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Morning Briefing for pub, restaurant and food wervice operators

Fri 27th Sep 2013 - Cask Report, M&B slowdown, Orchid results and Rick Stein

Story of the Day:

Orchid Pub Company reports rise in turnover per pub: Orchid Pub Company, which currently operates 232 pubs, has reported EBITDA of £29.3m on turnover of £178.8m in 2012. The company saw average weekly sales rise to £14,100 per pub from £13,900 the year before. Like-for-like sales grew 3% in the first seven months of 2013, which is out-performing the Coffer Peach Tracker. The company saw owner Deutsche Bank provide £20m to invest in the estate in 2012. Chief executive Rufus Hall said: “We commenced an investment programme in the fourth quarter of 2012, completing 12 investments in the year. Given the early success of investments, we were able to accelerate the programme and have to date now completed a total of 43 investment schemes, with current levels of return on investment (ROI) running at between 25% and 30%. Group EBITDA in 2012 – after rents paid on leasehold properties within the pub estate – was £29.3m at house level. We expect this figure to materially grow in the current year and on a current run-rate basis, our EBITDA figure is above £30m. Our central overhead costs, including the Orchid support centre in St Albans, were £8.6m, which at £35,000 per pub, compares favourably with our peer group and means that we are one of the lowest cost producers in the UK managed pub arena. Our strategy is very straightforward: by focusing on ‘pubs and people’, we aim not to be the biggest managed pub business in the UK (we are the seventh largest) but to be the best, operating high-quality pubs with a good balance of food and drink sales. Food now accounts for more than 40% of our sales mix, up from 28% in 2006, reflecting our focus on informal food and drink occasions, and recognising changing customer trends.” Hall reported that 74% of General Manager appointments in the past 18 months have been made from within the company and 44% of Area Managers were previously General Managers – and the company now has 300 apprentices in its pubs. He said: “Overall, our staff turnover – a key measure for the business – reduced by 14% during the year, and this trend is continuing in 2013.” Deutsche Bank was reported to have placed Orchid on the market through Sapient Corporate Finance earlier this year. A total of 14 tail-end pubs have been sold site-by-site during 2013. Hall added: “Orchid is supportive of the industry campaign on VAT, which outlines the clear and logical case for the government to end the tax disparity on VAT between businesses like those operated by Orchid versus shops and supermarkets.  We hope the Chancellor will listen to these compelling arguments.”

Industry News:

McDonald’s commits to large menu health step: McDonald’s will no longer market some of its less nutritional options to children and said it also planned to include offerings of fruits and vegetables in many of its adult menu combinations. McDonald’s plans to make the menu changes in 20 of its largest markets, including overseas, accounting for 85% of all sales. The campaign was featured at the Clinton Global Initiative yesterday in New York. Former President Clinton said: “If we want to curb the catastrophic economic and health implications of obesity across the world, we need more companies to follow McDonald’s lead and step up to the plate and make meaningful changes,” said Clinton. McDonald’s said it would promote juice, low-fat milk and water as the drink choices for its Happy Meals for children, although customers would still be able to buy carbonated soft drinks. It also plans to promote fruits and vegetables in “fun ways” on its Happy Meals packaging, with advertising aimed at children to include messages about nutrition and well-being.

Michelin editor – London has better variety of cheap dining options than Paris: Michelin guide editor Rebecca Burr has argued that the growing popularity of casual dining, street food and pop-up restaurants meant that London now offers a better variety of cheap eating options than Paris. She told The Daily Telegraph: “It’s been going on for the last few years. I think it’s just risen to the fore now. It started off with restaurants where you could go in and order a selection of small plates, then order a bit more if you wanted, which knocked the old three-course meal on the head. Then chefs realised that it was OK to put things like fish and chips and burgers on the menu, and do something different with them. We’re on a par with a place like New York now, and we’ve certainly got a better selection than in Paris. I think it’s something happening in London, and it’s slowly spreading across the rest of the country.”

Heineken set to launch coffee-style home appliance for beer: Heineken is to launch a home appliance for beer inspired by the success of the coffee machine. The brewer claims the appliance will “revolutionise the way beer is experienced and enjoyed at home”. The product will be unveiled in Paris next month on 17 October. François-Xavier Mahot, senior director for innovation at Heineken, says: “We spotted the opportunity to create a premium but playful at home drinking experience for consumers. The success of products such as coffee machines shows the importance of developing an iconic high end home appliance.”

