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Morning Briefing for pub, restaurant and food wervice operators

Mon 17th Sep 2012 - Realpubs, McDonald’s and Brewdog

Story of the day:

Greene King opens first Zone One Realpubs site: Greene King opened its first Realpubs site in a Zone One London location last Friday (14 September) – The King Stores in Bishopsgate - after a five-week refurbishment. The venue features a first floor dining room with an open kitchen, offer a London real ale focus with Trumans beer its main pouring ale, and a range of lagers produced in their country of origin with the exception of Kronenburg. The venue operates a no reservations policy and an a la carte menu. More trading space has been created by moving the kitchen and toilets. Greene King has so far converted two other pubs to the Realpubs premium format since it acquired the company, founded by Nick Pring and Malcolm Heap, for £53.1m in April 2011. But the company aims to convert as many as six before its year-end in April 2013. Other pubs within the Greene King estate expected to be converted are The St Margarets, in St Margarets, Twickenham and The Island Bar and Dining Room in Kensal Rise, a former Capital Pub Company site. Paul Hickman, former City analyst at Peel Hunt, recently reported that The Maynard Arms in Crouch End has seen turnover climb from £14,200 a week to £22,600 a week after a £408,000 investment to turn it to the Realpubs trading style. Meanwhile, The Black Lion in West Hampstead, the most recent investment, has seen turnover per week almost double from £12,500 to £24,200 after a £322,000 investment.

Did you know that St Austell Brewery is the UK’s most profitable family-owned regional brewer? The Propel Info Hospitality Sector Turnover and Profits Blue Book ranks the 200 leading pub, restaurant and foodservice companies in the UK by turnover and profit, provides a five-year overview of performance and lists directors’ salaries. To buy a copy e-mail Jo Charity or Sharon Dickinson on or

Industry news:

SAB Miller reports predicts huge profit increase for supermarkets after minimum pricing; Bulgarian wine producers oppose minimum pricing: A report commissioned by brewer SAB Miller has found the supermarkets will see a £1.8bn to £2.2bn profit windfall from the plan to introduce a minimum alcohol price. The move could also lead to the removal of own-label alcohol brands from supermarket shelves because they would no longer be competitive, it is argued. Meanwhile, Bulgarian wine producers have encouraged their government to raise concerns over UK minimum pricing. They fear a 50p unit price will hit exports. It is thought that other EU member states may now raise objections, arguing the move breaches European free trade laws. The European Commission has now extended its consultation on the Scottish government’s plan to introduce minimum pricing until the end of the year.

ALMR calls on Culture Secretary to scrap licensing advertising requirements: The government has renewed its commitment to cutting red tape burden, promising to scrap or reduce at least 3,000 of the estimated 6,500 regulations covering British businesses. Association of Licensed Multiple Retailers strategic affairs secretary Kate Nicholls said: “The ALMR has been persistent in calling for a reduction in the red tape burden which hinders operators and has written to the new Culture Secretary, Maria Miller urging her, if nothing else to scrap advertising requirements for licensing applications and introduce a single Annual Fee Payment date to ease the regulatory burden.”

Disposable incomes to rise next year but 20-year squeeze is on the way: A research body has forecast that disposable incomes will rise by next year. Poorer families will see a rise of 1.5 per cent while middle-income households will enjoy a rise of one per cent increase. Wealthy households will enjoy a 0.7 per cent increase. The report, by the Centre for Economics and Business Research, found incomes are falling by 0.2 per cent this year as a result of slow wage growth and high inflation. However, consumer watchdog Which? has warned that UK consumers face a squeeze on their disposable incomes in the next 20 years as energy, mortgage and food costs rise sharply. Energy costs will rise from 4.4 to 6.2 per cent of disposable income, food costs will rise from nine per cent to ten per cent of disposable income while housing costs – mortgage or rent payments - will leap from 24 to 30 per cent of incomes, driven by rising property prices.

