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Morning Briefing for pub, restaurant and food wervice operators

Wed 14th Aug 2013 - July sales, Brewdog, Byron, Costa and Domino's

Story of the day:

Coffer Peach Tracker reports July sales up 5.7% in drinks-led pubs; restaurant chains down 2.5%: London pubs had plenty to shout about in July, benefiting not just from the prolonged sunny weather but also from a revival in trade in the capital after last July’s pre-Olympic sales dip, according to latest figures from the Coffer Peach Business Tracker. Across the country, managed pub groups saw collective like-for-likes up 2.9% on last July, with drink-led pubs up 5.7%. Inside the M25, managed pubs saw like-for-likes ahead 7.6%, with drink-driven pubs up a massive 9.5%. “We had two forces at work last month – fantastic hot weather, which was good for pubs, and a rebound in the London market in general after the lull last July caused by the run up to the Olympics,” said Peter Martin of CGA Peach, the business intelligence specialist that produces the Tracker, the sector’s most comprehensive performance barometer, in partnership with Coffer Group, Baker Tilly and UBS. “The good weather may have benefitted pub operators, but was at the expense of casual dining restaurant chains – while the London effect seemed to be good for everyone,” added Martin. Overall, restaurant groups saw like-for-like sales fall 2.5% against July last year, with a 5.4% like-for-like drop outside of the M25. Restaurants in London were, however, up 2.6%. “Put together, the overall eating and drinking out market showed a 1.3% increase in like-for-like sales on July last year, which was a particularly wet month. Total sales, taking in the impact of new openings, were ahead 3.6%. The overall London market was up 5.4% on a like-for-like basis and 6.6% ahead in total,” explained Martin. “The weather always has an affect on trading, with good weather generally favouring pubs and poor conditions better for restaurants, as we’ve just seen. In addition, the impact of the Olympics will continue with August’s trading comparisons. So we need to be a little cautious about drawing too many positive conclusions. Outside of London trading was essentially flat in July, and looking at the longer-term trend, collective like-for-likes for the 12 months up to the end of July were running at just 0.9% up on the previous 12 months for the market as a whole, with total sales up 4%.Pubs will no doubt take comfort from July’s particularly strong trading. But looking at the longer-term trend, and stripping out the bullish London market, pubs that rely on drinks sales are showing a 1.1% year-on-year decline. It is still a tricky market out there,” concluded Martin. Trevor Watson, director at Davis Coffer Lyons, said: “The difficulty in drawing reliable comparisons with 2012 – the Olympic year – is on-going. As expected, the figures are very positive for the drink-led sector and the London market. The disappointing casual dining stats are likely to be partly due to a rather indifferent output of new film releases failing to sustain leisure park and cinema visitor numbers.”

Industry news:

Allsops – auction market is seeing positive trends: Allsops, the UK’s largest commercial auction house, has reported improving trends this year with increasing confidence in the market outside of the south east, a reduction in receivership sales and more debt availability. The company has held four major auctions in this period and raised a total of £214.7 million – 408 lots were sold, representing an overall success rate of 86%.It added: “At our July sale there was a noticeable sharpening of yields for the better quality lots and more competitive bidding, with 61% of the lots offered selling above reserve. The end of day result was broadly inline with our May sale with a success rate of 75% and £51.1m raised. In addition buyers reported an increase in the availability of debt which is helping to bring a degree of confidence back to the market.”

CAMRA membership doubles in ten years: The Campaign for Real Ale (CAMRA) has welcomed its 150,000th member, up from 65,000 ten years ago – women now account for 22% of membership. Market research shows that the number of people trying real ale has grown from 34% to 53%. Women trying real ale for the first time has grown from 14% to 34% in this short period. Colin Valentine, CAMRA’s chairman said: “We’re enjoying a genuine and sustained revival in real ale as it shows the way to success for the UK beer market. It’s very exciting that more and more women are trying real ale. Our national drink threw off its flat cap image years ago and now it is increasingly seen as a drink for women as well as men. That trend will help put the whole British beer market back on a track towards growth.”

BBPA unveils awards shortlist: The British Beer & Pub Association has unveiled the shortlists for its annual industry awards. The awards ceremony will take place at the British Beer & Pub Association’s Annual Dinner, due to be held this year at the Park Plaza Westminster Bridge on Wednesday, 9 October. The awards recognise exceptional company and individual contributions to the brewing and pub sector. Beer Champion 2013: Close Brewery Rentals, Daniel Thwaites, Frederic Robinsons, Marston’s and Molson Coors; Pub Champion 2013: Daniel Thwaites, Everards, Marston’s, Punch Taverns and Star Pubs & Bars; Heart of the Community: Carlsberg UK, Daniel Thwaites, Heineken UK, Hobsons Brewery and Timothy Taylor.

