Luke Johnson: My ingredients for success

Luke Johnson's first MT column; on the search for new ideas, the future of bread and the fortunes of graduates.

by Luke Johnson
Last Updated: 06 Nov 2012

A few weeks ago, I bought an interesting restaurant business called Feng Sushi. It has six branches in London and is principally a home-delivery operation specialising in Japanese cuisine. Both Japanese food and home delivery are growth segments and I wanted to understand them better.

Often I think I should be more imaginative in diversifying my investments and seek out industries beyond hospitality. But the British eating-out market is still worth a massive ú40bn annually and will expand this year, despite the recession. Moreover, I tend to spot the deals in the sector. I like to think I know what I'm doing - although I still make mistakes, such as Fishworks. But, overall, possessing a degree of domain knowledge will always improve the odds of your analysing a proposition more rigorously and help you make better returns.

Ultimately, I love restaurants and think owning and running them is great fun. Slightly pretentiously, I put 'restaurateur' on my passport as my profession - the phrase 'company director' always reminds me of a gangster in court. Certainly I have been involved in the trade for almost 20 years, including part-ownership of Pizza Express, Strada, Belgo, The Ivy, Giraffe, Patisserie Valerie and assorted others.

In recent times, various acquaintances have sent their offspring to me to seek career advice - or perhaps a job. These are desperate times for young jobseekers with a degree but no experience. There are too few vacancies and too many graduates (all of whom are burdened with debt) and conditions for this cohort - whom I nickname the Damned Generation - are only likely to worsen. It has been reported that there are now 75 graduates applying for every job.

Unfortunately, too few of them are considering the sort of avenues that offer decent prospects. I get the impression many would like to work in comfy places like the BBC or at posh management consultancies.

They might do better to consider the culinary arts. A swift check on various jobs sites suggests at least 10,000 vacancies both back and front of house. If you're capable, then promotion can be astonishingly rapid and it's a great route to owning your own business. You can be running a kitchen brigade of 20 staff or managing a restaurant turning over millions before you're 30. It's hard work and not brilliantly paid to begin with, but it's sociable, satisfying and practical. And anyone with even basic catering skills who actually wants to work is never unemployed.

If you are 21, ambitious, want a chance to make friends and money, perhaps achieve fame and have a real impact on society, then there can be no contest. Forget about becoming a novelist, rock star, reporter, TV presenter, artist or fashion designer. Showbiz is no longer the passport to the good life. Instead, start a fashionable cafe, bar, tea-room or bed-and-breakfast, or get a trainee position in your local pub or brasserie while plotting your catering venture. Ignore the snobs - this is where the action is.

Another food business I backed this year is called Flour Power City. It is an artisan bakery, producing authentic bread and cakes, run by an ex-pastry chef called Matt Jones. It supplies restaurants, hotels, and caterers, and also runs stalls in places like Borough Market in London. As with the espresso coffee revolution, once consumers have got used to the taste of real bread, they will not revert to the industrial stuff sold in British supermarkets. Currently, it is a small market, but I believe it will grow as the public becomes more discerning and more willing to pay extra for a far superior loaf.

This was a classic case of a business that was not for sale but nevertheless had a requirement for some development capital. A colleague contacted several bakers on my behalf and we had conversations with perhaps three of the best. It became clear that one company needed investment to expand its capacity to satisfy demand. So I subscribed for new shares to give the business the finance to take advantage of opportunities.

Such involvements are unlikely to earn me large sums, but they will enable me to learn and hopefully make a useful contribution - and I think that matters. As I become older, I find it becomes increasingly important to avoid repetitive, predictable choices and to constantly seek out new adventures. Perhaps I feel that need because I'm restless by nature, but it also means I avoid becoming stale and narrow in my outlook. Well, that's the theory, although in practice I do have a propensity to revert to the attractive peripheries of food and hospitality too often.

I sense this autumn is going to be a busy period for M&A activity. A lot of deals have been deferred, but they will have to be executed eventually. Other companies are distressed and banks will soon force a sale or an administration. Private equity has a pile of cash to invest, but debt is still very hard to find, so investors are being choosy because financial engineering won't make up for bad purchases any more.

Meanwhile, our portfolio of companies is a mixed bag. Some, like Patisserie Valerie, are performing well, a couple - like greyhound stadium group GRA - are harder work. Every investment house has a casualty or two - and occasionally several. These are firms with too much debt, weak management or perhaps a flawed business model exposed by the downturn. I am surprised more companies haven't gone bust. Of course, in many cases there have been quiet debt-for-equity swaps that have wiped out the PE owner and left the lenders in charge. The sooner these zombie firms are reorganised and given a new lease of life, the better for the banks, the economy and the staff.


Luke Johnson is the chairman of Risk Capital Partners and a former chairman of Channel 4.

Find this article useful?

Get more great articles like this in your inbox every lunchtime