Teds thoughts with Luke Johnson

We sit down with Luke Johnson to trace the real path from student nightlife hustles to building some of the best known names in UK hospitality. We talk honestly about why the 1990s felt like a golden age, why the market is harsher now, and what still makes a food and drink business worth backing. 
• getting into hospitality by accident through student parties and a nightclub deal 
• scaling from clubs and pubs into the Pizza Express listing and rapid growth years 
• what made the 1990s work: demand, costs, rents, regulation, available capital 
• building love for a brand through product quality, simplicity, and staff culture 
• why Gail’s benefits from vertical integration and in-house innovation 
• consumer polarisation and why the middle of the market is dangerous 
• common failure points: over rented sites, wrong locations, expensive fit outs 
• leases as liabilities under IFRS 16 and the risk of stacking debt on debt 
• the post-lockdown challenge: discretionary spending and rebuilding habits 
• creative destruction, comebacks, and why resilience is non-negotiable 
• trends to watch: weekday lunch concepts, grazing, small plates, brunch culture 
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Transcript

Why One Voice Exists

SPEAKER_00 0:00

Right, hi. I'm Ted Sharmer, founder of One Voice Hospitality. I spent over three decades in hospitality, but what's always mattered most to me are the people and the characters behind the businesses. Hospitality is built on conversation, trust, and relationships, and One Voice exists to bring those conversations together across the industry. There are big wins, real struggles, and a lot that doesn't get said out loud. I want to share these stories with you. Over the series, I'll be talking to some of the industry's leading figures, hear how they're built, adapted, raised capital, told their stories, and navigated change. So if you care about the sector, the people in it, and where it's heading, subscribe and join the conversation. So I did promise last time that I was only interested in quality, not quantity. And this morning I'm lucky enough to be sitting down with Luke Johnson. Welcome, Luke. Morning. Good morning, sir. We are of the week of the tube strikes. So London seems to be still functioning, thankfully, and I've uh attended Luke's office on my motorbike in one piece. So I'm happy that we all made it. Luke, as I explained to you earlier, the idea is to really share experiences, share your story. And although my journey here was on a motorbike, talking a little bit deeper and a bit of a little bit more long term, I think what I'd love to know is how you found yourself within the hospitality arena. What started your what piqued your interest in terms of investing, or indeed was it a different start to your journey?

SPEAKER_01 1:46

Well, like a lot of people, I got into the uh food, drink, entertainment business by accident while I was at university. I was 18, and my friend Hugh and I were hosting parties for students, and um my college said these were getting a bit too boisterous and they were to stop or I'd be thrown out. So Hugh came up with a brilliant idea of going to a local nightclub, which was called Scamps, in the Westgate Centre in Oxford, and to uh take it over on a Monday night when it was shut. And uh we struck a deal with the nightclub that um they took the bar money and we took the door money. So we charged a few quid on the door, and it was a defining moment when I arrived at uh, you know, half past seven or something, half an hour before we were due to open at eight o'clock, and was already a queue of people there. And I think we realised in that moment that we had a hit on our hands, and that very early success gave me a taste for business, because actually you and I were studying medicine. We were gonna, in theory, be doctors, thank God we didn't ever become them. Uh, and a taste for hospitality, entertaining people, providing them with uh a a good time, and so it's flowed from then. And then uh you said you've been in the trade 30 years, I've been in it arguably over 40, uh far too long. Uh but it is addictive, and while I've had a roast roller coaster ride with um some great ups and some fair disasters on the way, uh it has been fun. Thank you, Dr. Johnson. I think you've not been under I did graduate from university, but I never qualified as a doctor.

SPEAKER_00 3:45

Okay. Thank the Lord. Uh well I can't see any drugs in this room or prescription, so I'll take your word for it. As long as it won't hurt, Doctor. No. Um so from promoting, um, it still seems quite a jump.

