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Fri 23rd Mar 2012 - Novus, Amber Taverns & LT Pub Management

Story of the day:

Novus projects £35m profit per annum in three years’ time: London bar and restaurant operator Novus Leisure, led by Steve Richards, has projected sales of £240m per annum and an annual profit of £35m within three years. The company is forecasting sales of £146m, and profit of £18m for the current year ending in June. The company would like to have 75 to 80 sites trading in three “drive” formats - Lewis & Clarke, Jewel and Landmark. A total of 60 per cent of revenue currently comes from advanced bookings - it aims to increase this to 70 per cent with digital platforms as the driver. Richards told the Numis Securities leisure conference: “We don’t buy freehold sites. We bought Balls Brothers for a good price because we paid in cash - more of that will happen.” He said the company was in the market for 10,000 square foot sites where it was not afraid to pay between £400,000 and £600,000 a year in rent. “We often find we are the only bidder - down the tree with 6,000 square foot sites there is lots of competition (from restaurant operators).” The Balls Brothers acquisition is on target to deliver 54 per cent Return on Investment (ROI) on maturity - 53 per cent ROI had been delivered on new sites in the past four years. Novus has champagne volumes that are the equivalent of 1,700 managed pubs. Richard reported that the biggest single-night party spend in recent times was £115,000 at a bank event where everyone had to pretend it wasn’t a Christmas party despite “wearing hats and eating turkey”.

Industry news:

Cameron proposes minimum pricing: Prime Minister David Cameron is to set out plans to introduce minimum pricing with a suggested unit price of 40p. Cameron said binge-drinking could no longer be treated as a fringe issue. He added: “The responsibility of being in government isn’t always about doing the popular thing; it’s about the right thing. For the first time it will be illegal for shops to sell alcohol for less than this set price per unit. We’re consulting on the actual price, but if it is 40p that could mean 50,000 fewer crimes each year and 9,000 fewer alcohol-related deaths over the next decade.” The proposals also include a consultation on “buy one, get one free” offers, primarily targeted at supermarkets, and a focus on “problem nightclubs” where drunken customers end up in hospital. Meanwhile Health Secretary Andrew Lansley has unveiled a responsibility deal with major producers that involves signatories reducing unit content and removing some products from sale. On minimum pricing Andrew Cowan, boss of Diageo UK, said: “There is no credible evidence from anywhere in the world that it is an effective measure in reducing alcohol-related harm.”

Pubs and restaurants voucher levels running at high level in 2012: The number of vouchers offered by pubs and restaurants are at the higher level in the first two months of 2012 than the previous three years, according to market research company Horizons. Last year, there was a dramatic fall in the number of vouchers in the marketplace in the early months of the year, falling from more than 150 offers in January to about half that figure at Easter, with a rise later in the year but broadly below the levels seen in 2009 and 2010 as companies tried to wean customers off them. But 2012 has started at a high level and has so far shown a smaller reduction in their use than in previous years. Peter Backman, managing director of Horizons, told the Numis Securities leisure conference: “Vouchers are here for a long time yet – they’re probably something we have to get used to.”

Thrifty workers rely on lunch box: The traditional lunch box is making a comeback as workers save money by making their own sandwiches. Almost half of workers (49 per cent) prefer to make their own lunch. The research shows that one in 20 people have stopped eating lunch altogether as household budgets are squeezed. More than half of those polled (51 per cent) spend less than £10 on lunch for the entire week.

Thirty-six pub and restaurants in Edinburgh receive two-week alcohol suspension: A total of 32 pub, restaurants and hotels in Edinburgh have had their alcohol licences suspended for a fortnight after forgetting to pay their annual fee. The premises include a Zizzi’s and the Mercure Point hotel.

Starbucks launch into energy drinks market: Starbucks has launched into the energy drinks market with a new line of caffeinated fruit drinks called Starbucks Refreshers. The beverages will be available at 160,000 points of distribution by the end of April.

Company News:

Mitchells & Butlers to open Miller & Carter with bedrooms: Managed operator is to open a Miller & Carter steakhouse with bedrooms on the site of the former Marco Pierre White Swan Inn restaurant in Ormskirk. The venue will open on Thursday 12 April and has 12 bedrooms. The White Swan opened by Pierre White in February 2010 and was operated by Sanguine Hospitality - it has been closed for refurbishment since the start of the year in the wake of M&B acquiring it in December last year. At the time of closure Sanguine Hospitality said it wanted to focus on its “core business of operating large branded hotels in prime city centre sites, many of which incorporate thriving Marco Pierre White restaurants.”
 