Zagat Guide rates Pitt Cue Co alongside Le Gavroche: The Zagat Guide has given the better burger pop-up Pitt Cue Co the same rating as the Le Gavroche and Gordon Ramsay’s flagship Hospital Road site – a score of 28 out of 30. The guide rated Pitt Cue Co, which is now based in Soho, as “best newcomer”.

New London openings boom: The London Evening Standard has reported that 25 new restaurants are due to open in London before the end of October. Food critic Fay Maschler said the city has seen a blossoming of fast food ratcheted up to a level “where the provenance of ingredients and the imagination deployed in the preparation can compete with conventional establishments”.

Company news:

McDonald’s confirms second place in Propel Blue Book Profit and Turnover list with £176.5m pre-tax profit: McDonald’s UK, which employs 37,729 people in the UK, has reported its added £64m turnover in 2011 to hit total turnover of £1.248bn. Pre-tax profit rose from £157.2m in 2010 to hit £176.5m, confirming its number two position in profitability terms in the Propel Info Turnover and Profits Blue Book. Its highest paid director earned £904,000, up from £790,000 the year before. Income is split between company-owned restaurants producing £1.006bn of turnover and franchised sites providing £242.4m of income, with the latter showing growth of £35m in the year. The company said it is pursuing a strategy of franchising more company-run sites in the UK, which is “driving improved profitability”. Gross profit rose by £32m to £303m. The company reported it spent £44.1m on marketing and advertising in the year.

Vulture funds acquire Punch Taverns shares: So-called vulture funds have acquired more than half of Punch Taverns’ shares to increase their influence in crucial talks over debt restructuring, The Sunday Times reports. Punch Taverns has launched talks with investors over plans to hand control to its lenders in exchange for writing down hundreds of millions in loans. The vulture funds have increased their stake in Punch to ensure more leverage in negotiations so that they obtain a large minority holding in any restructuring. The funds, which invest in distressed companies, include Glenview Capital, Octavian Advisors, Luxor Capital Group and Avenue Capital.

Varde Partners considers cash investment in Barracuda: US hedge fund Varde Partners is looking at making a cash investment in 200-strong managed pub company Barracuda, currently led by former Mitchells & Butlers executive Roger Moxham, in return for a significant stake in the company, according to The Sunday Times. Varde is being advised by former Mitchells & Butlers chief executive Adam Fowle.

Charles Wells – we brew Red Stripe but it may be too expensive to stock: Bedford-based Charles Wells, which brews Red Stripe on behalf of brand owner Diageo, has written to its licensees warning them that they should switch to another premium lager after a £60-a-barrel price increase set for 1 October. Peter Wells, managing director of Charles Wells Pub Company, has sent letters out to its pubs warning licensees they will have put up the cost of a pint from around £3.80 to £4, which he said he had ‘no doubt would be unacceptable to many customers’. Wells told the local newspaper: “We’ve recommended that Charles Wells licensees switch from Red Stripe to an alternative premium lager as we believe the recent price increase imposed makes it extremely difficult to continue stocking it. In the meantime, the Bedford link with Red Stripe will remain, as the beer is brewed at the Wells and Young’s brewery but we regret that it will no longer be available to drink in most of our pubs.”

Brewdog secures second London site: Scottish brewer and retailer Brewdog has secured its second London venue - BrewDog Shoreditch is set to open in mid-October. It will be located at 51-55 Bethnal Green Road, at the intersection between Brick Lane and Redchurch Street in the heart of east London. A spokesman said: “BrewDog will be picking up the baton from the previous occupier of the premises and craft beer advocates, Mason & Taylor. We have supplied Mason & Taylor since it opened and love the staff, the atmosphere and the building itself. We are really excited to have worked with the team there to put this deal together and look forward to continuing to build our relationship with them in the future.” Mason & Taylor owner Ed Mason said: “We've worked with BrewDog since we opened two years ago and have always admired their innovative approach to craft beer. We are delighted that the venue will be in safe hands, continuing to serve our regulars with great beer and a friendly welcome.”