US chain to roll-out tablets to all managed sites after tests lead to sales jump: Chili’s Grill & Bar will roll out tabletop tablets to all 823 US company-owned restaurants by the middle of 2014, giving guests the option of ordering, playing games and paying at the table. The move follows a five-month test of various tabletop devices in 28 Chili’s restaurants. Executives of the casual-dining brand said dessert sales increased as much as 20% and sales of items like coffee saw sizable jumps.

Consultation on insolvency streamlining begins: Proposals to simplify insolvency rules and replace them with a single set of rules fit for the 21st century were announced in a consultation document published by the Insolvency Service yesterday. The new rules will also include written information requirements to make it easier to use electronic submission rather than relying on statutory forms. This will result in a more logical structure to improve clarity and consistency. The consultation comes after feedback from users who wanted a more streamlined structure free of archaic and often impenetrable language. Deputy chief executive Graham Horne said: “We have listened to our stakeholders and want to modernise the insolvency rules so that they are easier to understand and apply. This consultation is a great opportunity for people who use the rules to help us ensure they are fit for modern needs.”
Dundee pubs, restaurants and nightclubs given longer trading hours: Pubs, restaurants and nightclubs in Dundee’s city centre will be allowed to stay open later under new rules. Nightclubs and entertainment venues will now be allowed to stay open until 3am after the city’s licensing board agreed new opening hours. Pubs will be allowed to stay open until 1am, while “hybrid” venues that offer some entertainment can serve alcohol until 2am. The licensing committee also voted to allow food outlets in the city centre to stay open until 3.30am, a provision which may be extended across other parts of the city in future.

Company News:

Mitchells & Butlers reports marked slowdown in the past three weeks: Mitchells & Butlers has reported that its decline in like for-like sale is linked to a sharp slowdown in the past three weeks. The company reported a 1% drop in like-for-like sales in the nine weeks to 21 September, though this was entirely down to the last three weeks of the period: the first six weeks saw like-for-like sales up 1%. Chief executive Alastair Darby told analysts: “There is quite a marked spectrum of performance across the country by region. But we’ve seen the slowdown across the country: the impact of the slowdown has been widespread.” However, Darby said: “We not just going to increase the promotional ante (to increase like-for-like sales).” Darby forecast that “lead indicators” such as lower staff turnover and a “four or five point” improvement in Net Promoter Scores across the business would feed through to improved like-for-likes of 1.5 to 2% in the medium term. Meanwhile, Darby has told City analysts that the company has learn lessons on ensuring Harvester performs better on leisure parks sites. He said: “The vast majority of the sites opened were good ones but we weren’t as operationally geared to open as successfully as we would have liked.” Darby said the company has now made “appropriate tweaks” to Harvester in these locations “that will make a difference to sales” M&B now plans to open 30 pubs in 2014 and 50 in 2015. 

