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Morning Briefing for pub, restaurant and food wervice operators

Mon 1st Jul 2013 - Barracuda, Greene King, Orchid and Wetherspoon

Story of the day:

Research shows pubs increasingly becoming weekend haunts: New research from The NPD Group shows that Britain’s pubs are increasingly becoming weekend haunts and that weekday business is weakening. Between 2011 and 2012 weekday visits to pubs declined -3.7%, while weekend visits increased 5.9% in the same period. This change in visiting patterns is also reflected in sales, with a -3.9% decrease in weekday sales, and a 6.1% increase in weekend sales. Also in 2012, weekend sales accounted for 39.3% of sales overall and 37.5% of visits. Lunch trade has been a significant casualty in recent years, with visits declining by -3.9% annually since 2009, although pubs are becoming more popular as breakfast venues. There were 23.4% more breakfast visits to pubs in 2012 versus 2011. This reflects a growing trend, with an annual average increase in sales from pub breakfasts from end 2009 to end 2012 of more than 30%. Despite breakfast having a relatively high share for some pub chains (it accounts for 14 % of visits at JD Wetherspoon), overall it is still a small part of the picture accounting for 6.5% of pub visits in 2012 in contrast to lunch attracting 35.4% of visitors and dinner bringing in 38.5%, with the rest coming from snacking. Dinner is still the major source of pub sales, accounting for more than 48% of turnover in 2012. For 2012 versus 2011, lunch was the only other eating occasion to see an increase in sales, although this was a modest 0.7%. Sales from dinner were down -0.8% and from snacks -7.9%. A notable recent development concerns branded pubs – such as Wetherspoon, Brewers Fayre, Beefeater, Harvester, Toby Carvery – where the ABC1 socio-economic groups increased their share of traffic by 2.2% for the year ending March 2013. ABC1s now account for nearly 57% of branded pub traffic. Visits prompted by deals and promotions rose by 3% in 2012 versus 2011, with more than a quarter (28.4%) of all visits to a pub in 2012 driven by this kind of marketing activity. Guy Fielding, director of business development for The NPD Group, said: “The slight recovery at lunchtime seen in 2012 provides a glimmer of hope. Lunch is now in recovery across the quick service and food service retail sectors so there’s a real opportunity to use the lunchtime occasion to build weekday business in pubs too. A streamlined weekday lunch offer enables pubs to cash in on this growing market. Publicans will know that dinner is the major revenue driver and will be looking at tactics to bring back weekday trade. For those who run branded pubs, the growing ABC1 traffic presents the perfect opportunity to drive growth in evening meals.” 

Visits to pubs increasingly a family affair: The new NPD Group research finds that when Britons do visit the pub, it’s increasingly a family affair. Adult-only visits have posted consecutive year-on-year declines of -1.2% on average since 2009, a trend that was accelerated last year when the decline jumped to -2.7%. In contrast, parties with kids of all ages have enjoyed increases. The desire to eat as a family or spend time as a family is increasingly being cited as a primary motivation for visiting the pub. Visits for this reason accounted for 14.2% of all visits in 2012, up 2.3% on 2011. Guy Fielding, director of business development for The NPD Group, added: “The way people visit the pub has undergone a significant change in recent years as impromptu visits and an emphasis on drinking have given way to planned, family outings where food takes centre stage. So in terms of building business, pubs need to work hard to adapt their offerings to cater for this family food formula and ensure that their product and service offerings are sufficiently differentiated from the rest of the casual dining market in order to achieve growth in this competitive field.”

Industry news:

Host of operators win awards at Dusk ‘Til Dawn ceremony: A host of operators have won awards at the inaugural Association of Licensed Multiple Retailers awards for late-night operators, held last night at the Café de Paris in London. Hawksmoor won the ‘culinary’ award, Living Ventures won the ‘Bacchus’ award for best drinks list, Be At One in Clapham Common picked up an award for ‘total hospitality’, Luminar’s Cameo venue in Bournemouth won best entertainment venue, Novus Leisure’s Late Night London website won the “Full House’ award for best marketing and Beds and Bars came top in the ‘skills and smiles’ category for service standards.