Keuhne & Nagel delivery drivers take part in a strike ballot: Deliveries to pubs, bars and restaurants could be disrupted after a strike ballot of Keuhne & Nagel Drinks logistics drivers was announced. Almost 1,000 workers are being balloted in a row over changes to working conditions. Unite is balloting 970 members at 27 sites in England, Scotland and Wales on strike action and action short of a strike in a vote which closes on 28 August.

Company news:

Elland Brewery wins Champion Beer of Britain (CBOB) Award: Elland Brewery’s Elland 1872 Porter won yesterday’s Champion Beer of Britain award at the Great British Beer Festival. Elland Brewery’s triumph means that 13 of the last 14 annual Champion Beer of Britain winners have come from within Society of Independent Brewers (SIBA) membership. SIBA chief executive Julian Grocock said: “It is a mark of the brewing skill and innovation demonstrated by SIBA brewers that they continue to win this respected title. Without their influence over the past three decades, the UK brewing industry would look very different today and, as we celebrate the hundreds of beers being enjoyed by thousands of drinkers at the GBBF, we must acknowledge the vision and dedication of those pioneering microbrewers who took a stand against the homogenisation of British beer.”

Domino’s to open 2,000th European store tomorrow: Domino’s Pizza is to celebrate the opening of its 2,000th European store tomorrow (Thursday, 15 August) at Kier Park, Maylands Avenue in Hemel Hempstead. Representatives from Domino’s Pizza Europe, Middle East and Asia (EMEA), staff from the UK head office, including the chief executive Lance Batchelor, the franchisee and store team will be at the opening to mark the occasion. Domino’s will be holding promotions for the event, including a double happy hour from midday until 2pm, where customers can purchase a two topping personal pizza for just £1. Also, there will be two opportunities to win ‘pizza for a year’. The first 50 customers to arrive at the store, between the hours of 10am and Midday, will receive a free personal pizza.

Jahan Group takes Little Chef site: Indian restaurant operator Jahan Group has acquired the former Little Chef in Windle, Merseyside. The restaurant, which had been vacant for some time, will be converted to Jahan’s ‘Swaarg’ Indian restaurant concept. Jonathan Watson, from agent Christie + Co in Manchester, said: “We approached the owners of the property after Jahan Group notified Christie + Co of its desire to acquire the site. We were confident of concluding a quick sale having sold several sites to the group previously. The restaurant is sure to be a great success now that experienced operators have been introduced who know the region well and offer an excellent product.”

Greene King plans new Farmhouse Inn in Sunderland: Greene King has applied to build a Farmhouse Inn – its new name for the business previously known as Cloverleaf – in Turbine Way, Washington. The site aims to capitalise on trade from neighbouring factories including Nissan and Vantec. It believes the Washington plot’s close links to the A1231 Sunderland Highway, A19 and A1, good bus service along Nissan Way and nearby houses will make it easily accessible. It has also put forward a plan to deal with great crested newts, as a survey has found they might be living on the site.

Byron serving 11,000 craft beer a week: Better burger brand Byron, owned by Gondola Holdings, is serving 11,000 craft beers a week across its 29 sites with an a price premium of around 13% over mainstream premium beer. “Craft is really accessible, it’s made with passion,” founder Tom Byng told Bloomberg. “Craft brewers do it for love and consumers really embrace that.” Byron charges £4.25 for a 330-milliliter bottle of Camden Gentleman’s Wit, a Belgian-style lemon-flavored beverage, 50p more than for a bottle of Peroni.

Thurlby Group introduces self-service deli: Thurlby Group, the highly rated East Midlands operator headed by former farmer Michael Thirlby, has introduced a self-service deli, called The Pantry, at its Smith’s pub in Bourne, Lincolnshire. The company stated: “The Pantry is self service (order at the bar and collect from The Pantry) enabling people to pop in for a quick snack on their lunch breaks without the wait from the kitchen. We will also be showcasing select products for customers to take home – our Cretan gold olive oil and Modena red balsamic vinegar is on sale alongside our Ken Forrester wines.”

Brewdog starts to retro-fit bars to make them more comfy: Scottish brewer and retailer Brewdog has begun to retro-fit its bars to make them comfier and soften the acoustics after feedback from customers. It has replaced bar stools and ‘awkward low tables’ with built-in booths at its Edinburgh site. “Each booth has its own table and has a padded back which means extra comfiness,” the company stated. “We are currently installing audio panels in all of our bars to achieve this (to soften acoustics). We have also installed more comfy seating in Shoreditch and are looking to do the same in Manchester in the next few weeks.”

