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Morning Briefing for pub, restaurant and food wervice operators

Thu 2nd May 2013 - Ossett, SA Brain and Wetherspoon

Story of the day:

JD Wetherspoon ends eight-year property fraud litigation with final £400,000 settlement: Managed operator JD Wetherspoon has agreed to accept a payment of £400,000 from property investor Jason Harris to settle a legal claim. Wetherspoon alleged that Mr Harris, formerly of First London and now of First Urban Group, was an accessory to frauds committed by its former retained property agents Van de Berg. The claim was contested and liability was denied by Mr Harris. This claim stemmed from an earlier legal case in which Wetherspoon successfully sued Van de Berg and its directors Christian Braun, George Aldridge and Richard Harvey for fraudulently diverting freehold properties to third parties, while recommending that Wetherspoon took leases at rents which created an immediate increase in the freehold values. The properties in dispute in the case against Mr Harris were The Rhinoceros pub in Rotherham and The Lord Burton pub in Burton-on-Trent, both of which are still operated by Wetherspoon. Mr Justice Peter Smith had found, in the earlier Van de Berg case, that Van de Berg (but not Mr Harris, who was not a party to the case) had not informed Wetherspoon of the availability of the freeholds of Rotherham and Burton and had fraudulently diverted the freeholds to companies linked to Mr Harris. Wetherspoon chairman Tim Martin said: “I am pleased to have received a substantial payment from Mr Harris. This case follows the settlement of previous legal claims against Anthony Lyons, formerly of Davis Coffer Lyons, for £1.25 million and against Paul Ferrari, of Ferrari, Dewe and Co, for approximately £500,000. Although liability was denied by all of the defendants in each of the cases which followed the Van de Berg judgement, I believe that these cases contain an important message for agents and property investors; if you are offered very profitable back-to-back freehold deals by the retained agent of a retailer or other principal, it is advisable to verify in writing from the retailer itself that it has consented to the transaction. This is especially true if money, or other benefits flow from your business to the retained agent for any reason whatsoever, since all payments may come under close scrutiny where back-to-back deals are concerned.” This series of legal cases, which started with the Van de Berg case in 2005 and was followed by the Ferrari, Lyons and Harris cases, has now drawn to a close.

Propel Opinion by Paul Charity: Today’s £400,000 settlement ends an eight-year legal campaign by Wetherspoon founder Tim Martin. He told Propel last year: “This is partly about making sure people understand we will take legal action if we are defrauded by unscrupulous people in the property market. It has good educational value for people setting up property businesses that rules apply. To my mind, the property market is more open to abuse than the stock market.” Although Martin has now been successful in four different legal cases, the cost of the action has outweighed the damages won. But the Wetherspoon fonder also told me felt he had a duty to his shareholders to pursue the action to its bitter end, not least because he puts the total cost to the company of the fraud at between £50m and £100m. Martin’s pursuit of those who defrauded his company has taken up vast amounts of his time – I saw him giving evidence in the High Court in the original Van de Berg hearing and he was clearly master of every arcane detail. Similarly, he told me he had been forced to skip his usual round of Christmas and New Year site visits in order to devote time to the Anthony Lyons case. After eight years spent applying the former legal skills he learnt as a trainee barrister, he can now return full-time to his day job – the wandering chairman-at-large visiting sites and feeding back his observations to the Watford headquarters.