Jamie Oliver’s Ministry of Food shuts temporarily: Jamie Oliver’s Ministry of Food centre has been temporarily shut down for the “welfare of staff and the public”. The TV chef opened the flagship Rotherham centre in 2008 as part of a television series of the same name. It provides regular cooking workshops and also has a cafe. The local authority said the closure followed health and safety concerns raised by the staff and their trade union. A spokesman for Rotherham Borough Council said. “Five years after the Ministry of Food launched in Rotherham, it is appropriate that this assessment takes place to ensure the service continues to meet its main objectives of encouraging local people to cook and eat healthy food and providing training activities in local communities.”

Tahola joins the ALMR: Tahola, specialists in business intelligence and analytics for the hospitality sector, has joined the Association of Licensed Multiple Retailers (ALMR) as an industry associate. The ALMR welcomes supplier involvement as they bring expertise, advice and general support to ALMR’s activity on behalf of its members and the industry at large. Jason Martin, managing director of Tahola, said: “We are proud to be actively involved in the hospitality community and recognise the importance of the licensed retail sector. We look forward to supporting the excellent work of the ALMR and the success of the industry.”

Research reveals UK pubs offer 50,000 bedrooms: The first major piece of research into the pub accommodation market has found that UK pubs have a total stock of 50,000 bedrooms. Ross Pygott, of RP Databases, who undertook the research in partnership with Britten’s Info, said: “We asked senior industry figures if they knew how many of the roughly 49,000 pubs in the UK offered accommodation, and how many rooms there were in total. No one was absolutely confident in their answer. We all underestimated the size of the UK pub accommodation market. Our exclusive research has found that if ‘pub with accommodation’ was a single brand it would be the second largest in the UK, snapping at the heels of Premier Inn, with over 50,000 rooms in just under 5,700 pubs. If pubs with accommodation were to achieve both the average level of occupancy for provincial hotels and their average room rate then their combined turnover from just accommodation would be around £750,000,000.” The report can be ordered through

Company news:

Deutsche Bank places Orchid Pub Company on the market: The Sunday Times has reported that Deutsche Bank has placed the 256-strong Orchid Pub Company on the market through Sapient Corporate Finance. The company had sales of £181m in 2011 with average sales per week per pub of £13,900. Group Ebitda in the 2011 financial year stood at £32.2m at house level. The Sunday Times suggests the business could be worth up to £300m. The company, headed by Rufus Hall, has 5,000 staff. Its Parkmill Pub Management Company also produced an income of £1,060,000 for the company in 2011. 

JD Wetherspoon to open first Lake District site in Keswick: JD Wetherspoon is poised to open its first Lake District bar after striking a deal to buy Keswick police station and the town’s former court building. Negotiations for the same site had collapsed last year but new moves were confirmed by pub bosses and Cumbria County Council, which co-owns the site with Cumbria’s Office of the Police and Crime Commissioner. Discussions were said to be underway over a future base for police officers. Eddie Gershon, spokesman for JD Wetherspoon, said: “We can confirm that Wetherspoon has an agreed contract between Cumbria County Council and the Police and Crime Commissioner for Cumbria to purchase both the court and police station. The company has been keen to develop a pub on the site of these two buildings for a number of months and is delighted that this is now coming to fruition.”

Geof Collyer – we estimate takeaway cake offer at Greene King producing up to £4m a year in sales: Deutsche Bank analyst Geof Colyer has reported that he believes that Greene King’s cake-to-go takeaway offer at Cloverleaf and Hungry Horse sites is producing as much as £4m in annual sales. He said: “Over the years we have seen some interesting drivers of like-for-like growth in the pub sector. The most bizarre to date in our view is the takeaway cake initiative in Farmhouse Inns (ex-Cloverleaf). We estimate that this is generating, along with its rollout through Hungry Horse, some £3-4m of annualised sales.” Of Greene King’s full-year performance, he said: “Margins were +80bps in the year, and have now gone up by +137 bps since new strategy was laid out in 2010 – reducing scale of tenanted estate by circa 30%; increasing size of retail estate by circa 25%. The plan is to drive flat margins – looking at right mix of cost control and pricing – and improve profits through increasing asset turn. We are forecasting much more modest margin gains going forward, but this is driven by higher operational gearing from investing in bigger sites – average weekly sales per pub have risen by nearly 20% and average EBITA per pub has risen by 29%. Despite the impact of abnormal weather in H2, like-for-likes were still positive (we estimate +0.6%).”