Craft Brewing Company to open Brighton site tonight: Craft Beer Company, the pub retailer headed by Martin Hayes, is to open its third site this evening. The company has taken over the Spotted Dog, the Greene King pub previously operated by Dominic McCartan and Tony Leonard, and has re-named it Cask & Kitchen.
 
Greene King abandons Meet and Eat plan in Farnborough: Suffolk brewer and retailer Greene King has abandoned a plan to convert the Fox in Farnborough into a Meet and Eat franchised pub after strong local opposition. The company is now working with the licensee Maureen Binstead to make small-scale changes such as the opening up of the pub by removing a door linking two bars and serving some food.

LT Pub Management joins the ALMR: LT Pub Management, the operator of over 1,000 pubs led by Billy Buchanan, has become the 101st member of the Association of Licensed Multiple Retailers (ALMR). Nick Bish, chief executive of the ALMR, said: “It is really very good news that LT Pub Management is joining the ALMR. This industry is not just about the major brands and the niche entrepreneurs that usually grab attention. It’s also about the management of transition in the choppy economic waters and the sustaining of good businesses through changes of ownership. We are in unsung-hero territory here - LT Pub Management’s expertise is highly relevant to the work that ALMR does for everyone.”

Amber Taverns - “able to buy up to 15 freeholds a year”: Amber Taverns, the wet-led operator of 75 pubs led by James Baer and Bryan Wardman, has reported “plenty of availability” of community pubs to buy out of the large tenanted estates. Amber Taverns is buying community pubs for between £150,000 and £400,000 and then spending between £200,000 and £250,000 on a refurbishment. Baer told the Numis Securities leisure conference that there are four key elements of the design brief: to create a single room open plan lay-out; to provide a “better than front room” environment; install a comprehensive CCTV system; and offer an extensive big screen/audio visual package. Average weekly sales across the estate is between £8,000 and £9,000 per week with average unit Ebitda at £100,000. Every unit is profitable with a average of 600 barrels of beer a year sold. The plan is to buy between 12 and 15 pubs per annum with a £6m investment per year, generating a ROCE return of 20 per cent plus. Baer told the conference that food in pubs was sold at around twice the cost of supermarket meals. “Why shouldn’t we do the same with beer,” he said.

M&B denies customer-facing name change for Premium County Dining Group: Mitchells & Butlers has adopted the internal umbrella name Mayberry for its 90-strong Premium Country Dining Group (PCDG) collection of gastro-pubs. The name appears on the back of the menu of two recent PCDG openings but the company insists it is not something it’s going to continue to do. A spokesman told Morning Briefing: “For people who work for us, Premium Country Dining Group doesn’t exactly roll off the tongue.  Mayberry is more of an internal name. It did appear on the back of a couple of menus but that will not now continue going forward.” The PCDG group of pubs, which has been developed in a joint venture with Paul and Sue Salisbury and Paul Hales, have hitherto been unbranded to enhance their independent credentials. Morning Briefing reported a fortnight ago that the joint venture between M&B and the three entrepreneurs ended last year although Sue Salisbury is still working on design consultancy for the company that is due to last until October this year. Paul Salisbury and Paul Hales, who also run six-strong Lovely Pubs opened their last PCDG site, the Queen & Castle in Kenilworth, last year.

Domino’s launch German store with only digital marketing: Domino’s Pizza chief executive Lance Batchelor has reported that Domino’s has launched a new store in Germany with almost total reliance on digital marketing. The brand used Facebook, vital marketing and traditional leafleting. He told the Numis Securities leisure conference that is now “far from automatic” that the company will use expensive television and radio advertising to increase market awareness in a new market like Germany. The company currently has six people employed to work only on its Facebook pages.

Ainscough Group buys ninth site: The hotel, pub and restaurant operator Ainscough, led by Martin Ainscough, has bought the Ring of Bells in Lathom, near Ormskirk in Lancashire out the former Scottish & Newcastle Pub Company and British Waterways estate. The Ainscough estate includes the Eagle & Child at Bispham Green, and The Wizard at Nether Alderley, Cheshire.

