Health conscious dining out: a growth area for investors

Whether starting the year with dry January, veganuary or a Noom Diet, the drive for healthier eating is unremitting. The success of brands in the UK such as Ottolenghi and Leon demonstrate the growth potential of the British health conscious restaurant market.

This trend is strengthened by the regulatory tide which seeks to put pressure on the restaurant industry to promote healthy eating. The government’s earnestness in regulating restaurants’ nutritional output has been made evident following draft proposals from Public Health England which propose to restrict main courses in restaurants to 951 calories. The proposals go as far as prescribing set limits for certain food items – pizzas could contain no more than 1,040 calories and a portion of chips would be limited to 416 calories. In a statement to Sky News, Dr Alison Tedstone, chief nutritionist at Public Health England said: “These are early days in the calories reduction programme but the food industry has a responsibility to act. We are consulting on ambitious guidelines to help tackle everyday excess calories – we welcome the industry’s feedback to help shape the final guidelines, due for publication next year“. It has been reported that the final guidelines are expected to be issued in the spring.

The guidelines would have an impact on restaurant businesses that would be forced to adapt recipes and cooking methods in order to comply with the proposed regulation. In an already oversaturated market, prescriptive regulation of the restaurant industry could work to strangle businesses that aren’t able to adapt.

It goes without saying that healthier chains are a step ahead. The United States’ restaurant scene has seen a boom in eateries delivering healthy “quick service” meals including:

  • Dig Inn: a restaurant chain with a mission to deliver healthy, eco conscious and affordable food. Dig Inn has recently raised an additional $30 million in a Series D funding round with investors including AVALT and Monogram Capital Partners. The chain intends on using the fundraising to increase its restaurant number from 15 to 28 restaurants, as well as developing a culinary training school.
  • Dr Smood: developed as a result of the founders’ dissatisfaction with their native Denmark’s fast food offerings, this American café chain provides healthy takeaway choices. They have diversified their offering to include detox programmes and consultations.
  • by Chloe: riding the vegan wave, this14 restaurants’ strong chain in the US expanded into the UK with two branches opening in London in early 2018. The company received $31 million from a funding round in April 2018 which was led by Bain Capital Double Impact.

Ashton Crosby, Managing Director of Restaurant Private Equity at investment firm Capdesia commented: “Capdesia has observed real growth in limited service operating models in the last few years in the UK. As consumer demand shifts from traditional full-service casual dining, their investment has honed-in on brands offering faster speed of service, a lower price point and a correspondingly higher volume of customer throughput, think fast-casual and QSR. Some of the outperformers in this growth area are health conscious eateries targeting urban consumers to meet their demand for healthy and sustainable options. In the US, the sustainable healthy limited service food market is far more developed than the in UK but this only strengthens the conviction that this trend is likely to gain increasing momentum this side of the pond.”

Partner in the Mishcon de Reya Hospitality & Leisure team Nadim Meer commented: “The combination of the cultural shift towards health consciousness, the proposed regulatory changes for restaurants, together with the already prevalent investment activity and appetite for healthy eating options, paves the way for fast growth within the healthy eating sector. This drive will only continue to increase as other aspects of daily life (e.g. food shopping and work) begin to cater for the health and wellness demand among consumers.”

Mishcon de Reya’s Hospitality & Leisure team continues to strengthen its experience in the Restaurants & Bars sphere having operated in the sector for many years, advising blossoming restaurant and café businesses on managing investments. Our recent work includes acting for Minor International on the purchase of a 75% stake in leading Japanese-inspired teppanyaki restaurant chain Benihana, advising street food operator KERB on their first bricks and mortar site at the new covered food market Seven Dials Market in the West End, acting for Sunshine Capital on their acquisition of Coal Grill & Bar, as well as continuing to advise naturally fast food chain Leon as their business continues to develop.