Starbucks reports UK losses of £30.4m: Starbucks UK, which operates 593 sites, has reported a net annual loss of more than £30m for the 12 months to September 30, according to newly released documents. Accounts filed with Companies House show that Starbucks Coffee (UK) Ltd reported a total turnover of £413.39m in 2011-12, compared to £397.7m in 2010-11. Gross profit was £70.5m, however after administrative costs of £98.2m – including royalty and licensing fees of £26.48m – the loss for the 2011-12 tax year amounted to £30.4m, the company said. The net loss in the tax year 2010-11 was £32.8m. In 2009-10 the loss after tax of £34.2m, while in 2008-9 it was £52m and in 2007-8 the loss was £46m. The directors of the company took home a combined £1.08m for the year ending September 30, up from £590,319 in the previous year. Chief executive Kris Engskov saw his pay package increase to £708,000 against £372,000 the year before. The figure for directors includes vested shares. 

Accounts reveal payments to directors for loss of position at Barracuda: A total of £1,529,964 was paid to five Barracuda Pub Company directors who left the company in the financial year ending 29 September 2012, new documents filed at Companies House show – the departures included former chief executive Mark McQuater. Barracuda changed its name to Bramwell Pub Company on 3 October last year, owned by Varde Investment Partners. It has a new £10m facility to invest and a total of £66.7m of debt owed was cleared. It has a group loan obligation of £39,239,000, of which £656,000 has been repaid. Costs of £6,746,000 were incurred in its refinancing and restructuring.

Nigel Parson – we are astonished by government intervention in tenanted model: Dryburgh research analyst Nigel Parson has expressed astonishment at proposed government intervention in the tenanted pub model and argued the government should not pursue the issue. Parson does, however, concede that actual intervention could be devastating. He said: “We are astonished at the government’s intervention in business-to-business negotiations that are freely entered into with no overt consumer angle. To our mind, it reflects the failure of pubcos to head off the issues, and the success of pressure groups to get them on the political agenda of Whitehall. Now the government is involved, we believe it must focus on the central tenant issue – the split of profits between tenants and pubcos. The crux of the decade long dispute is the grievance that the split has swung too far in favour of the pubcos. The government also needs to acknowledge that market forces are steadily pushing the industry back into equilibrium following a period of unprecedented change. In our view, the government should let market forces continue to shape the future and do nothing satisfied that the jolt to the industry and progress subsequently made is sufficient. Should the BIS Pubco tenanted review lead to a mandatory free of tie decision, it could be devastating for the tenanted pubco model in its current form. The vociferous, determined and organised nature of the pressure groups makes this a small but distinct possibility, as they have real traction in Parliament. This unpalatable option is not necessarily Armageddon for the pubcos with tenanted operations but they would have to reshape their business models drastically to survive. We are reducing our ratings for Enterprise Inns and Marston’s to ‘Neutral’ from ‘Buy’; Enterprise has the most change to contemplate, but Marston’s enjoys a higher rating and so has potentially further to fall. We retain a ‘Neutral’ rating on Punch and lukewarm ‘Add’ recommendations for Greene King and Spirit. It is stated government intent to shift up to £234m of profit from landlords to tenants. The mid-point is equivalent to £4,250 per tied tenanted pub, with a range of zero to £9,750. The worst-case scenario is equivalent to a reduction in PBT of 65% for Punch, 41% for Enterprise Inns, 18% for Marston’s, 9% for Spirit and 8% for Greene King. This route would undoubtedly trigger a furious legal response from the affected companies, with investment in their stocks becoming ‘dead money’ until the uncertainty was resolved. Do not expect the pubcos to run hybrid models. Rather, we would expect them to go completely free-of- tie, trigger rent review clauses, remove all SCORFA benefits, sell hundreds of smaller pubs and convert to REITs! Smaller brewers with tenanted pubs, believing they escape the threats, should think again.”