Industry news:

Horizons – menu prices rising: Menu prices are rising, especially in the south of England, as foodservice operators sense an increased willingness by consumers to spend when eating out. Speaking at Horizons Annual Briefing, Emma Read, Horizons director of marketing and business development, said the latest analysis by the Menurama survey of the sector, conducted twice a year “shows quite a pronounced lift in prices in the last survey.” With the average price of a main course having moved above £10 in the latest survey, Read added: “It seems operators finally have the confidence to move their prices up.” Regionally, “the south is pulling away from the average”. With consumer confidence still fragile, operators are tempering these price rises by increasing the number of meals deals on offer, with Horizons seeing increase offers along the lines of a meal and a drink, or two courses, for as set prices. Menu trends identified in the survey include an increase in premumisation, such as Frankie & Benny’s Salt and Pepper Scampi, and a continued revival in British cuisine, including Cox’s Apple Pie at Hix, and Mulled Fruit Eton Mess at Table Table. However, the growth of Mexican influences is one of the most marked trends, with Read saying Mexican food is rapidly becoming “the new chicken tikka masala”, moving from specialist restaurants into the mainstream of foodservice. She gave examples including a Duo of Quesadillas at All Bar One, Huevos Rancheros Mexican Breakfast at Giraffe, and Spicy Beef and Bean Tostada Flatbread at Slug & Lettuce. (See bottom of e-mail for a full report on menu and market trends from the Horizons Annual Briefing.)

MP – pubs that make a difference in the community should get a tax break: Bristol North MP Charlotte Leslie has called on the city’s Mayor to give tax breaks to pubs which make a difference in their communities. The idea is the Conservative MP’s latest move in her campaign for relief measures for pubs struggling with rising costs and competition from low-cost supermarkets. In a letter to Mayor George Ferguson, Leslie urged City Hall to recognise those pubs which “give back” to their community – by raising significant money for charity, for example. She asked for a reduction in business rates in exchange, which she believes are adding to an already difficult climate for pubs.

New ALMR chief executive starts role: The new Association of Licensed Multiple Retailer chief executive David McHattie began work for the trade body yesterday. He replaces Nick Bish who has headed the ALMR for 20 years.

Company news:

InnBrighton to operate pop-up during Brighton Fringe festival: InnBrighton, the operator of 44 pubs in Brighton and the south-east, led by Gavin George, has been chosen to operate the bars in the famous Spiegel Garden at this year’s Brighton Fringe Festival. The legendary pleasure garden, with its unique mirrored Belgian Spiegeltent has spent many years travelling to arts festivals throughout the world, playing host to the world’s greatest cabaret artists, musicians and circus burlesque performers. Throughout May 2013, it will be pitched in the Old Steine between the Pavilion and the Pier. InnBrighton will create and operate its own Spiegelpub, plus the bars in both the Spiegeltent itself and the Aperol Spritz Social, all three of them located in the Famous Spiegel Garden. George said: “We are thrilled for the city and its excellent arts festival that the Famous Spiegeltent has returned after a gap of seven years. We are hugely grateful for the support of our partners Heineken and Valdivieso in helping us create a pub as interesting and original as any in our estate, and we can’t wait to open its doors for the first time this Friday evening.”

Scotch Steak Houses enters administration: Scotch Steak Houses, the operator of three steak houses in London, has entered administration. Administrator Wilson Field was called in last month. In a statement, Wilson Field said: “Robert Dymond and Lisa Hogg of Wilson Field were appointed as joint administrators on 22 April 2013. Assets in the company had been sold prior to the appointment of the administrators. These transactions are currently being investigated.” Sites in London are in Queensway, Victoria Street and London Street - a site in the Strand has closed.

Ossett Brewing Company lines up four openings for 2013: Ossett Brewing Company plans to open four new pubs in Yorkshire this year. The £10m turnover business, which has an estate of 19 pubs, with four brewing sites across Yorkshire, is lining up two openings in the Leeds area, one in Bradford and another one in York. Mike Inman, joint managing director, told The Yorkshire Post: “We are also looking at potentially expanding the brewery, which is growing at a rate of about 15% per year. It is getting to the point where we are almost at capacity.” Brewing capacity is currently 200 brewers’ barrels a week – more than 57,000 pints.

