- BRW Lists
Published 21 March 2013 16:41, Updated 29 July 2013 13:13
Hugos Group co-owner Dave Evans plans to fund a bank-less expansion into Brisbane, then Perth, Dubai and beyond by selling and leasing back his Melbourne and Kings Cross restaurants.
Dave Evans. Not a name known to the masses; not until you link it with other names, anyway. He is the former boyfriend of Elle Macpherson and the brother of Pete from My Kitchen Rules.
Evans, pictured, is perfectly happy with his relative anonymity but he’s even happier if the name “Hugos” means something to you, too.
For it is the brand value of the group of bars and restaurants bearing that name that Evans will rely upon as he expands out of his Melbourne and Sydney bases to Brisbane, then Perth, Dubai and beyond.
Evans knows restaurants back-to-front, literally. Before founding a four-venue empire turning over $25 million a year, he flipped burgers at McDonalds during high school, then toiled as a bartender, waiter and trainee chef while studying hospitality management.
Evans might love to cook – he helped his brother design a pizza crowned “best in the world” at the American Pizza Challenge in 2005 – but he’s always preferred the business of running restaurants. “The kitchen is hot and stressful – it’s much more fun out on the floor,” he says.
As the 1990s dawned, Evans and fellow young chef Daniel Vaughan threw their savings into the Lager Bar near where they lived in Melbourne’s St. Kilda, creating “the sort of bar we’d want to go to with friends in our area,” he told The Sunday Telegraph in 2008.
“We were in touch with the audience. A lot of bars over-capitalise and don’t understand their target market.”
After accepting a generous buyout offer, Evans and Vaughan sought to repeat the trick in 1993 by opening The Pantry, on the site of an old corner shop in Brighton. AFL legend Sam Newman began frequenting the place, part of a pattern of celebrity endorsement that reached its zenith when Evans and Vaughan launched the Hugos brand name with a 60-seat restaurant in Bondi in 1996.
“Tom and Nicole used to come in once a week, they might bring Lachlan or James down with them,” Evans recalls.
“It’s fun as the owner to meet those people but you sit down with them and you can just feel everyone watching your table. Then the paparazzi start up.
“My brother has that experience now – he’s on the smaller scale but he’s got photographers at his door, can’t walk down the street the way he used to.”
Evans “hates” the spotlight of the gossip press, refusing to use it to advance his business interests.
He had the ideal chance to do so in 2008. At the same time as he was launching a new Hugos at Sydney’s Manly Wharf, photos of him with Elle were being published with almost distressing frequency.
“Who wants to be snapped when you haven’t been to the gym for a while?
“I suppose I could have milked it for the free publicity but when Manly came up, all I wanted to was to get out of [Sydney’s] eastern suburbs and away from the cameras.”
Evans is plainly less comfortable with fame than his younger brother, which he admits is part of the reason Peter sold him back his share of Hugos Group last year.
He thinks the celebrity chef factor is irrelevant to Hugos, which flirted with fine dining at Bondi but was an early mover on the casual dining and share-plate trend that dominates the industry today.
“We haven’t seen any change in turnover from Pete not being in the kitchen, or even in the company as it turns out,” Dave Evans says.
Scale, not celebrity, is the key to success in the restaurant business. The 150-seat Hugos Kings Cross opened in 2000 and Evans closed Hugos Bondi six years later.
“You can’t make money from a 60-seater in Sydney unless you want to be cooking and washing the dishes yourself,” he says.
Hugos Manly was bigger again, and transformative for Evans in another way – his landlord made a contribution to the fitout, which has given him a taste for deals where both he and the owner of the premises have “skin in the game”.
The landlord in this case is Robert Magid, the managing director of TMG Developments, whose wealth was estimated at $330 million on the 2012 BRW Rich 200 list.
As the lessee at Manly Wharf, Magid doesn’t hold much business faith in celebrity chefs either.
“They’ve got a habit of going broke,” he says. “You need to combine them with a good restaurateur, someone with a proven track record of cost control and attracting customers. It’s rare to find all that in one person.”
Evans would like to think the burgeoning Hugos brand had something to do with the deal he got at Manly, which also boasts a 10-year lease with an option to extend another 10 years, rather than the “five plus five” deals Magid prefers.
However, speaking to Magid today, it seems he was just caught at a weak moment.
“At the time we’d renovated, we had to fill the whole place up – that’s when we make the big offers,” he says, also noting the economy at the time was turning sour in the lead-up to the collapse of Lehman Brothers.
“Now that centre is established, 6 million people a year walk through it ... that Hugos is their best venue and our strongest outlet. It’s making a fortune.
“If he approached me today, he wouldn’t get a penny!”
The Manly deal is part of the reason Hugos Group is looking for a Brisbane landlord with a new building who needs an anchor restaurant tenant with a known brand and a track record and is prepared to pay accordingly.
“Some landlords still seem to think that giving you a box of concrete and drilling a few core holes in the ground is base building – ‘Here, you guys do the rest’,” Evans says. “I’m sorry but that was 10 years ago. I want my landlord to have skin in the game if he’s going to get my brand into his building.”
The problem with expanding a restaurant empire in 2013 is that the big banks have “almost cut themselves out of the market”, Evans says.
“When we opened Hugos Manly, we got a seven-year loan for the fitout,” the restaurateur says.
“Now since the GFC, if the bank even speaks to you, they want any loan paid back in full in three years.
“On a typical $4 million fitout, you add up the principal, interest and tax and suddenly you’re repaying $2 million a year for three years. The strain on cash flow is just prohibitive.”
To fund its move into Brisbane, Hugos will sell its Melbourne and Kings Cross premises but continue to operate them on a 20-year leaseback.
Agency agreements were signed last month with City Commercial in Sydney and CBRE in Melbourne.
“We’ve got millions tied up in property, going up at 5 per cent a year, whereas we back ourselves to make a 30 to 50 per cent a year return operating a bar/restaurant.
“The leaseback will allow us to operate more of them,” Evans says.
“We’ve structured rent increases we’re confident will work for investors and a market review in 10 years.
“You don’t want a market review any earlier because it can go up or down and both the investors and we, as operators, want certainty.”
Evans admires the deals on fitout that Echo Entertainment did to attract restaurant operators to its revamped Star casino in Sydney.
Echo paid for the entire fitout of its signature restaurants – which include Balla and Black by Ezard – and the company also pays for the staff and the stock.
Deals vary, but the operators are typically paid about 5 per cent of turnover and 10 per cent of the profit.
“I’d accept one of those deals any day of the week,” Evans says. “As an operator, it’s the best deal you’ll ever get. It’s a true partnership with your landlord.
“It’s a benchmark to work towards and I’ve been using it in my negotiations in Brisbane.”