Portland Hotels reports turnover and profit boost: Portland Hotels, which has all its five hotels in Scotland, has reported higher turnover and profits in the year to January 2013 helped by buoyancy in Aberdeen. The privately held hotel group lifted turnover by 4% to £14.8 million and pre-tax profit by 34% to £2.1m. Portland has The Huntingtower in Perth, The Edinburgh City and Edinburgh Capital hotels, Glasgow Pond Hotel and The Speedbird Inn, Aberdeen, with a collective stock of almost 550 rooms.

Multi-site operator buys Gateshead site: Multi-site operator Sajid Hussain has bought The Pear Tree public house in Gateshead, part of the former Pubfolio estate. The new owner plans to invest heavily in the building, which as a pub had struggled for trade in recent years, and convert it into a restaurant. Mark Worley, associate director of Christie + Co in Newcastle, said: “With the current redevelopment of Gateshead town centre and the on-going development of the Sunderland Road area, it is further good news for the locals that a struggling pub is about to get a new lease of life in the guise of an Indian restaurant. The buyer already owns and operates a number of good quality restaurants across Tyneside and intends to invest heavily in the interior and exterior of the building.”

Battle over Bath Brewing Company name: Bath Ales and Abbey Ales are at odds over whether or not the latter can launch a subsidiary brand called the Bath Brewing Company. Managing director of Abbey Ales Alan Morgan said the firm needed to create the new identity because some customers did not realise it was based in Bath – despite having brewed at Lansdown for 16 years. Abbey Ales has registered the name with Companies House and now wants to proceed to use it as a trademark. But the managing director of Warmley-based Bath Ales, Roger Jones, says the new name could lead to further confusion. Meanwhile, pub chain The City Pub Company (West), which runs The Cork bar, also expressed an interest in using use the name Bath Brewing Company but has withdrawn its application.

Cotswolds Inns and Hotels buys eighth site: Cotswolds Inns and Hotels has bought its eighth site. The new acquisition, Close Hotel, is a 16th century property in the market town of Tetbury, Gloucestershire. The hotel comes with 19 bedrooms, bar, restaurant and conference facilities – and even has its own chapel (now a conference and wedding facility). It also has planning permission to create an additional five bedrooms and a 100-cover restaurant. It was sold by Bristol businessman, and former Bristol Rovers FC Chairman, Geoff Dunford, whose family owned the Dunford Dairy business in Bristol for many generations. Other Cotswolds Inns and Hotels sites include The Hare and Hounds in Tetbury and The Lamb inn in Burford.

Heineken renews attack on proposed statutory regulation of tenanted pub companies: Heineken, which owns 1,300 pubs through Star Pubs & Bars, has renewed its attack on proposed statutory regulation of tenanted pub companies with 500 sites or more. UK sales managing director for the on-trade Lawson Mountstevens told The Sunday Telegraph: “There isn’t any evidence that below 500 pubs it’s a completely different market or customer experience. It is a barrier to growth, instantly. You could be developing a small pub business and have ambition to grow and you’d always be thinking: why would I go above 500 sites. In terms of our ambitions of course it creates uncertainty and it would put any further ambitions for anyone coming into the UK tenanted pub market on hold.”

Prezzo set to open Northumberland site: Prezzo, the restaurant company headed by Jonathan Kaye, is to open a site in Cramlington’s Manor Walks shopping centre on July 11. It has cost the company about £500,000 to develop, in a retail area that is currently at the centre of a multi-million pound redevelopment scheme.