Old Vic Theatre buys pub for more than £2m: The Old Vic Theatre has bought the next-door Waterloo Bar and Kitchen for more than £2 million. “We previously sold the freehold back in 2004,” said AG&G director Anthony Alder. “Despite the dramatic purchase price, the Old Vic regards the acquisition as a way to bring more flexibility to its business repertoire rather than a move into catering and the current management will continue running the restaurant.”

Gloucester pub and nightclub complex goes on the market: Three prominent Gloucester pubs and nightclubs have gone on the market. The Famous Pint Pot pub, Registry and Elevation late night bar and club form one of the largest licensed leisure venues in the south west, with separate entrances spread over two floors. The sites are owned by Places Trading. 

Douglas Jack – higher sales at Wetherspoon could be matched by margin decline: Numis Securities analyst Douglas Jack has warned that Wetherspoon third quarter results, due next Wednesday, could see higher sales matched by margin erosion. He said: “News flow on tax has improved, but not even a 10% increase in total sales could prevent PBT from falling and debt from rising in H1. We fear any upside risk from higher sales is matched by downside risk to margins. Like-for-like sales rose 6.9% in the first half of the financial year. However, the benefit of this sales growth and a 3.5% increase in the size of the estate was more than offset by a 102bps decline in margins (due to more promotional activity and higher tax, utilities, labour, food and drink costs), resulting in profit before tax falling 3%. JDW continues to struggle to pass on its cost increases. In Q3, we expect like-for-like sales to slow slightly (despite being up 7.3% in the first six weeks) and then slow further in Q4 due to tougher comparatives (which are: 2.1% in H1; 2.0% in Q3; and 6.1% in Q4). Our full year forecast assumes like-for-like sales rise 6%, implying a second half assumption of 5% like-for-like sales. Although there is slight upside to our like-for-like sales assumption, we believe this is fully offset by downside risk to margin forecasts. Although the end of the beer excise duty escalator is a big positive for the company, we still expect PBT to fall and debt to rise this year.”

Chimichanga to join Dean’s Diner at Whiteley shopping centre: Chimichanga, the Prezzo-owned Mexican brand, is to join the already-announced Dean’s Diner site, the emerging Richoux Group brand, at Whiteley Shopping Centre, near Fareham, Hampshire. The 320,000 sq ft development is 91% let, with a further 13 units that are subject to negotiations with solicitors. Chimichanga has signed for a 3,896 sq ft restaurant, along with an American themed restaurant, Dean’s Diner, which will open its fourth UK restaurant at the centre. All retailers have signed ten-year leases. The £84m development is a joint venture between British Land and Universities Superannuation Scheme (USS), which will open on 23 May.

Rupert Clevely – my worst business decision was buying a pub in the East End: Geronimo Pub Company founder Rupert Clevely has told Management Today that his worst business decision was buying a pub in the East End, in Canning Town. He said: “We’d been in business for four years, we had a string of successful pubs in west London behind us and we thought we were God. But it was an absolute disaster. My non-executive director called me on New Year’s Eve, saying: ‘Bloody hell, mate, we’ve got fights down here, we’ve got cocaine and heroin going on in the loos, the doormen we’ve employed are ex-wardens from Wandsworth prison and the customers are ex-inmates!’ Because of some dodgy characters in the local gang scene, we ended up basically having to give the pub away with no money changing hands. There were a lot of sleepless nights and we ended up writing off the £450,000 we had invested in the site, but let’s just say it was better that I did that. The lesson was ‘do your homework’. We didn’t understand the area and we didn’t do enough research to know for sure what kind of a business we were getting into. Perhaps we might have understood the dynamic of the place better if we had spent some more time getting the facts.”

Lincolnshire operator applies to turn landmark building into a nightclub: Pub and nightclub operator Matthew Clark has submitted an application to use a former Lincolnshire landmark as a nightclub and entertainment venue. The Grade II listed Boston Assembly Rooms was sold to Clark for £465,000 in November. Clark wants permission to open as a mixed assembly and leisure venue that could operate as a nightclub four days a week. It could also be used for staged entertainment, private parties, conferences and business meetings and is expected to create at least 35 jobs. Clark’s application said the plan would “revitalise a prominent building” within the town.

