Customers could pay more as pizza chain vows to grow

The 160-branch chain yesterday reported double-digit increases in sales and profits and said it made “significant strides” in 2010.

Prezzo, which competes with the likes of Pizza Express and Strada to target the mid-range dining sector, said it plans to open 20 more sites this year.

The group added it has made an encouraging start to 2011, despite January’s rise in VAT, to 20 per cent, and the squeeze in consumer spending.

“We definitely think there was more uncertainty 18 months ago,” said finance director Allan Millar. “But we’re not out of the woods yet. There’s still some nervousness about, but we’re at an affordable price point.

“We do not see that (consumer sentiment) as a big pressure. We’ve not seeing what the general retailers are seeing.”

Prezzo said underlying profits rose 12 per cent to £14.4m in the year to January 2, outperforming analysts’ forecasts.

Revenues rose 15 per cent, to £104.8m, helped by the opening of 20 sites following the acquisition of 11 outlets from Caffe Uno in a £3m deal.

Prezzo said it plans to continue its expansion this year by opening at least 20 restaurants, and has already bought a further six restaurants from Caffe Uno, for £550,000, including a site in York.

The group also has sites in Sheffield, Hull and Harrogate, and Mr Millar said it would like to open a branch in Leeds. He believes the chain has scope to double in size.

The group’s expansion almost ground to a halt in 2009 when it opened just two new outlets as profits were hit by its need to run more special offers to entice cautious consumers.

“In the past, when times were a bit stronger, we would have just opened the doors of a restaurant and people would have come, but now we leave less to chance,” said Mr Millar.

“We are doing a lot more marketing activity with our customers. Some takes the form of offers and promotions and a degree of discounting.

“There’s a little bit of pressure on margins but the volume is coming through on the top line.

“We would rather be in that position than a £30-a-head spend company that’s saying, ‘We don’t discount,’ but is finding life very tough out there. We want bums on seats in our restaurants.

“We do not think in the fullness of time it will be difficult to step down from any offer.”

Mr Millar said soaring inflation “will probably ultimately be passed on to the customer”.

But he added the group has experience of dealing with ingredient price hikes and is talking to suppliers about prices, and will benefit from its increased scale.

Analysts at Numis Securities calculated that sales per restaurant were up by about two per cent last year but warned that Prezzo’s average spend per head of £16.70 was “not low” and could leave it vulnerable if consumers cut back.

Numis upgraded its profits forecast for this year by six per cent, to £16.1m, and said that margins, which were flat last year, should increase as the group finds cost savings because of its greater scale.

Altium Securities analyst Greg Feehely said: “The business is unquestionably taking market share in a tough marketplace, aided by a combination of a well-invested estate, the opening of higher-profile locations increasing brand recognition, constant menu innovation, coupled with increased levels of staff training, while continuing to offer exceptional value to the customer.

“Great interaction with consumers via social media channels is also clearly paying dividends.

“Despite the accelerated roll-out we still expect the company to remain cash positive throughout the forecast period – a further key positive.”

Bottom-line pre-tax profits for the year increased 37 per cent, to £14m, after it made smaller impairments on property valuations in 2010.

Prezzo fact file

PREZZO was founded by Jonathan Kaye and his uncle, Phillip Kaye. It opened its first restaurant in November 2000, initially under the brand Jonathans.

It floated as a chain of four restaurants on the Alternative Investment Market in March 2002 via a placing of 3.25m ordinary shares at 50p per share, raising £1.5m.

It returned to investors to raise £2.5m in June 2002, £5.8m in June 2003, £9.3m in June 2004. In June 2005, each ordinary share was subdivided into four ordinary shares and a further £7.5m fund-raising was completed in February 2006.

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