Moorhouse’s targets £7m of turnover: Independent brewer Moorhouse’s is targeting sales of £7m within two years after revealing record turnover of £4.5m, up 18%, for the past year. The Burnley company has hit the five-million-pints-a-year landmark for its two-year-old £4.2m expanded brewing complex. It has made a good start with year-on-year sales in June were up 22%. Managing director David Grant’s strategy for the next phase of growth includes increasing supplies to more customers, exploring further export opportunities and investing in the sales team.

Dirty Burger lines up three openings: Better burger concept Dirty Burger, which operates in Kentish Town, is planning three new openings – in Tooting, Vauxhall and Mile End. The Tooting branch is in a site previously occupied by Le Brunch Cafe while Vauxhall takes over one of the arches near the station while Vauxhall Dirty Burger will open on South Lambeth Road next Tuesday (20 August). Dates for the Mile End opening are to be confirmed.

Company of Cooks wins three contracts worth £100m: Company of Cooks has won three contracts worth in excess of £100m. The caterer, which focuses on the visitor attraction market, has extended its current contract with the South Bank Centre for a further ten years. Company of Cooks has operated four fixed sites at the arts venue since 2007 and the new deal takes its partnership to 2023. It has secured an additional deal with the South Bank Centre, a ten-year contract to cater at the Topolski Gallery. Company of Cooks will deliver a 5,000 square feet day cafe and night cafe bar, planned to open in October. The third new contract win is a three-year deal with The Royal Academy at 6 Burlington Gardens, with an undisclosed value. The company has, however, decided not to re-tender for its existing business at Greenwich Park and Regents Park, which it said was down to its desire to remain independent and to work with like-minded partners. “We own all our equity, not subject to venture capital investors or corporate owners like our immediate competitors, and we intend to continue to do so. We must be stringent in our selection of what partnerships to pursue,” said Mike Lucy, founder of Company of Cooks.

Simon French – Costa to reach saturation in the UK sooner than Whitbread thinks: Panmure Gordon leisure analyst Simon French has issued a ‘Sell’ note on Whitbread shares, arguing that Costa Coffee is reaching saturation point in the UK – and should be demerged to reach its full potential. He said: “There are 1,617 Costa stores in the UK. This equates to one store for every circa 30,000 residents aged 18+. The group’s growth plans call for the number of Costa stores to increase to 1,900 by 2016 meaning one store for every circa 25,000 residents. This compares to Starbucks in the US market with 11,234 stores, which equates to one store for every 21,155 residents aged 18+. Given the higher proportion of drive thru Starbucks stores in the US (40% of Starbucks’ US stores have ‘drive thrus’), which we do not think can be replicated to the same extent in the UK, we think this is ambitious. We also believe that the coffee market in the UK is far more competitive than in the US. There are three national chains in Costa, Caffe Nero and Starbucks plus smaller, well-capitalised operators such as Harris & Hoole. In addition, there are a whole host of artisan coffee shops leading a second-wave of coffee shop operators and potentially taking market share in major metropolitan areas. We believe Costa cannot achieve its full growth potential until it is demerged. It can then accelerate expansion through JVs and franchises in existing international markets whilst examining market entry potential for North and South America. The stock is up 29% year-to-date trading on a CY 2014E EV/EBITDA of 11.1x, a premium to its peers, with just a 2.1% yield. ROIC at Whitbread Hotel & Restaurants (WHR c74% EBIT) is static and we believe Premier Inn and Costa will reach saturation in the UK sooner than management anticipates. Our unchanged forecasts imply just 7.4% CAGR in EPS over the next three years so we downgrade the stock from ‘Hold’ to ‘Sell’ with circa 16% potential downside to our reduced Target Price of 2644p (from 2688p).”

Britannia Hotels acquires its fifth hotel in Bournemouth: Britannia Hotels has bought its fifth hotel in Bournemouth, The Carrington House Hotel. Offers were invited on £3 million for the business as a going concern. The 145-bedroom hotel was owned and operated by Akkeron Hotels, which decided to sell in order to concentrate its interests on operating other hotels in its portfolio. Carrington House no longer met the future plans and strategy for the group. In addition to its 145 bedrooms, Carrington House Hotel also has extensive banqueting facilities for 300 and an indoor leisure club. Simon Stevens, director of corporate hotels at Christie + Co, said: “Carrington House Hotel was an excellent opportunity for Britannia Hotels to add to its expanding portfolio. Founded in 1976, the group now has 44 hotels and more than 8,000 bedrooms. It is the largest privately owned hotel chain in the UK. I fully expect Britannia Hotels will take The Carrington House Hotel business forward securing increased leisure business for the resort, whilst bringing valuable employment opportunities to the area.”