Whitbread hires property agent to find Paris sites: Whitbread has hired property agent Harper Dennis Hobbs to find sites on high streets in Paris as it prepares to open six of its own Costa Coffee outlets in the French capital. On Tuesday, Whitbread signaled its desire to operate hundreds of Costa Coffees in France after a franchise site at the Gare de Lyon, operated buy Elior, produced “very encouraging” trading. Whitbread is also trialing 130 Costa Express machines in Poland to establish the mechanics and support systems required to expand its takeaway machines into Europe. 

Greene King to convert Chesterton pub to Flame Grill concept: Greene King is to convert The Green Dragon pub in Water Street, Chesterton, Cambridgeshire to its Flame Grill concept. There is local opposition to changing the traditional dragon signage. A Greene King spokeswoman said: “We are currently upgrading and improving pub signs across the country, as part of extensive investment in our estate. This investment includes the roll out of our family friendly pub concept, Flame Grill.”

Paypal signs up PizzaExpress for electronic wallet: PizzaExpress has signed up with Paypal in the creation of its own electronic wallet, enabling customers to pay direct from their phone rather than dig out their debit card. PizzaExpress customers will be given the option to settle their bill direct from their handset, giving new meaning to the chains express claims. Paypal reports customers will be able to pay before they’ve stepped through the door, allowing coffee drinkers (for instance) to skip the queue by ordering and paying for their chosen beverage whilst walking down the street. David Marcus, Paypal’s chief executive, said: “This is radically changing etiquette and established social behaviour. If we don’t create an environment that clearly states that you are jumping the queue because you are using Paypal, other (customers) will turn against you.”

New Popworld opening to serve the lager-rita: The latest retro Popworld opening by Stonegate Pub Company, a £260,000 conversion of a Flames in Birmingham, will serve the lager-rita. Manager Mark Pinches was recently on holiday in Las Vegas when he spotted a drink that he thought would be a great hit in the late night bars of the Stonegate Pub Company. He said: “I was in Las Vegas when I saw a drink whereby two bottles of beer were essentially clipped into a large martini glass which people were sharing. The glass was filled with lime, tequila and the beer. As you took a sip, the beer would slowly flow into the glass. I thought it would be great for our bars, especially as so many people order our sharing drinks. I spoke with the team responsible for sourcing new drinks at Stonegate and they were able to get all of the equipment in order to create the drink and so the Lager-rita was born. We’ll be serving ours with Corona so it will be interesting to see what our customers think of the drink.”

Craft Beer Company goes online: Craft beer bar operator The Craft Beer Co has launched an online portal allowing consumers to order a wide range of bottled beers from around the world. Martin Hayes, managing director of the Craft Beer Co, said: “This isn’t about encouraging people to drink at home, it’s about allowing people to drink well at home. The team here spend a ridiculous amount of time sourcing great beers from around the world, but we recognise that they’re not accessible to all, so we thought it would be a good idea to offer them on a mail order basis. Initially we’ll start with a range of over 100 beers, but I can see that growing steeply very quickly. As we do within our venues, the beers will be competitively priced, but there’s room to treat yourself to something very special too.” The website ordering will be available from early June

Just Falafel lines up three openings: Just Falafel is lining up three more opening to add to its existing three sites in Covent Garden, Baker Street and Hammersmith Broadway. New sites are planned for Charing Cross, Croydon and Cambridge. Just Falafel plans to roll out 200 stores over the next five years across the UK and Ireland. Fadi Malas, chief executive of Just Falafel, said: “The UK is Just Falafel’s most dynamic market outside the Middle East, with queues regularly seen in our current, sought-after locations and hundreds of franchise requests coming in per week.”