Pubs To Pizza Express Listing

SPEAKER_01 3:58

What was your next what was the next uh well we did clubs in other places like Cambridge University in Bristol, uh and even in Hollywood one summer for fun. And then uh when we came to London, we got involved, Hugh led a thing to buy a few fag-in leases of pubs in and around places like uh Kenttown, and it went from there. The turning point was in uh '92, when uh we got together with a certain fellow who I think you've also talked to called David Page. Indeed. And we did a sort of three-way merger of a software business that Hugh and I controlled, which was a public company called Star Computer Group and David Page's group, GNF and Pizza Express. And David's group was the largest franchisee of Pizza Express, and we merged the three companies, which was a sort of reverse takeover and a way of listing Pizza Express, so it became Pizza Express PLC. And um the rest is history. It was um a very successful transaction all round, really. Uh uh the business through the 90s prospered greatly, and um I think that uh uh achievement um with many new openings and um a very significant increase in profits and so forth uh paved the way for the subsequent uh various involvements in different restaurant, bar, pub, club, and other hotels and other hospitality activities.

SPEAKER_00 5:43

Would you have called that the golden age, or was that to come, do you think?

SPEAKER_01 5:48

No, I think it was. And I think you look back on that era and you realise that you had, you know, perfect conditions of um a growing economy and increasing demand for from people uh to eat and drink out, uh and and sort of rising expectations and sophistication. Uh you had um you know sensible levels in hindsight of uh tax and regulation, uh unquestionably less competition, uh capital was available, um and uh yes, it was hard to find sites, but again, rents were I would argue much more reasonable than they have been in the recent past, albeit there's probably softening there. Um there was a period of at least ten years, I would say, of very benign inflation in terms of things like ingredients costs, utility costs, and so forth. Um and yeah, it was a golden age when a great many other groups started or were growing, uh demand rising, and um one looks on back back on those relatively benign times uh with with fondness and considers the much tougher conditions currently and feels very different.

SPEAKER_00 7:21

It surely is. I remember doing deals well when I started you you mentioned '92, did you just say? And I started back in ninety-one with Lake Trevor Shelley. And yeah, and I remember um I remember doing deals with the likes of Pizza Express and ASK at the time, and you know, rents. I I I've got an average in my head, I say an average, I remember sixty grand, eighty grand. I mean it would never really, it was never anywhere near a hundred for your typical rental deal. No. Um and like you say, you know, the costs of your ingredients of pizza, you know, your rents were low, and I mean it was it was quite the hero brand at the time.

SPEAKER_01 8:08

I'm not saying it's not still, you know, I think Pizza Express compared to the principal competitors then were Pizza Heart, Pizza Land, and Deep Pan Pizza. And we had a better product, and also we had a level of of sort of sophistication that they lacked, you know. We had the whole live jazz thing, we had fresh flowers on the table, marble tables, a proper wine list, etc. And it was a very simple offering, you know. Our our our kitchens were essentially a big oven, and um it we didn't complicate matters, and that meant you know, service was quick, uh, there was a focus on a single product, essentially pizza. Um the skill level required in the kitchen was somewhat less. Um and as I say, I think we offered a better product than the competitors, and indeed, at least two out of the three are no longer in business. So uh it worked, and um we I also think tended to attract the best staff, which also helped. And so when Pizza Express arrived in town, middle class people were delighted because uh it was a an affordable treat and a level a cut above what you know they'd traditionally seen as pizza, you know.

Building Brands People Truly Love

SPEAKER_00 9:32

I I remember our mantra at the time or times when times got tough between 91 forward, moving forwards let's say a decade or or so, maybe maybe or two. I don't want to go too far forwards. Um was always well when times get tough, you know, uh people might just kind of put their house move on hold or their holidays or their leather jacket on hold, but they'd always take themselves to a picture express and have a glass of wine with your missus or partner or whatever it was, it was always a kind of the last to fall on the first recover, um, as we saw it at that time. Um, but things have changed probably hugely dramatically, and um and I suppose what I what I'm not gonna do is cover off every business that you've ever been involved in because I just think it would take too long. But do you want to maybe talk about the ones that that you've you've been really have pressed your buttons in terms of uh excitement?