Starbucks trademarks 'Fizzio' in the US as it eyes soft drinks market: Starbucks has filed a trademark application for Fizzio, the name for the range of carbonated drinks it has been testing. A Starbucks spokesman, said the application is related to a new range it started experimenting with at stores in Atlanta and Austin in June. The Seattle-based coffee company is registering the name Fizzio, which would apply to drinks machines and the beverages they provide, it said in its US Patent and Trademark Office application. Three fizzy flavours, Lemon Ale, Original Ginger Ale and Spiced Root Beer - have been on offer to customers, who were also given the chance to carbonate iced teas and coffees for no extra charge, the Huffington Post reported. “So far the response from customers in the test markets has been positive,” the company said.
Rick Stein’s Padstow restaurant empire reports turnover and profit down: Rick Stein’s Padstow restaurant set-up has reported turnover dropped 4% to £14.6m in the year to 30 December 2012, from £15.24m in 2011. Pre-tax profit was £148,000, down from £626,000 the year before. The decline in profit was linked to restructuring costs of £140,000 and the fall in sales. The company also closed its mail order operation and its deli in Falmouth during the year. A total of £504,000 was invested in buying a leasehold property that has been converted into Stein’s Fisheries. The company reported that sales are down again in the first 17 weeks of its current financial year but its profit-and-loss situation has improved by £124,000. It refer to itself in its accounts as one of the largest private sector employers in Cornwall, with 321 staff. The highest paid director earned £191,000.
Simon French issues M&B sell note after 'disappointing' trading update: Panmure Gordon leisure analyst Simon French has issued a sell note on M&B shares with a price target of 310p for the shares after a “disappointing” trading statement from the company. He said: “M&B has announced another disappointing trading update reporting a fall of 1% in LFL sales for the last nine weeks compared to our forecast of a 2.3% rise. Food like-for-like sales declined 0.1% and drink sales declined 2.0%. Although the group was lapping a tough comparative of +3%, we think this performance is significantly behind the performance of sector peers.”
Douglas Jack – we recommend adding M&B shares: Numis Securities analyst Douglas Jack has issued an “add” recommendation on Mitchells & Butler share with a target price of 500p. He said: “Full year like-for-likes sales rose 0.4%, behind our previous 1.0% assumption. However, this is fully offset by EBIT margins rising in H2 versus our previous flat assumption. As a result, we are holding our forecasts, which anticipate a step up in expansion and a resumption of dividends in 2014E. Despite under-performing its peers operationally, M&B should still have generated circa 9% earnings growth in 2013E, largely through cutting net debt and interest costs. Expansion should now accelerate to 30 new sites in 2014E, of which most should be in retail/leisure parks. To date, M&B has underperformed in these locations, but believes it can now create the necessary ambiance and service levels to compete with the Restaurant Group.”
Fuller’s tells City analysts that the beer market has changed dramatically:
The London brewer Fuller Smith & Turner has told City analysts, in a briefing this week, that an explosion in the number of microbrewers has changed the market forever. The company reported that the average pub and bar has added five taps since 2008, and an additional four brands. It said: “More retailers are now pricing-savvy, positioning brand as trade-up options within categories and extending their pricing ladder. Branded glassware is no longer a point of differentiation but essential to a brand’s hygiene.” Fuller’s predicted the microbrewery explosion will stabilise soon but craft beer will continue to grow. It forecast that the days of session drinking pub are passing and distribution will continue to fragment. It added: “Choice will become even more broader and consumers will become overwhelmed by choice and retrench and seek out reliable brands.” The company has launched a craft lager called Frontier, re-designed its packaging, bought the Cornish Orchards cider business and developed a seasonal programme of ales to bring interest to ale in its pubs. It said: “We are optimistic about the future and excited by its potential for us.”

Domino’s UK hit by increased labour costs in Germany – Reuters:
News agency Reuters has reported that Domino’s UK expansion into Germany has primarily been hit by higher labour costs. Domino's has halved its original target of 400 stores by 2020, and pushed its break even forecast for the German business back as much as two years to 2017. Its German growth has stumbled chiefly over a rise in minimum pay for restaurant staff that is unexpectedly being applied to pizza delivery firms. In North Rhine-Westphalia, where the company has 17 of its 25 German stores, minimum hourly pay for hotel and restaurant workers has just risen there to €8.50 (£7.16), up from the average €6 paid by Domino's. Chief executive Lance Batchelor told Reuters: "I think we were overly bullish in the spring of 2011 when we talked about hitting break even in 2015. We needed everything to go right in order to hit that and the NRW labour change is the straw that broke the back of that. It's been about resetting expectations, taking a little bit of medicine and getting on with growing it." German market leader Joey's says its stores can offer a pre-tax profit margin of 10 to 14%. In 2012 Domino's comparable margin was 8.4% on sales in the UK and Ireland.

Fuller’s pub launches new theatre: Fuller’s Spread Eagle pub in Croydon, South London is opening a 50-seat studio theatre on 2 October. The theatre will open on the pub’s first floor, where it already hosts film screenings. Fuller’s already has one pub and studio theatre, the Old Joint Stock, in Birmingham and it will be presenting a season of new work to celebrate the opening of the Spread Eagle Theatre. Tim Hodgson, artistic director of the Old Joint Stock Theatre Company, said: "If this goes well, the Spread Eagle Theatre will launch as a permanent venue early in 2014, with a minimum of one week-long production each month, again strictly professional small productions, specialising in new writing.

John Vincent – Leon not as good at social media as it could be: Leon co-founder John Vincent has told Marketing magazine that social media is one area where the company should improve. He said: "We don’t know enough about it. We have no social media plan; it’s totally reactive and ad hoc. We would like to think things through more. We’re under-exploiting it – we have so many interesting stories around our food initiatives, but we’re not as good at social as we should be."

Jamie’s Italian franchise to open in Canberra before Christmas: The Jamie’s Italian chain's Australian franchise holder, Pacific Restaurant Group, will open a new site in Canberra “pre-Christmas”. One round of applicants has already begun training for the new venue, with the second round hoping to fill the more than 100 positions still available. The new restaurant is on the site of the former Kingsley's Steakhouse, opening onto Bunda street in the centre of Canberra.
Three restaurant brands line up for shopping park extension: Frankie & Benny’s, Pizza Express and Chiquito’s are lined up to occupy space in an extension to the Broughton Shopping Park in Flintshire, North Wales, owned by British Land. A Cineworld cinema will also form part of an extension to the shopping park, which will include five restaurants located on a less utilised area of car park on the southern retail terrace. Work starts on the extension early in the new year.