SA Brain to expand its craft brewery: SA Brain is to expand its craft brewery. The company stated: “We will increase the craft brewery’s capacity with the addition of another fermentation vessel and extra cold storage tanks which will enable us to increase capacity.” Ian Beattie, brand manager at Brains, added: “Since we launched the craft brewery last year we have been struggling to meet demand and have been overwhelmed by the positive consumer reaction for our craft brewery beers. Our brand is connecting with the target consumer and it is fundamental that we remain at the forefront of the emerging craft beer market in the UK. In order to achieve this we need more capacity and the investment will ensure that we are able to meet the increased demand. Since the craft brewery started production it has brewed 22 new beers.” The company added: “Some have sold out in less than 40 minutes and two – Barry Island IPA and Boilermaker – have gained national distribution with Morrisons and Tesco.”

Subway launches £2m advertising campaign for flatbreads: Subway has begun kicked off a £2m multi-channel campaign for its new range of low-fat flatbreads. The nine-strong range of flatbread products contain less than 400 calories, less salt than its regular range of subs, and include one of your five-a-day, according to Subway. They have been introduced as part of Subway’s work on reducing calories and salt in its products, as well as offering healthier options. The new flatbreads are supported by charity Heart Research UK, and will be offered as an alternative to the range of low-fat subs and salads at the chain. Subway will be offering a brand new tandoori chicken flatbread with raita mint sauce for a limited six-week period, to encourage trial of the new breads. The £2m marketing campaign will include four weeks of national television advertising, as well as out-of-home advertising, and digital activity.

Oakwell Brewery reported to be selling or closing its estate of 30 community pubs: Oakwell Brewery, the brewer of Barsnley bitter headed by Lynne Booth, is reported to be selling or closing its estate of 30 pubs. A city pub is set to close in what the manager describes as a “sign of the times”. In Leicester, for example, it is closing the Ship Inn, in Soar Lane, in the city centre, the Meadows, in Beaumont Leys, closed earlier this year, and the Shakespeare’s Head in Southgate Road in the city centre, is being sold to a new owner and will stay open.Oakwell Brewery has found new owners for a handful of pubs in the estate but most will shut. The estate currently consists of 30 community pubs all managed. Locations are: Nottingham, Mansfield, Birmingham, Leicester, Manchester, Liverpool, Southport, Carlisle, Horncastle, Telford, Droitwich, Crewe and Flint. The brewery output to its managed houses an average of 102 barrels per week.

Fireball Whisky adverts banned by ASA: A series of adverts on the Facebook page for alcohol brand Fireball Whisky have been banned by the advertising watchdog for promoting excessive drinking and featuring models in pictures that appeared to be under the age of 25. The whisky brand’s Facebook page contained various status updates and photos on which the Advertising Standards Authority (ASA) can adjudicate under its extended remit, which from 2011 has included non-paid for online marketing communications. The Youth Alcohol Advertising Council challenged whether the ads were socially irresponsible because they promoted excessive drinking, suggested the product was capable of changing mood and enhancing mental capabilities and also breached the CAP Code because the people depicted appeared to be under 25.

Horizons annual briefing – full report:

