Pizza Express will put 1100 people out of work by closing over 70 restaurants, as the beloved pizza chain tries to unsaddle itself from £1.1 billion of debt. Of the 73 restaurants shutting down, nine are in London, including the original on Wardour Street, Soho, according to i news.
It cites “the impact of the global pandemic” as the reason for the closures and resultant job losses, but as with so many of the casual dining chains that have shed restaurants like snakes shed skin during the crisis, the pandemic is the pin that burst a bubble of private equity debt and over-saturation.
Pizza Express has been teetering on the edge of closures like these for months, going as far to stave off rumours of its ~folding into Calzone Express~ with a video full of pizza puns back in October 2019. The cliff that it is teetering on is debt: debt piled on by 27 years of private equity acquisitions like toppings on a Romana since it went public in 1993. Most recently, Chinese investment firm Hony Capital paid £900 million for it in 2014, and, back in 2019, loaned its purchase £80 million to cut a small hole out of its debt and fill it with money, just like one of its Leggera pizzas.
Then, the novel coronavirus pandemic shut down restaurants in March 2020. It’s not like the interim was low-key for Pizza Express; its Woking restaurant found itself at the centre of a global child sex trafficking case thanks to Mr No Sweat Prince Andrew, and Brexit’s normcore hypeman Dominic Cummings chose to celebrate leaving-but-not-really-leaving the EU at one of its restaurants. But the shutdown finally pushed Pizza Express’s sale value below its external debt, and these restaurant closures, designed to cut costs, are joined by a significant “financial restructuring.”
Of its £1.1 billion debt, £735 million is external; the other ~£450 million is loans from current owner Hony Capital. That external debt is being reduced to £319 million, in a debt-for-equity deal. This means people known as “bondholders,” who are owed money by Pizza Express in the form of “secured notes,” give up that promise of money for equity — shares. It’s based on the sort-of-promise-but-investment-is-risky that less debt makes for a more stable company which will in turn provide a more consistent return on investment to the former bondholders. This in turn buys Pizza Express time, as it was previously due to repay over £450 million to those bondholders in 2021.
Pizza Express is also putting itself up for sale. The company will be transferred into the power of those bondholders if no bid from a third-party exceeds the value of their combined shareholding. Current owner Hony Capital will retain Pizza Express’ Chinese restaurant interests, but it has lost hundreds of millions as part of the deal.
The other big player in these closures is Pizza Express’s deeply embedded place in Britain’s restaurant psyche. Every time it flirts with mortal peril, there is an outpouring of preemptive grief, with its omnipresent blue-and-white branding, Sloppy Guiseppes, and yes, dough balls baked in to high street restaurant-going through the 1990s and into the early 2000s, the years before a 2008 recession that both made it easier for better restaurants than Pizza Express to open more cheaply and highlighted the importance of affordable, once good chains. Some of that omnipresence, though, came from voucher schemes and discounting that both brought in good will and sucked out money, leaving debt leveraging as the only route to expansion — even if that expansion was more in the interest of private equity firms than Pizza Express. It is, to this day, using a reopening offer of free doughballs with any main course — probably a pizza, but ymmv — that throws the brand back to 2005.
What that beloved status hides is this: its story, like a latter day Jose Mourinho, is not a special one. Bella Italia, Cafe Rouge, Gourmet Burger Kitchen, Byron Burger, Carluccio’s, and Pizza Express are all examples of successful, small restaurant brands that have been inflated by private equity beyond a scale that their offer can withstand, creating a fragile business model that, as the “casual dining crunch” of 2018 proved, was already unsustainable, pandemic or no pandemic. COVID-19 might have quickened the pace of these collapses, but the vastly inflated business models of private equity-backed restaurant groups are the base of the problem.
Pizza Express’s hope and claim is that a “smaller and better-invested UK restaurant estate” is a business with longevity. For this particular chain, the great irony of the novel coronavirus pandemic may be that in forcing its restaurants to close, it actually saved it from itself.