Julian Metcalfe: the Itsu chief on seeking ruthless efficiency

Julian Metcalfe is obsessed with the number seven. As chief executive of the Asian fast-food chain Itsu, the impeccably spoken 61-year-old is on a mission to “take on the fast-food giants” and supply “high-nutrient content, high fibre, delicious food” to the masses, he says. Meaning the price of a hot meal at Itsu should never veer from about £7.

Metcalfe has stuck to this price for several years but the target looks set to become almost impossible.

Food and utility prices are rising fast and a shortage of staff since hospitality businesses reopened after lockdown has resulted in a pay war, with higher-paying restaurants poaching employees from fast-food chains.

UKHospitality, the trade body, estimates that between businesses reopening in May and January next year, labour costs will have risen by up to 13 per cent, with utility bills rising by about 50 to 80 per cent in some cases. Itsu has increased pay for its shop-based workers three times this year, while the cost of shipping a container of ingredients from Korea has veered between $2,000 and $16,000 in recent weeks, Metcalfe says.

Executives at pub groups and other restaurant chains have warned that menu price rises are inevitable, but Metcalfe is adamant that Itsu prices will not go up.

Only a lunatic would think you can challenge the fast-food industry with sushi

It has been a bruising pandemic for takeaway food chains that, pre-Covid, relied heavily on office workers and commuters. The move to remote working over successive lockdowns left Itsu and rivals such as Pret A Manger, which Metcalfe founded with a college friend in 1986, scrambling to cut costs, diversify and increase delivery services.

Itsu’s delivery sales shot up to 18 per cent of total revenues during Covid and have settled back to about 14 per cent since restrictions eased, Metcalfe says.

Food-to-go businesses are beginning to recover as white-collar workers return to city hubs but progress is slow. When we meet for lunch, it is at a curry restaurant in the City, not at the Itsu down the road, one of 10 stores that remained closed (the Cannon Street site has subsequently reopened). Metcalfe says footfall is still half of what it should be in central London and he is in no rush to open sites that will not turn a profit. He applies the same logic to the company’s one US store, near New York’s Times Square.

Plans to open 25 sites each year are going well, but new stores will be outside London. Pre-pandemic, nearly all of Itsu’s 68 restaurants were in the capital. The company is targeting an initial public offering in five years, when its private equity owners, Bridgepoint, are likely to want an exit.

Sticking to a £7 price tag seems ironic for a Harrow-educated entrepreneur who counts a viceroy of India among his ancestors, but it is “a complete obsession”, Metcalfe says, and the mission has become more important. In a world where prices are rising, people are more likely to hunt out cheap, usually unhealthy, fast food: “I want our food so you can eat it every week”.

All this means the Itsu boss has become, in his words, “ruthless” about making the business more efficient. Itsu, which Metcalfe founded in 1997 after a trip to Japan, has slashed its menu from 75 cold dishes to 18 predominantly hot ones, cutting down the choice of high margin but high-cost sushi.

“Soon only 20 per cent of what we sell will be sushi. Only a lunatic would think you can challenge the fast-food industry with sushi. It’s a ridiculous idea. What you can do is challenge the fast-food industry with brown rice and vegetables and dumplings and bao,” Metcalfe says.

Itsu has a no-flame policy, so food is steamed rather than fried in order to save the £150,000 to £200,000 per site cost of commercial ventilation. Three robots in every Itsu kitchen, at £20,000 each, prepare rice for the company’s reduced sushi range — a saving given the escalating cost of staff.

Metcalfe has also spent the better part of a decade sourcing suppliers in Japan and Korea that provide ingredients such as the seaweed, rice cakes and noodles used by the chain at a fraction of the UK production cost. He gesticulates enthusiastically about the automated factory in Japan where Itsu’s miso soup is made. “[It’s] mind blowing. It’s all robots.”

If Itsu bought its noodles from the UK it would cost the business £1.50 per portion. Instead it costs the company 30p, Metcalfe says.

The most recent innovation is the introduction of kiosks with screens that customers can punch their orders into directly, similar to those being rolled out at McDonald’s and KFC. The next step is to simplify the menu yet again to reduce prices in the evening and allow customers to add extra ingredients such as a poached egg or meatless meatballs, which Itsu’s development team — driven by Metcalfe’s relentless cost and quality control — have taken a year to perfect.

I ask how he kept staff motivated when they were on the third iteration of a vegan meatball or when the prawn gyoza, in development for two years, was still “not good enough”?

Metcalfe says they are driven by the mission to sell affordable, healthy food, adding: “You do it because you see it works.” You make the staff comfortable with the process or product and “then they speed it up”. Suggestions also come from the bottom up. “If you don’t listen to the people you work with in my industry you’re an idiot,” he says.

The day before our meeting the Itsu boss was in the company’s new Bicester shop working with staff on where to put the screens, while on Friday of the previous week he toured “three or four” sites “just to talk to the staff about what we could do better, what’s not working”.

Despite the financial trauma of closing, lockdowns have, in a roundabout way, been good for the cost crusade.

Itsu pushed through a company voluntary arrangement — a type of debt restructuring used to reduce rents — in August last year, allowing it to cut its rent cost from about 26 per cent of sales to 10 per cent.

Lockdowns also gave the business time to hone its processes, and widespread uptake of face masks means Metcalfe can sneak into shops unrecognised and test the experience from a customer’s point of view.

Pano Christou, chief executive of Pret A Manger, says that Metcalfe has “an insatiable fixation with detail, which has really helped with the brands he has developed”.

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Metcalfe admits that pushing the business to run efficiently enough that it can sell meals for £7 — the most expensive dish is £8.29 — has been the work of almost 20 years and the investment means Itsu has rarely turned a pre-tax profit. But, he says, with the opening of the chain’s Guildford site, the eighth that will have robots and screens, “if I was hit by a truck, my work would be done”. Margins are now “fantastic” but the money is going back into growing the chain, he adds. “That we don’t turn a pre-tax profit and give a dividend I don’t mind at all.”

The one thing that Metcalfe will never cut is the fresh orchids that adorn each Itsu shop. “If you have quite a boring wall, it means you don’t have to refurbish every five years with new pictures, new wood, new banquettes . . . all the money goes into fresh orchids, which people actually notice far more.”