The Auckland restaurant sector is in serious trouble, with a large number of outlets expected to close over the next six months.

The current covid lockdown is in its eighth week in the city and the immediate outlook is grim, partly because of a dearth of overseas visitors. 

In the four months from Dec 2020 to March 2021, Auckland Airport had only 19,826 international arrivals, compared with 1,041,072 in the same period in the previous year.

These international visitors are important to the city as they replace locals who head off to their beach houses pre-Christmas and prefer home barbecues, rather than downtown eateries, when they return in January and February. 

 Although international visitor numbers will pick up this summer, they are expected to be more than 80% below normal, and Auckland is expected to attract fewer domestic visitors than usual because of the region’s covid-19 problems.

How will Auckland’s hospitality sector survive the next six months? Will family-owned businesses be more resilient than the NZX-listed Savor?

Savor will be watched with interest because it owns several of the best and most popular restaurants in the City of Sails, including Amano, Ortolana, Ostro, Ebisu, The Store, Non Solo Pizza, Azabu Ponsonby and Azabu Mission Bay.

History

Savor was incorporated as Moa Group in Aug 2012 with six directors: chairman Grant Baker, CEO Geoff Ross, Kim Ellis, Craig Styris, Allan Scott and Alistair Ryan. 

Just over six weeks later, on Oct 11, the company issued an IPO investment statement offering 12.8 million shares, mainly to the public, at $1.25 each.

The issue was oversubscribed and the shareholding structure post-allotment was as follows:

  • PE firm Pioneer Capital 26.4%
  • The Bakery Business (Baker & Ross) 22.9%
  • Allan Scott Wines 7.8%
  • The public 42.9%.

Most of the Pioneer Capital, The Bakery Business and Allan Scott Wines holdings had been acquired before the IPO at substantially less than $1.25 a share.

Moa’s craft-beer operations were the brainchild of the Scott family, mainly Josh Scott, Allan Scott’s son.

Performance

Moa listed on the NZX on Nov 13, 2012, with its share price closing at $1.29 that day. The stock hit an all-time high of $1.34 a week later, giving it a market value of $40.3m. 

The company reported a loss of $1.92m for the March 2013 year, marginally higher than forecast.

However, its share price hit the skids in the second half of the 2013 calendar year, mainly because of a downbeat annual meeting on Aug 20 and a Nov 4 announcement that it was expecting a March 2014 year loss of between $5m and $6m.

Moa announced a loss of $5.8m for its 2014 financial year, which was followed by a quick exit of directors, including Ellis, in Sept 2014, Ryan in Jan 2015 and Baker in Oct 2015.

The craft-beer operator reported losses of between $2.3m and $5.6m for each of the following five years.

Acquisitions

Chairman Geoff Ross wrote in the 2019 annual report: “While Moa has been receiving strong growth in supermarkets and traditional liquor outlets, on-premise (bars & restaurants) presence, while growing, has been far tougher to crack due to the contractual nature of this channel.”

Ross wanted greater scale for Moa’s craft-beer operations and the company embarked on the following aggressive acquisition strategy to achieve this goal: 

  • On April 1, 2019, it purchased Savor Group for $13m, consisting of 60% cash and 40% Moa shares, with a further cash payment of $4.9m due in April 2020. Savor’s eateries and bars included Ostro, Ebisu, Seafarers, Azabu, Fukuko, Las Vegas and four venues at the Auckland Fish Market. Following this acquisition, Savor’s Lucien Law and Paul Robinson were appointed to the Moa board.
  • Six months later, it acquired Non-Solo Pizza for $3.75m, consisting of $3.2m in cash and $550,000 worth of Moa shares.
  • In Dec 2019, Moa opened Lobster & Tap at Auckland’s Fish Market.
  • In April 2021, it acquired Amano, Ortolana and The Store from the Hipgroup for a cash payment of $7.15m, $1m worth of Savor shares and a deferred cash payment of $2.85m to be paid 12 months from completion.

Just prior to this acquisition, the company sold its craft-beer operations to Stephen Smith for $1.9m, far less than shareholders paid for it through the IPO process. 

The listed company then changed its name from Moa to Savor and its board now consists of executive chairman Paul Robinson, CEO Lucien Law, Ryan Davis and Louise Alexander.

Outlook

The immediate outlook for the Auckland restaurant sector is extremely challenging as there is no America’s Cup this summer, limited cruise-ship visits are scheduled and Auckland Airport international arrivals will probably number fewer than 200,000 for the December-to-March period compared with one million-plus arrivals in previous December-to-March periods.

In addition, Auckland will be less attractive for domestic tourists because of the area’s covid-19 problems, and Aucklanders are likely to spend more time than usual at their beach houses and holiday spots after the current lockdown.

It is difficult to predict the outlook for Savor but it is reasonable to assume that the company may have to close some of its outlets and raise more equity.

Thus, the Hastings-based Cushing family and publicity-shy Colin Neal, who both own nearly 15% of Savor, may be asked to put their hands in their pockets once again.

But it raises the question as to why Savor’s top-rated restaurants didn’t come to the sharemarket by way of a conventional IPO rather than a back-door listing through an underperforming craft-beer company?

A listed company is in a much better position than a family-owned business to raise new equity, but Savor’s back-door listing means its balance sheet is relatively weak because of $34.7m of accumulated losses associated with Moa’s brewing activities.

Disclosure of interests: Brian Gaynor is a non-executive director of Content Ltd, the publisher of BusinessDesk, and of Milford Asset Management.
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