Calco collapse left £12m bank shortfall: The collapse of 79-strong pub operator Calco Pubs in January left a bank shortfall of around £12m. Companies House filings show AIB Group (UK) plc, a subsidiary of Allied Irish Bank (GB), lent the firm £27.14m, but the value of its venues across the region only comes to £15m – so a shortfall of £12.14m remains. Trade creditors were left £11.79m out-of-pocket.

Friday Opinion:

Subjects: Starbucks concept store, liver disease figures and the Budget
Authors: Paul Charity, Paul Chase and Kate Nicholls

The premiumisation of Starbucks by Paul Charity: The first thing that strikes you when you walk into the much-hyped Starbucks concept store is the sheer scope of the place. At 4,000 square feet, it’s three times the size of the average Starbucks store. The company is calling the Amsterdam site “The Laboratory” - a place to test new ideas that might well get rolled across the rest of Europe. There’s lots of extra effort on the design front at the converted bank vault on Rembrandtplein. It’s clearly an attempt to break away from the perception that Starbucks only has a single design template. The multi-level store is full of back-breaking nods to local design and materials - antique Delft tiles on the wall, a reclaimed wash basin, wooden gingerbread moulds and re-cycled Dutch oak used to make tables and benches. There’s just under 2,000 pieces of individually sawn wooden block making up a central feature hanging down from the roof. Centrepiece of the store is a 16-seat table to encourage communal coffee drinking that allows strangers to interact. Overall, the concept store has a deliberate ages-old feeling - it’s hard to believe it’s been open less than eight days. But design is actually fairly functional - there’s a deliberate step away from comfy sofas. A lot of the best ideas are not really replicable elsewhere - it’s not as if Starbucks can set about trebling store footprint across the European business. The neatest touch is a separate coffee bar serving rare coffee beans for connoisseurs. The barista showed me one type of sun-dried coffee bean acquired by Starbucks roving team of buyers from just 50 Ethiopian coffee farmers – the bean is served in a variety of styles and in a choice of cups. There’s also an on-site bakery, an innovation that is unusual in Europe but is quite commonplace at brands like Panera Bread in the United States. The concept store seems like a clever way for Starbucks to reinforce its coffee credentials and localism, which is probably 95 per cent of the point. It’s reaping a large harvest of publicity at a moment when the company clearly feels the need to appear more in tune with its trading environments. It’s no coincidence that the concept store launched at a time when it’s changing coffee strength in the UK and driving hard to seem less faceless by using customers’ first names. But it’s interesting that Starbucks sees an upside in creating a premiumised version of itself even if only at one site. The move is about creating trickle-down glitter for the brand. Is the idea transferable to the pub and restaurant sector? Certainly. St Austell has long talked about creating a flagship site to show-off all things Cornish. And could not a Marston’s or Greene King create some brand buzz by opening a flagship pub that showcases their vast range of seasonal and mainstream cask ale brands at a time when the planets seems to be truly coming into alignment for cask ale?
Paul Charity is managing director of Propel Info


The economics of dying by Paul Chase: An article on BBC News presents us with a classic example of Medical Temperance misrepresentation. It reports the number of people dying from “liver disease” as having risen from 9,231 in 2001, to 11,575 in 2009. Chief executive of Alcohol Concern, Eric Appleby is then quoted as saying: “This report shows that loss of life from alcohol liver disease remains as big a problem as ever...” So, all of a sudden “deaths from liver disease” becomes “deaths from alcohol liver disease”! The number of deaths from alcohol liver disease, fibrosis and cirrhosis of the liver totalled 5,589 in 2009. So if liver disease deaths from all causes totalled 11,575, alcoholic liver disease deaths were 48 per cent of that total. Appleby then goes on to claim: “Minimum pricing of alcohol should do much to impact on the levels of drinking that lead to alcohol liver disease and so help to reduce the huge social and economic cost of the current death rate.” There are a number of things wrong about these two claims: firstly, outside of state alcohol monopolies like Canada, there is no evidence to support the proposition that minimum pricing, at the level currently suggested, will significantly reduce alcohol consumption per head; but there is a lot of evidence to suggest that “problem drinkers” are the ones least likely to reduce consumption because of marginal increases in price. Secondly, insofar as alcohol liver disease occurs mostly in retired people under 70 years’ old, that has a cost to the healthcare system. But if these deaths could be eliminated, and as a result these people lived on average another ten years, then that has huge cost implications for the pension system. I don’t mean to sound cold about this - I merely wish to point out that early death has an economic cost, but so too does extended life. Over the past five years deaths from alcohol liver disease have risen from 5,301 in 2005 to 5,589 in 2009 - an increase of 288. Deaths in 2009 were actually 178 fewer than in 2008. The thing to remember about alcohol liver disease deaths is that they are a “lagging indicator” - they represent the consequences of excessive alcohol consumption over a number of years. There is every reason to suppose that these figures will continue to fall over the long term as the consequence of falling alcohol consumption, down by 15 per cent over the past five years; fewer people drinking above recommended weekly limits - down 17 per cent in men and 19 per cent in women; and 87 per cent of people giving themselves three alcohol-free days a week - the latest BMA recommendation. We continue to see all the symptoms of moral panic on the issue of alcohol and its impact on health - the misuse of statistics, the exaggerated claims and fears, the call for further measures to suppress the mass market for beverage alcohol. This will continue to be the case for as long as we allow Medical Temperance to have cultural ownership of this issue. That’s what needs to be contested.
Paul Chase is director and head of UK Compliance at CPL Training


