other very well”. For him personally it was a chance to join a company that was keen to grow here and overseas.
“Yes, you’re beholden to more shareholders,” he says in a nod to the critics, “but the reality is we’re going to get so much more opportunity. My passion in the business has always been mentoring and growing people. I’ve got a great team that’s now really excited about the opportunity with Rockpool Dining Group.”
Perry has also heard the criticism about a drop in quality. Eyebrows were raised when it became known that his flagship Bar & Grill would do a limited home delivery menu, but he dismisses concerns that it’s damaging his brand.
“I don’t believe in the last six months Bar & Grill, Spice Temple and Rosetta have taken a backward step. All the other restaurants have started to come up to the standards we set. As we grow, we always have to remember to think big but act small. Every single restaurant that we have is part of its own community. If they’re not in touch with their local community they don’t thrive.”
Solotel in expansion mode
It’s the same advice that Solotel founder Bruce Solomon has for his restaurant and pub group as it expands. “There are competitive advantages in size but the challenge as you get bigger is that you still relate back to that customer,” he says.
The economies of scale are attractive for each of these restaurant groups. There’s greater purchasing power for food and beverages, and bigger groups have more influence in sourcing quality ingredients. There’s a greater pool of staff to draw upon and more work opportunities to offer those staff across a portfolio of venues. Talent is often drawn to larger groups. Then there’s the significant savings from centralising services such as procurement, reservations, marketing and property management.
The Solotel group of establishments stretches from Sydney to Brisbane and employs 1800 people. Solomon has been in partnership with chef Matt Moran for nearly two decades. Their venues include fine dining institutions such as Aria, restaurants Chiswick and Chophouse and the Opera Bar in Sydney, and the Riverbar in Brisbane.
“What makes us different is we’ve got diversity,” says Solomon, sitting in The Sheaf pub at Double Bay, where he has his office. “We’ve got pubs in Parramatta [in Sydney’s west] and also do the top end at Aria. We’re growing but it’s also important that we get better at what we’re doing and improve our quality.”
Three levels at Barangaroo
Despite growing up among publicans, Solomon went off to become a lawyer and later a barrister but he quit and returned to hospitality. He and Moran have ambitious expansion plans this year, developing several venues in Brisbane and Sydney. Their biggest will be a site at Sydney’s Barangaroo, where they will open a restaurant grill as well as bars over three levels. The entire venue will hold 850 people.
“We’ve both got a lot of energy and want to keep it going and take it to the next level,” says Moran. “We’re equal partners. A lot of people think Bruce has been the money behind it but there has never been one more cent from either party. It puts us on an equal footing and there’s an incredible amount of mutual respect. I respect Bruce as a person and a business leader.”
Moran isn’t worried about the group spreading itself too thin because it’s financially conservative. “I’m in the best position I’ve ever been in,” he says. “I don’t feel stressed even though we’re incredibly busy. I’m feeling really at ease with the way Solotel is and where it’s going.”
As it expands, Solomon says the company will remain in his family’s hands and in partnership with Moran. “Should we have 100 restaurants and 10 brands? I’ve never really thought like that. Maybe I should have but because I’m a third-generation publican, I’ve come through the industry a different way. I know people are talking about going off to do IPOs but we’re a family business.”
Fred's part of Merivale
Justin Hemmes talks similarly of the Merivale group ashe sits at Fred’s restaurant in Paddington, Sydney. It’s early in the day and the cleaning group that has worked for Merivale for 20 years is busy polishing the windows. The cleaners are so proud of their work they send videos to Hemmes of themselves singing, which he shows to the AFR Magazine on his phone.
“We don’t really look at the business as being a large-scale business,” says Hemmes. “Ours is a family business.” He says the Merivale group, which includes Est., the Coogee Pavilion and Ms. G’s, is not built around a specific model. He doesn’t spend time thinking about other Australian restaurant groups, though if they open a fantastic venue he’ll take look.
“We’re selling an experience. Our venues are either tailored to the market we go into or the demographic wherever that building may be. Or if we feel there’s a need for a certain type of dining or drinking experience, then we will find a building that suits.”
Fred’s is one of Merivale’s latest restaurants. It was built around American chef Danielle Alvarez, who previously worked at California’s Chez Panisse, which helped pioneer the sustainable food movement. Alvarez brought that idea to Fred’s, where she runs a staff of 50.
Alvarez says being part of Merivale rather than a single-operator restaurant has given her the freedom to focus more on the creative side. “Merivale treats me like I own the business,” she says. “There’s a great senior leadership team that really pushes us to drive the business forward and helps us to grow and train our staff. A smaller business wouldn’t have those advantages.”
What Tom Pash admires
Merivale’s 70 venues are all in Sydney and Hemmes says he has plenty more to do in that city without needing to go interstate. Merivale is also the one that Rockpool’s Pash most admires out of his rival restaurant groups. “Whatever they do is well thought out,” Pash says. “They execute very well.”
Indeed, there’s consensus among many restaurant group owners that Merivale is the leader in what it’s doing. “The cleverest people are Justin and his sister Bettina,” says Leon Fink, founder of the Fink Group, which owns and has stakes in seven Sydney restaurants including Quay, Bennelong, Otto, Firedoor and The Bridge Room. “They are absolutely brilliant; every place is given great identity. The other absolutely critical ingredient they have is that every new place has got awareness of the local community.”
The Fink Group has plans to grow by 10 per cent annually over the next three years as it rolls out more of its Italian Otto restaurants across Sydney and does a refurbishment of Quay. It’s a family business with Leon’s son John as creative director. The group has attracted some of Australia’s most talented and respected chefs, among them Peter Gilmore and The Bridge Room’s Ross Lusted, with which it has different business arrangements.
Gilmore, who oversees Bennelong in the Sydney Opera House and Quay at the overseas passenger terminal opposite, has a profit-sharing arrangement with the Fink Group. “The reason I have decided to stay with this group and not go out on my own is the security of having a bigger financial backer behind me,” Gilmore says. “The business is looked after by the group and I don’t have to concern myself with worrying about accountancy, wages and all the lease arrangements and insurance. I can focus fully on the creative side of my job and that really suits me.”
It’s understood that Gilmore’s next restaurant with the Fink Group will likely be a farm-to-table restaurant within one to two hours of Sydney, similar to Dan Barber’s Blue Hill Farm at Pocantico Hills north of New York City.
One big downside to the rapid expansion of restaurants, pubs and bars is the skills shortage it has created. This is challenging the industry, particularly with the federal government changing immigration rules governing 457 visas. “The increase in the supply of restaurants in the last couple of years and into next year is huge,” says Fink, citing this as his greatest concern. “There’s going to be a big slowdown. Barangaroo is getting too many restaurants and Darling Harbour [in Sydney] is getting too many. The ones with lesser skills will close.”
Neil Perry agrees “there’s oversaturation”. But one aspect of running a restaurant hasn’t changed: “The only thing that you have in your control is to be as good as you can possibly be, every day. If you deliver on that promise of creating a great memory for people, you will push through whatever they throw at you.”
The AFR Magazine Culinary issue is out on Friday, June 30 inside The Australian Financial Review.
