Mark Ritson on branding: Little Chef on lookout for fatter deal

Marketing 11-Jul-07

Imagine the scene. You recently purchased an old, dilapidated house called Dunroamin at an auction. The previous owners had run into financial troubles and you snapped it up for a bargain - a fifth of what they had paid for it. On closer inspection, you begin to realise that your new house is on its last legs.

You put the house back on the market at twice the price you paid for it
barely six months earlier. Out of the blue, a rich Italian family turns
up and wants the house. You can barely believe your luck! Not only have

you dodged a bullet, you are going to make a packet from the sale,

too.

You sit down across the table from your Italian buyers with a big smile
on your face. But just as they are about to put pen to paper you stop,
look them in the eye, and say: 'Of course, the whole deal is off if you
don't agree to keep calling the house Dunroamin.'

It sounds like lunacy, but it is exactly the position iconic British
brand Little Chef is in. Founded in 1958 as an 11-seater snack bar in
Reading, Little Chef now has 195 outlets, 3500 staff and, in recent
years, more owners than hot dinners. Everyone from Granada to
private-equity firm Permira has had a bite.

It was bought in 2005 by its chief executive Simon Heath and catering
magnate Lawrence Wosskow for £52m from Travelodge. Despite bold
revitalisation plans, the business floundered, with rent outstripping
revenue by millions. Little Chef went into liquidation in January and
was snapped up by turnaround specialist R Capital for £10m.

It's here that the story takes a couple of bizarre twists. First, the
super-rich Benetton family emerge as interested buyers. Sadly, not
because of an ambitious plan to co-brand its fashion stores with
roadside eateries but because the family also owns the Autogrill
European service station brand. Apparently the Benettons are prepared to
pay the asking fee of £20m to acquire Little Chef and rename the
properties under the Autogrill masterbrand.

In what the papers are calling an 'eccentric move', R Capital has made
the retention of the brand name and its 'Fat Charlie' identity a
non-negotiable part of the deal. 'You can buy it, but you cannot change
it' is the message. A source in The Daily Telegraph was quoted as saying
that R Capital 'wants to sell to a buyer who cares as much for the
heritage of Little Chef as it does'. The source added that 'the firm is
still at the table with Autogrill seeking assurances that it won't
change the name of these restaurants and rid the country of a British
institution'.

Little Chef marketing manager Cathy Stevenson took heart from this
development. 'Little Chef is an iconic British brand and a lot of our
staff have invested a great deal of time and effort to revitalise the
logo over the years,' she said. 'It would be a shame to do away with it
and I can imagine that it would engender opposition.'

Alas Cathy, that is not what is going on here. R Capital might cite
brand equity and patriotism as their motivations but, in reality, I
suspect this is all about the brutal business of divestment. For
starters, there is no legal precedent for selling a brand on the
condition that its identity remain protected in perpetuity. Once an
owner takes possession of a brand they can, quite legitimately, do
whatever they wish to the logo or name.

I suspect the real story here is a savvy company drumming up publicity
about its desire to sell, the fact that it has a potential buyer in
place, and that the asking price is £20m. Marketing doesn't just
work on everyday punters. It can be just as effective on the people who
buy businesses too. R Capital wants a bidding war, not a polite Italian
deal. It might just get it.

30 SECONDS ON ... LITTLE CHEF'S OWNERSHIP CHANGES

- Caravan manufacturer Sam Alper opened the first Little Chef in 1958.
By the late-60s, it had become part of Gardner Merchant, which merged
with Charles Forte's empire to become Trusthouse Forte.

- In 1996, Granada mounted a hostile takeover for Forte and converted
its Happy Eaters to the Little Chef brand.

- Following a merger and demerger, Little Chef ended up as part of
Compass Group in 2001. Permira then bought the chain as well as
Travelodge in 2002, before selling it to the Wosskow-fronted The
People's Restaurant in 2005.

- Changes introduced by the group included the opening of 'grab 'n' go'
Coffee Tempo! shops within bigger branches and the introduction of a
takeaway menu to appeal to customers who didn't want to hang around. It
also slashed prices.

- R Capital paid just under £10m for the chain on 3 January 2007.