SPEAKER_01 10:34

Well, uh another great business I was involved with in its heyday um uh that uh was run by the wonderful Russell Joffey was Giraffe. Uh and I was chairman of that and one of the co-owners uh for roughly 10 years. Um we eventually sold it to Tesco and it was a very um enjoyable ride. I think he was a pioneer, he had previously had other businesses which had worked, and um, he comes from a highly entrepreneurial family, and it was one of the first places to do brunch properly, and he had he developed a great staff culture. I think he was a real leader in terms of training and retention and and choosing interesting people to come and work with him. Uh, and you know, many of the uh senior people in Girave have gone on to enjoy successful careers elsewhere in the sector. Um, so I think that was you know uh a fun trip. Uh, and then in the last 16 years, um the business that's probably been the most successful I've ever been involved with has been Gales, where I'm chairman and co-owner. And um that business is now approaching 200 branches and um goes from strength to strength. Indeed, I've I'm um but you can hardly escape Gales. That's the idea, yes.

SPEAKER_00 12:09

Availability everywhere, you see, for all our wonderful customers. Are there any parallels there between Pizza Express, do you think?

SPEAKER_01 12:18

Um Well, I think you know, we've managed to build considerable brand loyalty through the product itself. I think that it's the quality of what we sell that really matters. It's a vertically integrated business, so um we make almost everything we sell. Um and I think that's very important because I think certainly some of our competitors don't. So we control quality, uh, we're able to innovate, you know, we do the development in-house, uh, we can trial things more easily. Um and we have a much broader range of products than virtually anyone else we compete with. And uh I think that's you know part of why it works, and people love us. And um, you know, I think it's uh endurance has shown uh that it's a great formula and that uh people like what we do.

SPEAKER_00 13:25

I it just occurred to me as you're as you're talking and I'm listening that actually perhaps a marker of parallel on Pizza Express is uh and I think they get go somewhat further, is the gentrification. You know, when you see a nice Pizza Express, you were talking about that middle class. Yes. And I think Gales very much fits into that middle class tick box.

SPEAKER_01 13:45

Um unquestionably, I mean I was speaking yesterday, we had this frequent property meeting where we decide on new sites, and one of the sites coming up, uh I won't say where, but apparently the neighbourhoods abuzz, they're all excited that we're arriving, looking forward to us opening. And uh uh being able to get wonderful, freshly baked artist and bred a stroll from your home or your school or whatever it is, I think is pretty desirable for a lot of neighbourhoods and and communities, and uh that's what we're trying to offer. And uh yeah, I mean you could call it gentrification, you could call it uh the j the journey, if you like, that the British public have been on over the last few decades, which is I think from lots of categories from pizza or coffee or chocolate or beer or bread, we have uh demanded and and are getting a higher quality product. And uh compared to I think the range of things that were eaten in the 70s, say, uh when we were growing up, uh the quality of bread in London, certainly, for example, now more much more widely available, it's it's transformational, as with, you know, chocolate and coffee and so forth. And uh you know, I think London in particular, but other parts of the country, big cities, etc. Uh you know, you can now buy and and uh consume much better range of products, be it you know, crossles or chocolate or whatever it is, um i in a way that would have been inconceivable some years ago, and that's where a lot of people seem to want to spend their money. Uh I think it's a great thing.

SPEAKER_00 15:53

It occurs to me that w what you're mentioning now keys into the kind of polarisation of consumers and products, because what we're seeing in the market is a a struggle if you sit somewhere in the middle. And um obviously value-led propositions seem to be doing very well, fast food, quick service, etc. Not universally, but seems to be a great success. And I would suggest that girls sit somewhere at the kind of smarter end, if you like, not not in the middle. No. Are you conscious of that kind of polarization where you make investments?

SPEAKER_01 16:34

Unquestionably, premium products in many economies, the UK, America, etc., can prosper. Uh the middle where, you know, things might risk being bland, uh, not distinctive, can be dangerous territory. Uh the truth of the matter is that the sort of, I don't know, top twenty-five percent uh uh of the country have a great deal of the spending power. And um therefore, you know, they can afford treats of the sort that Gales sell. Uh it's much harder going for, you know, the bottom 50%. Um and that schism in society is pretty pronounced. Um uh and so therefore, if you're building a business, you need to think very carefully, if you want to do a very high-volume business, you need to be the low-cost operator. So, for example, in I don't know, the pub business, Weatherspoons is clearly that player. And competing against the Weatherspoons, the price they sell beer at or breakfast, is phenomenal. And, you know, they have the scale and they can operate uh their their ability to buy and uh uh manage large units. It means that for many public house operators to compete against weather spoons, certainly on price and even on range sometimes, is really tough. Uh so I would tend to always prefer to be at the premium end and go for quality and aim for customers who can afford the sort of artisan type products that we sell.

SPEAKER_00 18:30

It's I find it interesting. We talked about um our our observation where when times get tough, people would go to Picture Express and uh have a glass of wine, it was affordable, etc. And and things are so different now, and what we're observing is when people come into town, um, obviously less frequent, um, which seems to have not changed dramatically back to the old days, they do want more of a treat, more of an experience. They're much more um open-minded, even if it might not be as affordable just to enjoy that journey, that experience, that moment in time. So perhaps you're winning on that front as well.

SPEAKER_01 19:13

Yes, I mean Gales is an everyday experience. I think what you're referring to more is that if people are gonna have a night out, you know, they might go once a month rather than once a fortnight, but they will splash out and spend big and make it special and memorable. And um I think it's probably true, for example, in theatre and live performance, from what people have told me, you know, people are going less frequently, but when they do go out, they spend more because they want it to be the really big occasion.

Mistakes That Sink Hospitality Businesses

SPEAKER_00 19:54

And um I think that is probably a phenomenon, yes. And not that I'm one to dwell on negatives, quite the opposite, but in terms of learnings, um obviously not everything can be successful. Is there anything you'd like to share in terms of learnings that um in businesses that you might have wanted to have done differently or do again?

Resilience After Public Setbacks

The Ivy Regret And Raising Capital

SPEAKER_01 20:21

Yeah, I mean, you know, I've had plenty of setbacks and made mistakes, and um there's a long list of things that can go wrong, aren't there? You can get your property wrong. Uh I think I see that pretty often where you take on over-rented sites. Um you can choose the wrong location too. You can overspend on fit outs. That's easily done. Um I think one's got to remember that this industry we're in, to a certain degree, is a fashion business. You know, peep tastes change, and not many concepts last forever. And so um you want to be very thoughtful about the time horizons you have in terms of making a return, and think in terms of adapting and evolving your business because um, you know, there's forever new competition, there's different cuisines, there's different styles of operation, and standing still, generally speaking, will not work. Uh, most restaurants, I would say, don't outlive their founder. Um obviously you've got to work the right people, uh, and leadership's very important. So whoever is running the operation has to have the commitment um and the energy and the health and the um intelligence uh to do the job properly. Uh you have to have honest people working with you, you know, particularly in areas like finance. Um because, you know, if the numbers are wrong, then you're gonna get in trouble. Um I think a lot of us forget in the retail business we're in that a lease is a form of liability, you know, and that's why under the new IFRS 16 accounting standards it's put on the balance sheet as a debt-like item. And you should never forget that. So if you pile on bank debt or you know, interest-bearing debt on top of leases to fund your business, you know, that's a relatively uh high risk model. Um so I think that's something that you know companies and and operators can get wrong. Um we eating out, drinking out, going out for dancing, music, whatever, it's discretionary. At the end of the day, all of these things people can do at home or cheaply by going to the supermarket. And so you've got to make it special, you've you've got to, you know, maintain those standards day in, day out, and you've got to differentiate yourself. Uh if you're really just doing what they can get from, I don't know, waitress or MS or Tesco, I'm not sure that's gonna be enough, particularly in the sort of post-lockdown era when I think too many people unfortunately got out of the habit of going out to eat and drink and so forth. And um the recovery from that I have found generally across many aspects of society has been a struggle. Uh we also live in an era of higher tax and higher regulation. All of that can trip you up. And uh I think many of us have suffered from the onslaught of increases in uh you know national insurance and uh the spread and and rise in national living wage rates, you name it, uh as well as, you know, building regulations and what have you. All of that is hurting our sector very badly indeed. Um and I would say broadly, it's probably as tough a time as I can ever remember. And I think even if the country as a whole isn't in recession, it feels as if hospitality has its own recession. It's as if we've got this storm cloud hovering over our industry alone almost. I know we're not the only one badly affected, manufacturing is two with you know high energy costs, etc. But it feels very tough because we're very labour intensive and you know we're physically based, so we have premises, and uh it is you know hard going. There's no getting away from it, and margins are under pressure, and standards, it's it's tough to maintain them in such a you know period. Uh obviously entrepreneurs are resilient and um life goes on, the industry will survive, it's a massive industry, hundred billion a year plus the UK. And uh, you know, people are ingenious and make ends meet and work out a way to, you know, capitalise out of adversity, which it certainly is. Um I think on a personal level, having certainly seen things go really publicly wrong on various occasions, uh you know, you you you have to be grateful for your blessings, uh be they, you know, your family or the successes you've had in the past, you have to um believe that there will be sunlit uplands around the corner, if I'm not mixing metaphors, and that uh life's a long time, people are actually somewhat more forgiving than you might imagine, and everyone quite likes redemption story in a way. If you look at the arc of most you know s sort of fiction narratives, it's about redemption, you know, and comebacks, all that. So y you've got to find your optimism keep moving, never despair, and press on. And you know, if you're lucky enough that um you've kept your your health and your friendships and the the love of your family and all the rest of it, you know, virtually every single um reversal can be transformed in the end. And uh uh um you look at the careers of virtually every single, you know, successful business person, they've had numerous disasters and some of them even bankruptism, whatever, and yet they pick themselves up and press on, and that is the only answer, really, isn't it? Because uh what what else do you do? Go away and hide? I I don't think that's the right solution. So you you uh you know, this is a physically and and economically demanding job. There are probably easier ways to make a living and um uh build a fortune and uh uh one realises that, but you know, as I say, it's addictive the sociability of it, that business of giving people pleasure and uh i i i it's just an enjoyment factor in hospitality is such that um it's hard to beat in my opinion. So, you know find new ways of doing things better cheaper perhaps without lowering quality and uh never give up.

SPEAKER_00 28:20

Brilliant. I love that. I'm just going to glass half full everything because we sit here only a week later or so of the breaking news of the incredible global smashing records of caring sale of the ivy and his various stables of high end, again, which we've talked about these memorable experiences, um, which clearly it keys into all of those touch points that you've been talking about, quality, etc.

SPEAKER_01 28:57

How uh what's your uh mistake? Mine's my perspective's a bit bittersweet because of course I owned the Ivy and sold it to him when it was just the one. And I never saw the possibility of making it into a chain, and um, you know, missed opportunity there by God, you know. Uh imagine. So good for him, and I'm glad that you know there is still the appetite to invest in Britain because it is a UK business, um, and that people believe in British brands, um and that this sector can still attract capital. Uh unquestionably, it's been through ups and downs in terms of equity and debt and so forth, and I would say that this is not the best time to go and raise capital to uh start or grow a uh food and drink business. But you know, the success of that business and um there are others. I see Joe and the Jews, who've got quite a big operation in this country, just raised a bunch of money at a very punchy valuation. So uh there is the appetite out there amongst investors, uh, but you've got to have the right formula, you've got to have the right model, it makes very good sense, makes the returns, the margins, the cash flow, etc. Um and those models are not frequent. A lot of businesses don't have the right formula in this very challenging climate.

SPEAKER_00 30:33

Extremely polarized, isn't it? I mean, it almost reminds me of a of a scene of Hollywood where you do have these few stars who get paid an absolute fortune and it's got that kind of glamorous veneer from the outside, and yet 90% of the people in the sector are got second jobs and they are waitressing and wait waitering and uh and all the other things that people don't actually appreciate and realise. Um do you see hospitality as a similar story?

Creative Destruction On The High Street

SPEAKER_01 31:05

Um it can be, yes. Uh and that pyramid where um, you know, you have the few hits, the few best sellers, and then a vast, you know, number of um less successful operations, it it's it's resembling that rather more than it used to, I would say yes. Uh look, stuff gets recycled and buildings don't disappear even if the operation ceases to trade, something else will eventually occupy that space, and maybe it will be a success if it's, you know, interesting enough and tasty enough and good value enough as far as the customer's concerned. And people obviously get other jobs, and very often entrepreneurs, if one project doesn't work, they try another venture. That's the very nature of capitalism. You know, there is this thing called creative destruction where in tough times, you know, businesses uh cease uh and then they are reinvented and the the assets you know get redeployed, uh the allocation of capital shifts, and new new things start, and from the ashes, phoenix-like, uh suddenly a success can be born. And that is the sort of trajectory of human progress in a way, that um you know you you cannot have winners without losers. And that's the truth of life, isn't it? You know, you can't get away from that. Not every single operation on every single high street in every single town can be busy and successful.

SPEAKER_00 32:58

And some will triumph and some will not. Indeed. I'm conscious of time, so I'm gonna ask you two more questions. I normally only ask one more question. But I'm just curious from where you sit, are there any particular brands that you think are tremendously exciting at the moment, or any anything that's capturing your attention, or perhaps not even a brand, but just particular sectors or or subsectors?

Salad Lunches Grazing And Brunch

SPEAKER_01 33:27

Well, it's clear there's a lot of people chasing after what I would call the lunchtime salad business. So, you know, Farmer J and the like. I mean, there are sort of three or four of them, I reckon, who've got multiple sites. Um it'd be interesting to see how sustainable that offer is. Some of them are obviously doing good business. Uh I always slightly worry about a proposition that is essentially focused on Monday to Friday lunch business. You know, one of the things I love about Gales is we trade seven days a week from seven till seven, more or less everywhere. And, you know, we're open right through the holidays every day of the year virtually. And I love businesses that um, you know, make the most of the space and are open lots of hours and doing, you know, early, late, I don't mean, you know, we don't serve obviously into the evenings, but can what I think we cater to is this sort of grazing tendency. You know, people now snack much more than they used to. And um they eat at unusual times, and the strict sort of meal times of the past, you know, 12.30 to 2.30 for lunch and uh 7 till 9 for dinner and so forth doesn't really exist in the same way. And I think, you know, the whole small plates phenomenon is a sort of aspect of people wanting informality and sharing and smaller, possibly more frequent meals. Um and so businesses that can cater to that are possibly better placed than more traditional defined formal offers. Um having said that, of course, the ivy just got sold for a spectacular figure, and that I would argue is very much the formal end. So, but I think for many, many people, particularly Gen Z and so forth, the strict old school model of eating out has broken down. You know, their favourite meal of the week, I would argue, absolutely, is brunch, which people seem to have any time from ten o'clock till five o'clock. And uh I think that's part of why they like it, you know, and it might be a yogurt bowl or it might be a full-blown ex Benedict, you know, and it's everything in between. And I think that is part of why it's so successful.

What Hospitality Means In Real Life

SPEAKER_00 36:10

Thank you. So um to wrap things up, my final question is Luke Johnson, what does hospitality mean to you?

SPEAKER_01 36:22

Well, I think hospitality is very much in person, in real life, IRL. I think it is about uh making guests feel welcome and uh having a great time and entertaining time. I think it's about uh offering something different, uh something that is of quality and of value, uh and something special that they can't get at home. It is probably about something that is social. I'm not against single diners, but I think it's really about meeting others, being with other people, and you know, having conversation and laughter and other joys around food and drink essentially. I know it has things in in the greater scope, like, you know, hotels and and staying in, you know, resorts and all the rest of it, but I see at its heart hospitality as being meals together with friends and family, and uh, you know, there's some research that's shown the healthiest families are those that tend to have a proper evening meal most nights of the week, because this is the time when everyone gets together to uh talk about what they've done and how their lives are going and sits and across a meal communicate with others and be sociable and be alive. And I think that single sort of fact can be extended to society as a whole that eating and drinking with friends mostly out might be a dinner at home, but I would say it's often the best bet to go out to a restaurant or pub or whatever it might be. It's the essence of life to me. And um I I think you know it's it's it's civilization at a table, and that's what we in the hospitality industry offer. And it it's if you talk to people, you find that most of the highlights of their week, their month, their year are celebrations, occasions, a birthday party, uh wedding reception, whatever it is, with friends and family eating out, eating and drinking out. And uh that's what we do, and it's about making that as memorable and as enjoyable as possible.

SPEAKER_00 39:04

Brilliant, brilliant, brilliant. Thank you so much. Um, I hope you've enjoyed it half as much as I have, and I'm sure everybody listening would also have enjoyed it. So thank you very much again.