I suspect I feel like a Pizza Express debt holder this morning. Pretty rough, that is
I do, however, have one great advantage over the pizza express debt holder. I know that in a day or two the bug that has decided to afflict me will go away. They, on the other hand, will still be amongst the £1 billion plus debt holders of the company, running at more than £1.6 million per restaurant.
There are lessons to note in both cases. One is don't help out a friend when she has warned you she has a cold. The other is that there is only so much debt you can lay on top of a pizza before the mozzarella disappears from view. I would have thought that obvious, and yet apparently it is not.
Stopping the analysis at this point would, however, be a mistake. Clearly the debt arose for a reason. The first is an issue that I have alluded to for a long time, which is wildly optimistic business valuations. These plague the stock markets and trickle down. The High Street restaurant chains appear to have been particularly vulnerable to them. Pizza express simply was not worth the price paid for it by its latest owners. Now they are trying to make others pay the price for that. There is not nearly as much goodwill in the world as corporate valuations would suggest.
Second, even if debt is very cheap (and intra-group debt tends not to be) there is still only so much that any business can sustain before it is overburdened. Seemingly this has not been learned as yet.
And third? That is that this has a cost. I cannot be the only parent who was very relieved that there was such a thing as Pizza Express when their children were young. Its willingness to tolerate young children, preferably with some modicum of house training, provided the chance for a meal out for parents whilst introducing the idea to offspring that good behaviour is sometimes not just desirable, but a necessity. Pizza Express provided a valuable social service when doing so. So keen were my sons on the place that at least one had a birthday party there.
You might call all that so very middle class, and maybe it is. But the point is real nonetheless. All such customers are stakeholders of Pizza Express. They don't just provide the company with its profits, they also provide it with its social licence to operate in the communities of which they are a part. The burdening of the company with debt which now threatens its existence fails to recognise that fact, but does reflect the reality of modern business, and accounting.
Accounting says that only profit matters.
And it says that the only people who are of concern to a company or its suppliers of capital.
Neither is true. Pizza Express made its top line by employing local people to supply a local service to local communities who appreciated what it had to offer. That was the reality of the business. The debt-piling is not. The dough balls were, and are.
Until we get this understanding right we get business, and its accounting, wrong.
Which is precisely why the Corporate Accountability Network wants to rewrite the rules of accounting.
The Corporate Accountability Network won its first grant yesterday, on which more will be said when paperwork is done. In the meantime, the key issue is that all stakeholders matter to a business. Pizza Express has got the focus wrong. But I hope the matter can be put right. This is a business I would not be keen to see disappear.
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Get well soon Richard. Thanks for all your work.
It’s only a bug – but I hate them!
I think this is beyond a failure of accountancy. Basic common sense appears to have taken a serious hit.
Whilst accounting continues to focus on profits management is about other things. This is a failure of management. Business managers should not be slaves to accounting which should be seen as a management tool not a goal in itself.
Accounting is the lens through which business views itself, and ignores the world beyond finance
Richard, that is undoubtedly true for large and probably listed companies, but the owners of most SMEs (i.e. more than 90% of companies) have motives other than (reported) profit for being in business.
I hope you will look at (and perhaps account for) the social impact of a business, such as the number of lives that can depend on a salary. Who knows, but this might bring some real meaning to corporate social responsibility statements and changes in “right-sizing” practices.
The aim is to reform accounting for this sector as well
I’ve had a number of nice family moments in PE over the years too so I am disappointed to hear this. I always thought that their restaurants were step above many others.
The knock on effects to their supply chains will be hard on people too.
Sad and unnecessary.
Sorry to hear you’re feeling under the weather. Get well soon.
Back in the day Pizza Express was an excellent eaterie. Founder Peter Borzoi was inspirational. But, sadly, like so many other good commercial ideas, it became a victim of its own success after going public in 1993. Subsequently it was traded as a commodity, losing sight of its original market positioning and consumer offer. Simultaneously pizzas became staple food for the masses, delivered to your door for a tenner. Also for some time now there has been a gradual decline in the so-called ‘casual dining sector’.
As you suggest, by 2014 it certainly wasn’t worth almost a billion pounds. Debt? What debt? But, hey, that’s greedy global market capitalism for you, with the accounting fraternity one of its indispensable pillars.
Nevertheless, sad to see it go … if it does. Many of us oldies have happy nostalgic memories of jazz evenings in Dean Street. And the pizzas really were better (more authentic) than most others at the time.
If you live near Lancaster, then I reckon (hope) Pizza Margherita will remain open for business as a comparable alternative for the foreseeable future.
Pizza Margherita was established by Clementine Allen, who is/was the sister of Peter Boizot.
Agree about accounting and as well there is the other reason restaurants are struggling.
Locally our very good and busy independent pizza house is closing. I asked Filippo why was it that he was closing a busy popular business.
He said ‘I used to have four of these places but in the last few years I have had to close two of my businesses, this will be the third – all of them were popular. Now in this country you cant have well priced pizza’s and high property prices, they are incompatible. Its happening all over, the rents go up, and we no longer are part of the community.’
What a wonderful thing rentier capitalism is.
Regards
Paul
That’s the problem, in a nutshell
Oops – before I get set upon – the founder was ofc Peter Boizot. Apologies.
Responsible accountancy might well stop this sort of thing happening, but the problem is deeper and part of the neoliberal malaise. Maybe CAN will be instrumental in turning the tide.
High street businesses need customers. Customers are people with disposable income, and a business like Pizza Express needs a lot of them to remain viable. Especially so when they are prey to pillaging rentier finance demanding high returns.
We’ve already seen a number of ‘Household Names’ go down the tubes and lots more will follow until such time as governments realise that money does not trickle down it flows upwards through the economy. If there is any at the bottom to flow upwards.
Summary here:
How it was three decades of financial engineering, rather than ‘millennials going to Franco Manca’ turned Pizza Express into a hot mess.
Chris McCrudden
“Pizza Express is in trouble because it’s been financially engineered EVERY WHICH WAY and every time it changes hands more debt gets added to the company balance sheet.
After
1 buyout
2 IPOs
3 highly leveraged PE buyouts
I’m stunned there’s anything left.
Pizza Express isn’t a failure, it’s an astonishing success…
It’s a business that’s had been subjected to every perverse, bizarre and ill-starred financial engineering idea in the past 30 years and survived.
And they did all that by selling pizza.”
http://twitter.com/i/moments/1181590293029806081
True
Regarding overvaluation of businesses – and I don’t know whether this is relevant – and I am a little vague now on the details, but I remember when working for a multinational company when, probably in the 80s, intellectual property, trade marks etc. were allowed to be given an assessed value which again if I recall correctly pretty much overnight inflated the value of these companies – in some cases by a significant amount. I am not an accountant so I am unclear also as to how a declining brand would be treated in terms of its value in the company accounts. Sorry if this isn’t of relevance to the article but interested in any comments for my own education!
The problem really arose when the rules requiring the writing down of those intangible assets were relaxed – and excessive judgement was permitted. Accountants have not said enough to stop this over-reporting and the result is now apparent. They cannot avoid blame.