This weekend news broke that UK-based natural fast food operator Leon has been bought by EG Group in a deal worth between £80m and £100m.
As well as being hugely important for the companies involved, it also marks a step-change in the UK food-to-go market.
So let’s take a look at deal in more detail and examine why it is so significant for the market in general.
A quick guide to Leon
Founded in 2004, Leon turned fast food on its head by proving that quick, convenient meals could also be healthy and good for the planet.
- 42 company-owned restaurants, mainly in London and other large UK cities
- 29 franchised transport hub sites (airports, train stations and motorway services) in the UK and Europe
- Values and offer that resonate with healthy and socially conscious consumers
- Pre-COVID, global revenue £76.3m with like-for-like sales + 9.8% (twice the UK food-to-go market average)
- 1.5m retail products sold through Sainsbury’s last year
- Adapted to COVID challenges with agility and pace, launching a number of new iniatives
- However, financial pressures led to a CVA in December 2020 and closure of US sites in January 2021
Who are EG Group?
The company is only 20 years old but its growth has been rapid:
- Founded in 2001 as Euro Garages with the acquisition of a single forecourt by the Issa brothers
- Swift growth through acquisitions to become one of the world's largest forecourt operators with over 6,000 sites in 10 countries across three continents
- Revenues of €20bn made possible by financial engineering through TDR Capital
- Focus on developing 'mini-MSAs' (Motorway Service Areas) - high quality, modern in-store environments, combining foodservice and retail propositions that are both attractive to motorists and often also function as local convenience stores
- Achieved through retail and foodservice partnerships, including Asda, SPAR, Greggs, Starbucks and KFC in the UK
- Recently the Issa brothers became the new owners of Asda in the UK (deal subject to regulatory approval from the UK’s Competition and Markets Authority, expected this week)
- In January, appointed retail heavyweight Stuart Rose as new chair to develop improved corporate governance structures appropriate for a business of EG’s scale
Why are they interested in Leon?
1. Foodservice is already an important part of their strategy
EG Group already operates over 700 foodservice sites through successful foodservice partnerships with the likes of Subway and Greggs inside its forecourts, as well as full-scale drive thru sites with KFC and Starbucks where space allows. It has also begun trials with in smaller footprint sites with brands such as Sbarro pizza, NKD pizza and Cinnabon.
As the move to electric vehicle charging increases dwell times at forecourts, motorists will gravitate to sites with better facilities including a broader choice of foodservice options.
2. Already highly acquisitional, the pandemic brought new opportunities
Throughout the pandemic, and perhaps accelerated by its impact on the fortunes of food-to-go brands, the group has remained highly acquisitional. In March, it added two foodservice brands to its portfolio: The Herbert Group, the UK’s largest single franchise operators of the KFC brand; and Oliver's Real Food, a leading innovator in fresh and healthy food-to-go in Australia.
Commenting in November last year, Ilyas Munshi Group Commercial Director for EG Group said:
‘Even in this climate, if the right assets come in front of us, we’re willing to buy them. It’s not just about buying networks and operating them, it’s about investing in them as well.’
3. Looking for ‘future-proof’ concepts to add to its portfolio
The acquisition of Oliver’s Real Food could have been an early indication of the type of business EG would want to add to its UK portfolio. Claiming to be the world's first certified organic fast-food chain, Oliver's Real Food has grown to encompass 25 sites across south-eastern Australia, winning recognition for offering healthy, fresh and natural alternatives to traditional players in the road-side space. Though progress at the business has faltered in the recent past but the backing of EG should enable it to move forward once more.
Oliver's has a similar proposition, values and challenges to Leon as it recovers from the pandemic. Both are positioned to capitalise on the growing demand for healthy and sustainable fast food and complement EG's exisiting foodservice partnerships.
Mohsin and Zuber Issa said:
"EG Group continues to identify innovative partnerships and acquisitions that complement our existing consumer offer and enable us to stay at the forefront of consumer trends, particularly in foodservice. Our equity investment in Leon is to strengthen our own participation in the fast-growing contemporary foodservice segment. This acquisition aligns with our commitment to being a committed foodservice operator globally, delivers financial benefit to our underlying business, and supports broader commercial strategies to be able to better realise further growth opportunities.”
How will Leon benefit from EG ownership?
There are five main reasons that the deal is good for Leon:
1. A secure future
With funds depleted during the pandemic, Leon will benefit from EG’s ability to invest (for example in new locations and technology) as restrictions lift giving it an advantage over less well-supported competitors
2. Turbo charged drive thru and roadside development
EG Group has said it plans to open around 20 new Leon sites each year from 2022. Leon has already mentioned the possibility of adding drive thru sites to its estate, however on its own it could take years to secure the right sites. EG already has the roadside locations (including 78 former Little Chef sites purchased in 2017) so we expect to see a much faster rollout of the Leon brand in this format. A small footprint concession format, such as those used extensively by Subway and Greggs, sounds like it is on the cards for EG forecourts taking the brand nationwide.
Mohsin and Zuber Issa said:
“Leon is a fantastic brand that we have long admired. The acquisition of Leon presents EG Group with a fantastic opportunity to further develop the menu offer, the various concession formats including drive-thrus, and will enable us to significantly build on the existing network by exploring opportunities across our own sites along with other strategic locations.
3. New retail location opportunities
Asda stores are not short on space and the retailer is already trialling new partnerships to fill them. If a crossover in shopper profiles can be established, Leon could enhance the current food proposition and help attract shoppers back to stores, potentially broadening Asda’s appeal to new segments
4. Potential for faster international expansion
Leon has already proven that its brand has international appeal, and EG’s geographical reach could offer locations in new markets where healthy fast food is emerging but a brand leader is yet to be established.
5. Retail range rollout
Asda stores may offer an opportunity for Leon to expand its retail reach, although current agreements with Sainsbury’s and fit with Asda’s category transformation programme could put this in the back-burner. EG’s forecourt convenience stores my offer a more likely route to new retail opportunities.
Jon Vincent, Leon co-founder, said:
“Mohsin and Zuber will not just be superb custodians of the Leon brand, through EG Group they have the vision, investment appetite, foodservice expertise and network scale to take Leon to many more people and places. This is what Leon has always been built for and I am confident under the new ownership, the brand will flourish and have even greater appeal to a broader customer base, especially outside of London.”
So, what does this deal mean for the food-to-go market?
The pandemic has been unequal in its impact. Food-to-go has been amongst the sectors hardest hit, whilst grocery retail has benefitted from everyone spending more time at home. This has led to a shift in partnership opportunities - something we anticipated in the ‘Rebalancing of power’ trend outlined in our Food-to-go trends 2021 report (Retail Analysis subscribers can read the full report here).
The EG Group/Leon deal could be the first of a many such moves, not just in the UK, but internationally too. As businesses start to plan for life after the pandemic, food-to-go brands that have survived and can demonstrate alignment with future consumer needs but haven’t got the finances to act on them are likely to be attractive acquisition targets – particularly from retailers with spare space, neighbourhood locations and a desire to enhance the in-store experience to win back online shoppers.
The next food-to-go market leaders are likely to be those that form the right partnerships now. With EG Group’s backing, Leon looks well-placed to be one of them.
Want to know more about the future of food-to-go?
Retail Analysis subscribers can read the more here: