The Great British 60-year diet is over

F&C's UK equities team are spying opportunities in some of the UK's leading restaurant groups.

Luke Newman , manager of F&C Special Situations Fund, and Makis Kaketsis, manager of F&C UK Dynamic Fund, said that a 60 year trend which has seen a decline in the portion of disposable income spent on food, was finally reversing and boosting restaurant profits.

"In developing economies, since the Second World War, we have seen a declining portion of disposable income spent on food. We believe that has now bottomed and looks to be increasing," said Newman.

"The reason for this is two fold. The first, is the growing popularity of eating out overstaying at home, the second is the increasing preoccupation with healthy living, which has seen a move towards healthy food boosting organic and GM-free sales."

Both Kaketsis and Newman invest in The Restaurant Group which owns Frankie & Benny's and Tex-Mex restaurant chain Chicitos. They also invest in Spanish tapas chain La Tasca and The Clapham House Group, owners of brands such as The Bombay Bicycle Club, The Real Greek and The Gourmet Burger Kitchen.

"The success of these brands is testament to the fact that dining out has become an integral part of socialising and often the single most important part of an enjoyable evening. People are willing to pay a premium to spend a lunch time or an evening in a pleasant environment. The UK is at long last catching up with the US and continental Europe and we strongly believe this is a structural change which is here to stay," said Kaketsis.

"This trend is driving stronger operational performance but interest is also coming from private equity. Last year saw a bidding frenzy over Gondola Holdings the owners of nation-wide brand Pizza Express and we believe that M& A activity will continue in the sector this year. This should support valuations," he added.

Newman said in that 2007 all eyes will be on The Gourmet Burger Kitchen whose management team were responsible for the founding of Pizza Express.

"Parent company Gondola is accelerating its roll-out of The Gourmet Burger Kitchen format, which has already been a run-away success in the 13 existing sites in London. The company has an experienced management team and there is no reason why they cannot pursue a roll-out strategy that is equally as successful as the one they oversaw with Pizza Express.

"By rolling out the brand across the UK they can also create economies of scale, with cost savings on the procurement of food and marketing among other things, which is the rationale behind the enthusiasm from private equity buyers," added Newman.