Giving with one hand, taking with the other by Kate Nicholls: The Chancellor promised a Budget for jobs so that Britain and Britons – we’re all in this together you know - could earn their way out of recession. However it is dressed up, it is hard to see how it will deliver. Yes, it looks as if we will narrowly avoid a double dip recession, but if we are to achieve better than the anaemic levels of current growth, then businesses needed much more from the Chancellor to help them invest in job creation, employment and training. Here, we got nothing. The Chancellor’s message to business appears to be, “I’ve done my bit - over to you”. Doubling the planned cut in corporation tax is estimated by the Treasury to give British business a cash boost equivalent to £800m a year over the next two years. Together with credit easing measures, this should in theory make it easier for businesses to invest in premises and people - there have even been suggestions that it could accelerate expansion plans in the pub industry. The reality is a little different. Although the corporation tax cut will come into effect on 6 April, it will be some time before most businesses feel the benefit. And then, only the largest - those with profits of less than £300,000 will see their tax bill stay the same. Given the current state of the world economy, many may choose to use the cash to insulate and future proof themselves rather than spend the Chancellor’s way out of the mire. For the licensed hospitality sector, it is a case of give with one hand and take with the other. Cheap loans and lower businesses taxes are unlikely to more than offset the average ten per cent tax hike on machines, six per cent increase in excise duties and eye-watering increases in business rates - all of which were confirmed. And that’s before you start to factor in the cost implications of the introduction of duty paid stamps for beer and new licensing requirements for wholesalers - both of which will add burdens which will be passed down the supply chain - and any of the new measures, including minimum pricing, in the Alcohol Strategy. It is likely that most operators will want to postpone decisions about how to spend their tax cut until they can see the implications of the Budget in full. The devil is always in the detail. One immediate decision which needs to be taken this weekend is how to respond to the duty increases, scheduled to take effect from Monday. Operators face a difficult choice between maintaining an attractive customer offer and margin maintenance. The headline 3-5p increase in duty for a pint of beer would need to translate into a 10-12p a pint increase in price to maintain GP per cent stability. Similarly, a 1.5p increase for spirits would translate into a 5p increase at the till. With the Chancellor telling the House of Commons there was “no change” to alcohol duty, and even national press reporting this as no increase, how willing will customers be to stomach such a price hike – particularly if it breaches £4 or £5 price points? We know customers will have extra money in their pockets – around £170 due to the changes in income tax – but this does not mean that they will be willing to spend. Public sector pay remains frozen and wage rate inflation overall remains below two per cent. With RPI almost double that, incomes are still dropping in real terms and customers remain deal-hungry. And, of course, any widening of the price differential between on and off trade will only enhance the appeal of drinking at home. So, pubs once again find themselves between a rock and a hard place - and the only give in the middle is the retailer’s margin. Limiting the price increase to 5p would keep the cash profit per pint stable. The question is: can the sector really afford to erode margins to such an extent? Initial research by the ALMR suggests that the changes to gaming machine duty will see most pubs with machines about £1,000 a year worse off. Given the fragility of that income stream, it would seem sensible to factor that into drinks price deliberations. Suddenly, that business tax cut has been spent several times over!
Kate Nicholls is strategic affairs director for the ALMR

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