Tim Martin – we are successful because of 1,000 component parts: JD Wetherspoon founder Tim Martin has taken part in The Daily Telegraph’s Good News Britain series in which business leaders explain their success. He said: “Why are we doing well? I call it the 1,000 components of a BMW. We always try and upgrade every element of the business. But I think one of the deep underlying reasons is because of the bonus scheme we have for our staff, which amounts to a third of our pre-tax profits - or £24.1m. Some 85 per cent of that is paid to pub staff as a monthly bonus and in free shares, so it’s not too far off the John Lewis-type percentages over the years. That means our pub managers have been with us for an average of nine years, so we have got high labour retention. Another factor would be training. We have won numerous awards for training and we do a lot of courses for all grades of staff right up to a university degree in conjunction with Leeds Metropolitan University. Our motto is: it’s a people thing. I know that’s a bit corny but that’s what pubs are. We have also done things like opened up pubs early for breakfasts. Unlike a lot of pubs, we haven’t let the cafe society take away our business because we sell a heck of a lot of coffee and tea, and we went into that in a serious way some years ago.”

Osbourne Leisure sets up stand-alone; plans third site: Osbourne Leisure, the company that was short-listed in the MA250 awards in the newcomer category and is led by Mark Arrol, is opening a stand-alone site under a separate vehicle, Sloan’s. Arrol said: “It’s called Sloan’s because the premises was previously named this, when it was a renowned billiard hall and has the name etched into the exterior stonework! Work started on the site this week, with the opening targeted for the end of October. The long-awaited third Osbourne site is likely to be in Middlesbrough, with the purchase of an existing bar with solicitors at the moment.”

Rufus Hall – don’t forget the A-board: Managed operator Orchid chief executive Rufus Hall has argued that pubs shouldn’t overlook traditional marketing devices such as the A-board in the era of digital marketing. In his blog, he said: “We’re in the age of digital marketing and we’re making great strides in this area with virtually all of our businesses focussed on marketing via social media and our ever expanding database. However, let’s not forget that some of those traditional pub marketing methods are as relevant today as they’ve ever been. Take the humble A-Board. Recent research shows that more than 25 per cent of pub customers travel less than 400 yards to get to the pub - they walk. Therefore, the humble A-Board could be the difference between them coming in or walking past.”

Marston’s opens The Lobster Pot after £350,000 investment: Midlands based Marston’s has re-opened The Lobster Pot in Bridlington after a £350,000 investment. The pub was formerly known as The Broadacres.

The power of the crowd – St Vibes ends up over-subscribed: A late surge of investors saw St Vibes, a new restaurant and bar, planned by chef Isaac McHale and restaurateurs Daniel Willis and Johnny Smith for Shoreditch Town Hall in London, over-subscribed by £108,000 for its crowd-funding target of £250,000. A deadline to raise £250,000 through “crowd-funding” was set for last Monday on the Crowdcube website. In the event, a total of 50 investors were attracted with the target level easily beaten. 

Boship Farm Hotel on the market for £1.9m: The freehold of historic Boship Farm Hotel in East Sussex has come on the market for £1.9m through agent Christie + Co. The hotel offers 47 en-suite letting bedrooms, extensive conference banqueting facilities, restaurant, an all-weather tennis court, swimming pool and a helipad – it has more than 30 weddings this year in addition to numerous other events and conferences. Andrew Moore, of Christie + Co, said: “This property possesses tremendous potential, offering prospective buyers ample scope to increase profitability across all trading areas. The business is currently being operated under management with Legacy Hotels and we consider that an experienced owner-operator would be able to fully exploit the hotel’s unique trading location.”

Former Mitchells & Butlers executive to focus on “golden standards: Former Mitchells & Butlers executive Kevin Todd is to focus on radical business transformation at the Rosinter in Russia restaurant chain where he became chief executive six months ago. The plan is to create “a golden standard” of service, halt expansion, revitalise core brands such as Planet Sushi and TGI Friday’s, through investment. Rosinter is facing substantial losses for the second consecutive year - in 2011, the company suffered a net loss of over $10 million. The company hopes to be back in growth by 2015. 