YO! Sushi extends Frobishers contract: Strong sales of premium, no-added-sugar juice brand Frobishers within YO! Sushi restaurants have prompted the international food chain to extend its two-year contract by a further two years. The high street restaurant brand, which stocks Frobishers orange, mango and pressed apple juices, sells over 4,000 bottles per week across 64 of its restaurants. Apple juice is YO! Sushi’s best-seller.

Multi-site operator GC Mallen wins award for pub turnaround: Multi-site pub operator GC Mallen, headed by Garry Mallen, has been awarded Pub of the Year in the Shortlist Magazine Pints & Pistachios awards for the turnaround of The Lord Northbrook pub in Lee, a former Enterprise Inns site. In 2010 its single claim to fame was winning local newspaper News Shopper’s coveted “Most Grotty Toilet award.” The Shortlist Magazine review panel said: “Our winner was formally a dive until new owners transformed it into a smart gastro affair.” Chris Kelly, general manager of The Lord Northbrook, said: “Too often you see pubs turned into flats or car parks. We passionately wanted to make The Lord Northbrook work and felt, more importantly, that it should remain a community pub – not just a restaurant disguised as a pub. There’s been a lot of goodwill in the community generated over the last 20 months supported by a strongly growing Facebook and Twitter community and we’d like to thank everyone of our regulars who voted with their feet to make T he Lord Northbrook the best local.”

JD Wetherspoon applies to expand Ilkley pub: JD Wetherspoon has applied to expand an Ilkley town centre bar into a neighbouring shopping centre unit. The chain has applied for planning permission from Bradford Council for the change of use of a former optician’s shop next to The Lister Arms, at The Moors Shopping Centre, Cunliffe Road. Councillor Martin Smith has objected to the plan, claiming it affects the character of Ilkley’s Conservation Area, and would result in a loss of residential amenity.

New plans submitted for former Luminar site in Redhill: Developers have submitted new plans to regenerate an empty site in the heart of Redhill. Angle Property (Redhill) Limited has applied for permission to convert the former Liquid & Envy nightclub into a mixed use site with 61 apartments and retail space. The building, which was bought by the development company in July 2011, already has permission for a mixed use redevelopment after Reigate and Banstead Borough Council’s planning department approved a first set of plans in September last year. But the applicant has since submitted new proposals with less retail space and more flats because the original scheme was not financially viable.

Stonegate chairman – funding is in place to grow further: Stonegate Pub Company chairman Ian Payne has told Propel that its backer, private equity firm TDR Capital, has funding in place to grow the business further – and the company is looking at every package of pub sites that comes on the market. The company, which is the UK’s largest privately owned managed pub company, has grown to 573 sites after the acquisition yesterday of the 13-strong Living Room brand. Payne said: “We’ve looked at every single deal on the market in depth – and we will continue to do that. We have the finance in place to grow although we’ve never had a numerical target – it about acquiring the right quality. The Living Room brand is a business I’ve known since Tim Bacon set it up – and we looked at it when it came in to the market in 2007. We think it’s got some of the best sites in the UK and it’s been trading very well under its various operators. It’s the brands sites and people that we really wanted.” Asked whether Stonegate planned to expand the brand, Payne said: “We plan to get to grips with it first and really understand it.” There has been speculation that Stonegate plans to convert some of Living Room’s sites to its Slug & Lettuce brand but Payne noted: “We’ve never said that!” Stonegate has doubled the size of its 02 Slug & Lettuce by moving into a former Thai restaurant next door – the 02 site has been the best-performing Slug & Lettuce in the estate behind Canary Wharf in weeks where 02 is busy with concerts. Slug & Lettuce has consistently out-performed the high street for a number of years with double-digit sales growth. Asked about current Slug & Lettuce performance, he said: “Slug & Lettuce is the fastest growing brand on the high street.” The company instructed agents to find more Slug & Lettuce sites around eight months ago. Payne told Propel: “We’re still looking although we haven’t actually signed for anything – we’re pretty choosy about where we want to trade. It was one of the attractions of Living Room – every single site is well-located.” Stonegate has investing heavily in its existing estate – made up of 333 former Mitchells & Butlers wet-led pubs and the former Town and City Pub Company – and has been achieving a Return on Investment above 40%. The Living Room estate includes sites in London, Manchester, Liverpool, Glasgow, Edinburgh and Bristol. The brand was founded by Tim Bacon in 1999 and was bought by Ultimate Leisure in 2007 for £28m.

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