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HomeBusinessMoneyMIDAS SHARE TIPS: Take a slice of Loungers' pubs, bars and restaurants

MIDAS SHARE TIPS: Take a slice of Loungers’ pubs, bars and restaurants

The sun has been shining – intermittently – the Jubilee has put us in the mood for celebration and across the country, pubs, bars and restaurants have been packed with families and friends enjoying the extended bank holiday weekend. 

Loungers is one such business. The informal eatery chain expects to record its best ever week, as customers of every age have been pouring in for snacks, meals, cocktails and coffees. 

Loungers was formed in 2002, when a group of friends from Bristol decided to open a neighbourhood venue where they themselves would like to spend time. 

Nationwide appeal: Loungers runs affordable outlets outside city centres that focus on young and old alike

Today, Loungers owns almost 200 sites, dotted across market towns, seaside resorts and city suburbs throughout the UK. 

Most of these sites are branded as Lounges – light, bright and stylishly decorated venues generally open from nine in the morning until 11pm or midnight. 

A step up from a pub or cafe, but less formal than most restaurants, Lounges focus on providing value-for-money food and drink, from full English breakfasts to salads, tapas and full-on meals. There are vegan options aplenty, as well as coffees, teas and an extensive range of cocktails, wine and beer. 

Menus and prices are common across the chain, but each venue is individually designed and run, with a keen emphasis on being part of the community. Many customers are regulars and managers tend to know and be known by local punters and businesses. 

Loungers also owns 34 Cosy Clubs – still offering value for money but slightly more like conventional restaurants and often housed in historic buildings, such as former banking halls, gentlemen’s clubs or even hospital wings. 

The focus on attractive surroundings, attentive service, decent food and canny prices has worked consistently since the group was founded. Two of the three founders are still on board, including chairman Alex Reilley and commercial director Jake Bishop, but the business is run day-to-day by chief executive Nick Collins. A qualified accountant, Collins has spent much of his career in the bar and restaurant trade, and joined Loungers nearly a decade ago.

In 2019, the top team decided to float the business to facilitate expansion plans and offer staff shares in the business. At that time, Loungers had 146 sites, it was generating sales of £153million a year but was loss-making on a pre-tax basis. The group has since increased the number of venues by a third and is expected to announce sales of more than £235million for the year to April 17, 2022, with profits of £18million. 

Yet Loungers shares are languishing. Priced at £2 on flotation, the stock rose to almost £3 in April last year, when indoor dining was not even allowed. 

Today the price is back at £2, a decline that seems unjustified. 

Of course, Loungers is subject to many of the issues that other food and drink businesses face. The price of raw materials is rising, staff are in short supply and customers’ disposable income is under pressure. However, the company has certain advantages that should allow it to fare better than peers and continue to grow. 

First, its prices are frequently lower than others on the high street and the group fortuitously hedged energy costs last year in a deal that runs until 2024. 

Menus can also be adapted swiftly if ingredients run short, tastes change or lower-priced dishes become more popular. 

Being located locally helps too, with consumers often opting to stay closer to home when times are tough. And Collins works particularly hard at attracting and retaining staff, with everyone from waiters to top managers offered shares in the business after a year’s service. More than 1,000 employees – about 15 per cent of the workforce – now own Loungers’ stock, fostering loyalty and good customer service.

Looking ahead, Reilley and Collins are optimistic. The pandemic forced numerous shops and restaurants to close, leaving big gaps on the high street and making landlords eager to sign up large, reliable tenants, such as Loungers. 

Over time, the group hopes to grow to at least 400 Lounges and 100 Cosy Clubs and the current environment is allowing it to snap up well-placed sites at competitive prices. As the business grows, it can become more efficient too, feeding into higher profits and better deals for customers.  

Midas verdict: Loungers offers keenly priced food and drink in well designed venues that appeal to young and old. The format has worked consistently throughout the past 20 years and should help Loungers to withstand even harsh economic conditions. At £2, the shares are a buy.

Traded on: AIM Ticker: LGRS Contact: loungers.co.uk or 0117 930 9971 

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