Supermac’s founder aims to supersize his empire

Supermac's impresario Pat McDonagh arrives slightly late for our meeting. There was a problem with his phone which caused him to drop in to the Kinnegad Plaza on his trip from Galway to Dublin to get a charger. "I'm coffee'd out," he says as I offer a drink, giving the impression he's been on the go for most of the morning, despite it only being 10.30.

It's not hard to believe that he's been busy. His motorway service station group is about to complete construction on its fifth "plaza" in Portlaoise. This division of his business adds to the 108 Supermac's outlets he controls, along with the six hotels and the four pubs in the United States.

But the monster plazas are the big growth area, costing upwards of €7.5 million apiece. McDonagh hopes to recoup his investment inside 10 to 12 years. In the current climate, with the spread of Covid-19, how does he view the economic outlook for this year?

“It’s going to change the whole face of the country and we’ve never experienced anything like this in our lifetime,” he says.

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Having spent 43 years in business, McDonagh has seen trends change and economic conditions improve and worsen. But the spread of the coronavirus, he says, is going to have a “devastating effect” on businesses throughout the country.

“There will be [business] casualties, there’s no question about that . . . At least in the last recession it was only a monetary issue, so everyone had their health to go back fighting and get back into the trenches again and work but this is a lot more serious because it affects the health and welfare of the whole country.”

Each division of his business will be troubled by this crisis, he says. In the tourism sector, McDonagh’s hotels have already seen the consequences of the spread of the virus. He’s hopeful that after six months things might return to normal.

Belt-tightening

While the spread of a virus has been a surprise, McDonagh has been preparing for a downturn. When I met him last November, he told me: “We’re faced with a little tightening of the belt coming forward”, adding his hope that “it won’t be too serious”.

At that time, when he was named EY Industry Entrepreneur of the Year, McDonagh also said that he was planning to improve his company’s sales in the next five years by as much as he did in the past 10. Is that target still realistic?

“I think everything is going to have to be reviewed after this,” he says.

That said, he’s still relatively buoyant about how the quick food service business will fare, given that people will “still go out, they’ll need to eat”.

McDonagh is still planning on growing the number of business assets he controls, even if turnover growth is stymied this year. In the "next few weeks", a motorway service station in Ennis will go for planning permission and another is being planned for the midlands. "We want to get it as far as we can in the sense that, while the opportunity is there, we want to take it," he says of the desire to expand the service station business.

While the expansion of his plaza group demonstrates the entrepreneur’s ability to spot trends earlier than most and capitalise on them, the increasing profile on climate change is surely a worry for his fast-food business. Is he at all worried that the best days of that industry are behind it, what with health consciousness taking hold?

“Oh god no. It’s a treat. I see it at times, certainly weekends, ladies in particular. They might be on a diet all week and Saturday night is their night out, so any good diet has a free night as well,” he says, chuckling.

“Quality food and fresh food” is still what consumers want, he proffers. “Trends come and go, some will stick, some won’t stick,” he adds noting the example of smoothies which were “the big thing six or seven years ago” but have since become outmoded.

One trend he is embracing is that of home delivery which has, he says, "changed the whole restaurant business". Supermac's is currently trialling with both Deliveroo and Uber. The delivery companies charge in excess of 20 per cent commission, McDonagh says, noting that it's a rate restaurateurs, and hoteliers selling through the likes of Booking. com, have already experienced.

“You have to be careful that you have a margin at the end of it and they’re not taking all the goodies.”

Nonetheless, business last year was good for McDonagh. While statutory accounts for 2019 are being finalised, he says profit came in just under the €20 million mark while turnover rose closer to €200 million across the group.

Yet even with that growth, McDonagh says he’s “not going to take the same risks” he did in the past just for the sake of expansion.

It looked all the more peculiar, then, when he started to build up a ragtag group of hotels as the economy began its turnaround. That move has since developed into the Só Hotel Group which has six hotels, including the Castletroy Park in Limerick and the Killeshin in Portlaoise. He freely admits there wasn't a strategy here, rather an "opportunity that arose".

Given that it's in its infancy, it's difficult for an outsider to judge how the hotel group will perform, but there's little doubt that Supermac's and the Plaza Group are both doing well. Where McDonagh has slipped up in business is with his Claddagh Irish Pubs in the US. And though this is a rare failure for the man who set up his first Supermac's in Ballinasloe many years ago, McDonagh says he has learned important lessons.

“It’s difficult to run a business 3,500 miles away and still keep an eye on your own side of things because business changes so fast. Unless you’re on the ground and know what’s happening, the opportunity can go.”

“We kind of came out clean [and] with the four [pubs] that are remaining hopefully we will make a profit on those.”

Galway GAA

Whatever happens with regard to the pub group, McDonagh is well able to fight his own corner, as two recent controversies demonstrated.