Restaurant Group submits plan for four restaurants: The Restaurant Group has submitted a plan to Exeter City Council for four restaurants and six business and industrial units on a derelict site in Exeter. The scheme is set to be occupied by a Frankie and Benny’s, Chiquito and Starbucks. The plans, submitted by The Restaurant Group, include four restaurants with a total internal space of 11,820 sq ft, and 23,850 sq ft of industrial and business units at the site off Marsh Barton Road. Planning officers at Exeter City Council have recommended the scheme be approved at a meeting next week. The Restaurant Group said the scheme could create between 133 and 320 full time jobs.

Shepherd Neame re-opens Frinton-on-Sea’s only pub: Faversham-based Shepherd Neame has re-opened The Lock & Barrel in Frinton-on-Sea, the town’s only pub, after a refurbishment. The refurbishment includes a complete re-decoration with new carpets and re-sanded wooden floors. Outside, customers can now enjoy al-fresco eating and drinking in two paved courtyards with tables and chairs.

Vapiano to target London growth with £30m investment: Vapiano, the German company headed by Phil Sermon, is to target 20 openings in London with a £30m investment, The Financial Times has reported. Vapiano currently has only two outlets in London but has released plans for 20 across the city. The Vapiano style of pizza and pasta restaurant targets single and professional people. They don’t have waiting staff but customers engage with the chefs directly. The two existing sites in London are understood to take around £50,000-per-week. “The pizza and pasta concept is in urgent need of repackaging in most places,” said Gregor Gurlach, Vapiano’s chief executive told the Financial Times. “PizzaExpress is the closest competitor in the UK, but they have table service (and are) more traditional. We have a big bar area, we’re a little younger and more dynamic.”

Reflection on the Wetherspoon results by Paul Hickman

JD Wetherspoon is widely appreciated by customers and investors alike, and has again delivered results comfortably ahead of expectations, with a 17 per cent increase in earnings per share. The company is a leisure retailing phenomenon, but it is important to understand it for what it isn't, as much as for what it is. The key phrase in Wetherspoon's results presentation was when chief executive John Hutson said: ‘We try to avoid acting like a brand’. He went on to say that Wetherspoon is, nevertheless, perceived as a brand, and indeed increasingly as a popular dining brand. He might have added that Wetherspoon is, de facto, the biggest pub brand in the UK with its 860 units. 

However, Hutson's words go to the heart of the Wetherspoon strategy - which is, in many ways, that there is no strategy. Wetherspoon was conceived some 30 years ago in an effort to preserve some of the best features of the traditional pub - good beer, good food, peace, and social contact. At its heart are good retail operating standards, which are still rightly respected throughout the industry. It is no mistake that the investor presentation dwells on features that analysts cannot quantify, such as the large number of Loo of the Year Awards, training schemes, and an average of 4.7 in the Scores on the Doors scheme. Features that help to make Wetherspoon stand out as a badge of high quality on the High Street. 

The company is often, wrongly, analysed as focusing on the value market. Wrong, because Wetherspoon's actual approach is to offer its products at a competitive price, as far as justified by volume. In management's view, throughput enables it to price competitively, not the other way round. And that is why forecasting the results is in many ways a fool's errand, despite guidance of like-for-like sales once again in the two to three per cent range. The same applies to the dividend. Once more, Hutson was disarmingly honest in saying there “isn't really a dividend policy”. It's something the Board discusses every month. 

Investors who know and appreciate Wetherspoon do so because they recognise that the company remains opportunistic and nimble despite its size. It is often regarded as a trading stock - one that you buy when it's low and sell when it's high. And in many ways that trading approach is appropriate to management's tactical approach to the business. 
Paul Hickman is an independent commentator and former leisure analyst at Peel Hunt

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