Foodservice market not due to hit 2007 levels until 2016 in real terms: The foodservice market will not return to its 2007 level in real terms until the end of 2016, forecasts Horizons. Managing director Peter Backman, speaking at Horizons Annual Briefing, said that the foodservice market, measured as total food and beverage sales, was worth £44.1bn in 2012. While this was 2.1% nominal growth over 2011, once inflation is factored in the sector saw an annual decline of 0.4%. However, Horizons believes the rate of decline has now levelled off. “We’re in a position where the market has done its worst, is now flattening, and will move on,” said Backman. The market is now back to the same level as 2005 in real terms, and “we’ll see some growth but from a low base. It’s going to take a long time before we’re back to pre-recession levels.” Behind the overall picture, there are mixed fortunes across the sector. In terms of the 7.9bn foodservice meals Horizons expects to be served in 2013, growth is forecast for restaurants (+2.3%), quick service restaurants (+1%), hotels (+1.3%), leisure (+0.1%) and education (+0.1%). The number of meals served in pubs is forecast to decline by -1.5%, although this reflects the continued decline in the tenanted and leased sector, with branded food pubs and pub restaurants seeing growth. Declines in meals served are also forecast for staff catering (-5.4%), health care (-0.1%) and services (-0.2%). The sharp decline in staff catering is better news for other operators, said Backman, with more consumers going out of the workplace to buy lunch. Consumer confidence, “while not back to pre-recession levels, is stable and increasing.” The ‘popular foodservice’ sector, mainly comprising restaurants, pubs and quick service, has seen a ‘small upward drift’ in growth over the past five quarters, with chains outperforming the market, and London outperforming the UK as a whole. The use of vouchers and discounts by operators, closely tracked by Horizons over recent years, is changing, said Backman. While the peaks seen in offers during January and the summer continue, “the supply of vouchers is now quantitatively different, Operators are now using vouchers in a more targeted and creative way, for example targeting day parts and certain customer categories, rather than the more blunderbuss approach.” Operators are also becoming ore adepts at increasing trade by opening up new day parts, Horizons research shows. Sales of breakfasts increased by 4.4% in 2012, with snacks - defined as food sold outside the traditional meal time of lunch and dinner – up by the same figure. Overall, the key to success for operators is “making sure the offer meets customer expectations in terms of quality and price,” said Backman.

London operators to enjoy Olympics legacy this year: London restaurant and pub operators disappointed with sales during last summer’s Olympics should start to see the benefits in terms of increased tourism this year, delegates to Horizons Annual Briefing heard. Speaking during the panel debate at the briefing, Jan Matthews, CEO of RP Global, catering consultants to London 2012, acknowledged that businesses away from the Olympic venues were quiet during the Games. “In any Olympic city, the evidence is that elsewhere in the city food and beverage sales do suffer.” She added that as organisers “we did a very good job of scaring people away” with suggestions that London would be very busy during the Games, and this had helped ensure that transport to and from the Olympic venues ran smoothly. Matthews said that tourism figures from the London Mayor’s office and elsewhere suggested that increased visitors from this summer onwards would deliver the real benefits to operators. She cited the example of Barcelona, “which reinvented itself as a destination” after hosting the 1992 games. 

The economy faces four of five more challenging years: The UK economy faces another four to five more “challenging” years before it returns to pre-recession levels of growth, delegates at Horizons Annual Briefing were told. Chris Watling, chief executive of Longview Economics, said that the economy is lagging well behind the growth rate expected after a ‘normal’ economic downturn. At the same time, UK households ‘spare’ cashflow, essential for driving leisure and foodservice spend, is only expected to increase by 1% annually this year and in 2014. Watling said that GDP has only grown by 3% in real terms over the past 15 quarters, compared to being 6% to 10% higher over the same period after the downturns of 1975, 1981 and 1992. He described the low growth currently being seen as “a classic post-financial crisis recovery.” Inflation has also outpaced growth, hitting disposable income. Total inflation in the 12 years from 1994 to 2006 was 20%, with another 20% notched up between 2007 and 2012, “the same rate of inflation in just half the time.” Watling also warned that a reluctance by banks to deal with underperforming businesses is holding the economy back. He estimated that around 15% of companies are now “zombie businesses, able to service their debt but not to invest in growth.” However, Watling said there are now some grounds for optimism. Two-thirds of the public sector jobs, which the Coalition has committed to cutting, have already gone, while the private sector is creating jobs, particularly in manufacturing, ahead of the rate forecast by the CBI. With interest rates expected to stay low, household disposable income will also continue to increase, albeit at a slow rate, provided interest rates remain around the current level of 3%. He said: “The worst days of low growth are behind us, but it’s not going to go back to the gangbuster days of 3% annual growth yet.”

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