Capital to overhaul ailing restaurants

Capital Radio is overhauling its restaurants less than a year after it moved into the catering business by purchasing the My Kinda Town chain. Cathy Newman reports on Capital's plans to convert several ailing restaurants into Latin American live music venues in a belated attempt to win the City's approval of the MKT deal.

Capital has responded to City scepticism about its pounds 57m acquisition of MKT last year by rethinking its approach to the restaurant business. MKT, which was last month renamed Capital Radio Restaurants, has decided to focus on two core brands - radio cafes, such as the Capital Radio Cafe in London's Leicester Square, and Latin American live music venues.

The Chicago Pizza Pie Factory in Mayfair is among a handful of restaurants which are likely to be renamed Havana, after MKT's flagship Fulham restaurant. The rebranding exercise could cost up to pounds 4m and would see ailing restaurants such as the Chicago Meatpackers restaurant in Glasgow take on the Havana name. MKT's existing Latin venues, which include Salsa! in Charing Cross Road and Cuba in Kensington High Street, are to remain untouched by the review. The Henry J Beans franchise, which has branches in London, Manchester and Bristol, is also likely to be maintained.

The Capital Radio Cafe is to be rebranded as the Radio Cafe, provided the pounds 87m acquisition of Virgin Radio is given the go-ahead by the Department of Trade and Industry. New radio cafes are to be set up in Birmingham and Southampton, where Capital owns local stations.

No one at Capital Radio could be contacted for comment yesterday. However, Russell Scott, who joined MKT as chief executive from Harry Ramsden's, the fish and chip shop operator, in May this year, is expected to outline his new strategy when Capital presents its full-year results next month. MKT is expected to contribute only around pounds 3m to Capital's pre-tax profits, according to City analysts.

Capital's foray into the restaurant business sent shares in the radio group slithering when it was announced last November. City analysts reacted with hostility to the MKT acquisition and questioned the wisdom of a radio group wholly owning a chain of restaurants. Some observers preferred the approach of Capital's rival, Jazz FM, which entered a joint venture with Regent Inns to set up live music bars.

Capital suffered another blow in July when its chief executive, Richard Eyre, quit to head up the ITV network. More bad news followed a month later when the Virgin deal was referred to the Monopolies and Mergers Commission. The MMC is due to report to the Department of Trade and Industry by 14 November, but a final decision is not expected until mid-December. Analysts say the shares are likely to drift until then, with investment houses such as Merrill Lynch predicting that the deal will be cleared, but under certain conditions.

Although the share price has begun to climb in the past few weeks, it is still some way off its peak last year of 733p, and has underperformed the FTSE All Share index by more than 20 per cent in recent months. Capital closed last night at 547.5p.