You just never know where the next business risk is coming from – it could be Hollywood
A report in the UK’s Sunday Times last week gives a fascinating insight into how difficult it is to identify and manage business risks in the real world. The report was about a popular UK chain of Italian restaurants called Frankie and Benny’s and the news that it is to shut down 41 of its sites around the country as the restaurant business generally faces tough times.
The usual reasons for a drop in a restaurant chain’s profits are mentioned; increased competition, changing consumer tastes, rising inflation rates, increased labour costs and property expenses. In some cases the company has locked itself into property leases for 25 years and will have to make those payments even if the restaurant on the site is shut down.
But an interesting observation at the end of the piece reveals another reason for falling market share and one which most of us who consider ourselves effective business lenders would never have considered.
It seems that a lot of Frankie and Benny’s outlets were deliberately situated very close to movie houses (cinemas) as a strategic move to attract the movie-going customer. However, attendances at these movie houses has fallen in recent years as Hollywood has been turning out flop movie after flop movie and no-one is going to see them. No customers at the movies means no customers at Frankie and Benny’s. So, this might be a temporary situation – Hollywood might pull its collective socks up and produce a movie that people want to see but, with all the other problems facing the restaurant business, Frankie and Benny’s don’t have the luxury of time to sit and wait it out.
It really does underline the need for lenders to understand the strategy of the business before lending to it so that it’s future prospects and sustainability can be assessed.