AETHOS recently reviewed the stability of the C-Suite at the Top50 largest hotel organisations across the globe (click here). The findings revealed that CEO turnover at these management companies has remained relatively low – at 8% in 2018. The 10-year average stands at just below 10%.
In very stark contrast, AETHOS conducted a recent study of the leadership teams at some of the UK’s prevalent fast casual and casual dining restaurant operators. The study indicates what many have pointed out for a while now – spearheading a restaurant company is a very ‘hot seat’ indeed.
It should be established that these organisations obviously only represent just a subsegment of the industry, but the brands are certainly amongst the more prominent ones on the high street. The peer group is thus only a snapshot, but a very relevant one. Looking at the tenure of the incumbent restaurant CEOs, the average tenure of an organisation’s last two CEOs, and analysing the CEO ‘churn rate,’ the numbers depict an industry that is seemingly defined by short-term fixes.
- The tenure of incumbent restaurant CEOs helps to assess whether we are presently in ‘times of change.’ On average, the current CEOs have been in their position for just about four years. At first sight, those are not too bad numbers. Yet, looking at additional data points provides a clearer picture: 25% of the CEOs have only been in their role for a maximum of a year and a half – in other words, besides some long-standing industry veterans, there are quite a few senior executives who have fairly recently joined their organisation. In fact, since 2016 there has been a reliably high number of changes in the C-suite – typically around five per year. It is hereby noteworthy to highlight that we have already seen five CEO departures since December of last year. Although the Top50 hotel companies have also recorded between four and five CEO changes during that same time period, those represent a much lower percentile of the surveyed group.
- The average tenure of the last two CEOs is meant to provide an additional measure of the stability of the leadership teams at the UK’s leading system chain restaurant organisations. With an average of nearly five years across the surveyed companies, the sector is certainly miles behind the hotel industry, and a lot more instable as it relates to its C-suite – the tenure of incumbent hotel CEOs already stands well above that figure, with more than nine years… Again, it is noteworthy to highlight that a few very long-standing restaurant CEOs skew the picture as 25% of the surveyed restaurant organisations have had their last two CEOs for only two years and a couple of months each – leaving very little time to those executives to develop, implement and subsequently adjust and/or amend a business strategy.
- The CEO ‘churn rate’ indicates the turnover during a three-year time period for the organisations included within the study. Remarkably, several restaurant brands have a churn rate of 100% (or more), indicating essentially that there is a revolving door of CEOs joining and leaving the organisations (e.g., Bill’s, Byron). In fact, this is the case with approximately 25% of the surveyed companies. A further 25% have a churn rate of 67%; in other words, these organisations have had two CEO changes in the last three years (e.g., PizzaExpress, Wagamama). In stark contrast, only one hotel company has had two CEOs in the last three years (Millennium & Copthorne).
Data seem to suggest that the restaurant industry is more volatile than the hotel space and that the CEO seat is a lot less secure than in the accommodation sector. Additionally, findings appear to indicate that – most likely heightened by the recent turbulent times as it relates to M&A activity, economic uncertainly and a higher level of competition – ‘instability’ within the UK restaurant industry has remained high throughout the last few years. This is not only depicted in the number of restaurants which the likes of – for example – Prezzo, Byron, Carluccio’s and Gourmet Burger Kitchen have had to close during 2018 (Giraffe and Ed’s Easy Diner are already following suit), but also in the changing faces in the board rooms of those organisations. In essence then, data appears to show that business shareholders are not willing to wait for long-term solutions, but instead opt for (potentially) short-term fixes. This is indicative of an industry that, as pessimists might say, is fighting for survival. On the flip side, optimists might suggest that the industry is merely adapting to change, with business owners pursuing a strategy in which one is happy to fail, but where one wants to fail fast and then move on.
By looking more closely at the CEO churn rate, one might find evidence supporting the latter view of the optimists – whilst approximately 50% of the surveyed companies have a churn rate of at least 67%, the other half of companies have not had any CEO changes in the last three years. The market is therefore split in half. On the one hand, there are companies that seem to have struggled to adapt to current market conditions or where the initial gumption and leadership from the brand founders have been difficult to replicate in their successors. On the other hand, there are those companies in which leadership has successfully ridden the turbulent waves of the recent past. Most interestingly, a great majority of these organisations are playing within the fast casual dining segment (such as, for example, Nando’s, PizzaHut and TGI Friday’s).
Be that as it may, for one reason or another, the restaurant industry remains highly volatile – or agile – however one wants to spin it. Arguably, some of the CEO turnover can be attributed to the fact that some CEOs may have opted to ‘cash in’ when private equity ownership groups decided to exit their investment. Other investors, upon rapidly expanding the footprint of their brands, may have recognised that the incumbent CEOs are not ‘fit for purpose.’ Yet, whilst change should be embraced, surely some companies may want to take a closer look at, for example, the Casual Dining Group, and see what can be learned from its CEO Steve Richards, who has been in place since late 2013. Then again, he has just announced his departure, leaving in May to join Parkdean Holidays…