Great Malvern becomes the latest town to oppose Costa opening: Great Malvern has become the latest community to campaign against the opening of a Costa coffee, with a 200-name petition already organised. Costa want to move into the empty Church Street premises previously occupied by Superdrug. In a poll on The Malvern Gazette website, which attracted nearly 300 votes, 33% were in favour of Costa coming to Malvern, 62% were against the move and 5% did not know. A spokeswoman for Costa said: “We honestly do not think that anyone should see Costa as a threat to independent businesses. Our offering is very different to local independent coffee shops and we believe that people can and will use both, depending on their needs.”

Coaching inn operator gets debt respite: Puma Hotels, whose 21 coaching inn and hotels includes The Lygon Arms in the Cotswolds, has been granted an extension to its debt facility until May 2014. Its bank, the Irish Bank Resolution Corporation, formerly Anglo Irish Bank has also relaxed its covenants “to reflect the current operating environment”. The extension will provide Puma with breathing space to find a solution to its debt problems – debt is estimated to be about £100m higher than the value of its assets. Puma’s other UK sites include Billesley Manor near Stratford-upon-Avon and The Imperial Hotel in Blackpool. 

Imbiba’s Camm & Hooper secures new London site: Camm & Hooper, the bar and restaurant company that is looking to ‘revolutionise the events sector’ in London and which is backed by original Drake & Morgan investors Imbiba, is understood to have secured a second site. The company, headed by former hotelier Claire Lawson, has bought Greens Restaurant and Oyster Bar on London’s Cornhill, which closes tomorrow (Monday). The Runner Bar at Greens in Cornhill can accommodate gala dinners for up to 200 guests or canapé receptions for 350 people – and the entire venue can be hired for events for up to 450 people. In May, Camm & Hooper opened Tanner and Co in Bermondsey in the large warehouse site formerly occupied by Delfina’s, which had a turnover of £1.5m at the site. The first Camm & Hooper opening has a school gym theme. “The school gymnasium is one of those places that create a strong feeling of nostalgia,” Lawson told The London Evening Standard. “It’s just a quirky bit of fun.” It has a room at the back capable of hosting 250 people. Camm & Hooper has been described as an attempt to revolutionise events space in iconic London buildings. It plans to open six sites across London in its first three years. Imbiba, which secured a return of 5.7 times cash invested for investors in Drake and Morgan when it was sold to private equity firm Bowmark Capital in April for circa £20m, is also investing in Darwin and Wallace, which seeks to apply Drake & Morgan-style eclecticism on a smaller scale. It re-opened the former Ebury on Pimlico Road with a total investment after refurbishment of £1.5m. At the start of June, Imbiba principal Mark Brumby, of Langton Capital, stepped down as director of Darwin & Wallace and Camm & Hooper but will continue to work closely with both companies where he is able to add value in areas such as fund-raising. He is to invest a further £300,000 in the ventures, taking his total investment to £385,000. Fellow Imbiba principals John Connell and Simon Wheeler will also be investing £300,000 between them, a move that will see the total Imbiba commitment rise to £830,000 compared with the £250,000 indicated in earlier EIS documentation. Imbiba is also investing in Hawthorn & Hill, which runs traditional style pubs, focused on lunchtime and afternoon trade. It owns the Yorkshire Grey in Clerkenwell. The Imbiba London Bar and Restaurant EIS plans to invest a total of £10m across its various new businesses. Among Imbiba’s previous businesses are six-strong gastro operator Lewis & Clarke which was sold to Balls Brothers for £13.8m in 2006 and Thomas & Carter which was sold to Massive Pub Company for £6.2m in 2002.

Marston’s submits plan for Newport new-build: Midlands brewer and retailer Marston’s has submitted plans to build a pub/restaurant on an unused plot of land on Usk Way in Newport which could create 50 new jobs. The plans for the 180-cover pub and restaurant with a staff flat and car parking for the site to the south of East Dock Road have been submitted to Newport City Council. The site is located in the Old Town docks area. According to the planning documents, the development would create ten full time and 40 part time roles. Agent Walsingham Planning said the proposals would make use of a derelict vacant site to provide employment and would also contribute to the wide objective of encouraging the use of the River Usk as a walking route.

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