In 2018, Supermac’s signed a five-year deal which was reported at the time to be worth €2 million to continue sponsoring Galway GAA. But in October last year, the company called for investigations into the finances of Galway GAA to be made public. The statement from Supermac’s took the organisation by surprise, but McDonagh said that he had genuine concerns.

“I felt we lost the 2018 All-Ireland over what was going on in the county board.”

When Kevin Walsh stood down as Galway football manager in September last year, he made a point of thanking McDonagh and his wife Una "whose contribution to Galway GAA in general is the envy of counties throughout the country". But Walsh also hinted at discontent at the county set-up, saying he made several recommendations about the future of Galway football he hoped the county board would implement.

McDonagh reflects that the differences between the manager and county board “was a big contributing factor to not winning that All-Ireland”.

The controversy made McDonagh question the sponsorship he was providing but, ultimately, his concerns were appeased. “It’s a great game. I admire the players and the commitment they make and they don’t get that well rewarded for it . . . things have been resolved and there’s a more transparent financial situation there now that is going to work better going forward.”

So will an All-Ireland win come this year for the footballers or the hurlers?

"Both teams have done exceptionally well. The hurlers had a fantastic win over Tipperary recently and the footballers are going exceptionally well under Pádraic Joyce, so there's two good managers."

And will they win, I ask again.

“There was an energy in that Tipp game that I haven’t seen heretofore,” McDonagh says, expertly avoiding the question.

Galway GAA aside, McDonagh has also been battling US fast-food behemoth McDonald’s more so of late than he had been in the past. In January, the deadline passed for McDonald’s to appeal a ruling of the European Union’s intellectual property office, which had earlier found McDonald’s had not proven genuine use of the “Big Mac” trademark in a case pursued by the Irish entrepreneur.

Some have suggested that McDonagh’s pursuit of the American fast food giant is a marketing ploy and that he never intended to enter the wider European market. Is that the case?

“If it was, it turned out to be extremely smart,” he says, adding that, while opening Supermac’s on the continent seems unlikely, he does expect to open in the UK.

Taxing multinationals

Whether he does ever end up selling a chicken snack box in France remains to be seen, but there's a sense that he likes fighting his larger competitors just for the fun of it. And to some extent, there is an underlying discontent there, particularly where taxation of those multinationals is concerned.

"If you look at some of the bigger corporations, and I don't want to name Apple, but with €16 billion in an escrow account in Brussels, that's badly needed now in this country to deal with what's happening."

So would he have been in favour of taking that tax and the estimated €14.3 billion in the escrow account?

“I would have been in favour of it, especially now.”

McDonagh, along with all companies in the Republic, can avail of the 12.5 per cent corporation tax rate. Is he saying that that should change?

“One thing I learned from the case with our friends in the Big Mac is the amount of money they had saved, €3.7 billion, which is a lot of money,” he says, noting that the US group was able to do so through by availing of favourable tax treatment on profits which were routed through Luxembourg, Zurich and America. “So when you’re a competitor of those, they can pay a lot more on advertising, they can pay a lot more buying sites.”

Is he suggesting that the 12.5 per cent rate is too low, in that case?

“No, I’m not but how many are paying that? It’s only really the nationals. But the non-nationals aren’t paying anything like that; they’re paying feck all, really.”

While the tax affairs of his competitors may be a concern, there’s no doubt that insurance is his biggest bugbear. But after his almost relentless pursuit of change over the past 20 years, why has so little changed?

“It’s a big industry for some people. Follow the money, where does it go and you’ll see who benefits from it and they have a lot of clout in Dáil Éireann,” he says.

While he’s happy to fight these battles, they’re increasingly taking up more of his time, he notes. As we begin to wrap up our conversation, I ponder whether McDonagh could have had a simpler life had he stuck to a career as a national school teacher or whether he’s glad he left?

“What do you think?” Even though he works between 60 and 70 hours a week, it’s hard to see him having it any other way. But would he consider succession, or an IPO or some other device to lessen his time on the road?

“Look, Peter, I’m too young to be thinking along those lines yet,” says the 66-year-old before skipping off to a conference to talk about fraud. Some people get their kicks from golf and others like hiking: McDonagh clearly still gets a thrill from business.

CV

Name: Pat McDonagh

Age: 66

Position: Founder of Supermac's, the Plaza Group and Só Hotels.

From: Co Galway

Education: Brackloon National School near Kiltullagh in Co Galway, the Carmelite College in Moate and Mary Immaculate College in Co Limerick.

Family: Married to Una, they have four children.

Something you might expect: McDonagh eats in Supermac's "too much, as you can see". He particularly likes the 5oz beef burger or the chicken breast sandwich.

Something that might surprise: Despite his substantial wealth, McDonagh would never buy a new car "because you lose 10 per cent on it the minute you take it out of the garage".