Inventive Leisure to re-open flagship Revolution vodka bar site next week: Inventive Leisure, led by Mark McQuater, will re-open its flagship Revolution vodka bar site in Leadenhall in the City of London on 4 October. The site has been refurbished as part of the "Evolution" programme, aimed at updating the brand and will have a new cocktail menu and premium drinks range.

BrewDog holds beer school session:
Scottish brewer and retailer BrewDog has held its inaugural beer school session at its Newcastle upon Tyne bar. Freshers from Newcastle University will be taking part in the short course that aims to educate young people about the process of brewing beer, expose them to career opportunities in the fast growing craft beer industry and cultivate a responsible approach to the consumption of alcohol. Site manager Helen Davison said: “It’s a shame that many young people in Britain are woefully undereducated about beer and alcohol, and this definitely has a part to play in the alcohol abuse we see among young people, especially students. What we hope to do with this beer school is to get students to fall in love with good beer, not the massively watered down version mainstream brands have forced down their throats through advertising.”
Marston’s applies to add extra parking spaces to cope with demand at busy pub: Marston’s Inns has applied to add an extra 22 parking spaces to cope with demand at a pub that re-opened at Easter, The Poachers Pocket, just outside Weston Rhyn, near Oswestry in Shropshire. Manager Christopher Sweeney said: “It’s been very busy right from the week of reopening. Within two weeks we put in the plans for the extra car parking. There is an overflow car park for the [Offa's Dyke] World Heritage Site but it’s still not enough. Sometimes we even have people parking up at the garden centre and walking down."

Papa John’s franchisee opens sixth site, aims for 20: Papa John’s franchisee Jitesh Patel, who first became a Papa John’s franchisee in 2005 when he was just 20 years old, has opened his sixth site, in Selly Oaks, Birmingham. “I used to work as a systems manager for a rival pizza company, however, I always knew I wanted my own pizza store,” Patel said. “I have another sister who lives in the US and she had told me how popular Papa John’s was over there and how that success would soon be ‘on the menu’ in UK. The popularity is down to some great marketing but also a fantastic product. I aim to open in two further locations before the end of 2013 and my long-term goal is to own 20 Papa John’s.”

New Mustard & Rye restaurant concept opens in Truro: A new American-style restaurant concept Mustard & Rye has opened in Truro. It is described as an industrial American diner with a vintage twist. Executive head chef Matt Long said: “We’ve tried and tested the recipes for the past few months and are pretty excited by the results. The smoked section of the menu includes mouth-watering, succulent meat which is cooked low and slow for 17 hours in our smoker, which was imported direct from the States."
James Martin opens new restaurant: Celebrity chef James Martin has opened his new restaurant, James Martin Manchester, inside the Manchester 235 Casino. Main meals are priced around the £16 mark, while steak dishes from the “meat market” section, with all meat displayed in a large viewable fridge, include a British Wagyu steak for £49. The food is “simple classic cooking”.

West Cornwall Pasty Co wins vegan award: West Cornwall Pasty Co. has been awarded ‘Best Vegan Pie/Pasty’ by PETA in the animal welfare organisation's recent UK Vegan Food Awards 2013. The winning product is the Wheatmeal Vegetable Pasty, which PETA taste testers described as “hearty, wholesome fare”. The company said: “We understand the growing demand for vegan products on the high street and are happy that we are able to react to this. It’s our goal to provide the opportunity for everyone to enjoy an authentic handmade pasty around the country”.
Bull’s Head, Repton sets up in-house mystery diners and buys out tips: The Bull’s Head, Repton, Derbyshire, regarded by many as the best single site pub operation in the UK, has introduced two major changes to improve service – an in-house mystery customer programme and a major change to the distribution of tips to ensure they remain with service staff. Richard Pope, who runs the pub with his wife Loren, said: “We have in-house mystery diners and we create our own reports using Survey Monkey. We can now get a report out quickly so the team knows the results by the time they finish their shift. This has been a really powerful mechanic for us to change staff behaviour – we do one or two a week and because it’s done in-house it is much cheaper. One of the other key things that we have done is on our tipping system. Originally, all tips got pooled and everyone got a few quid. It didn’t change behaviour. So now Loren and I have bought out of the tips (for non-customer-facing staff) – it’s been a leap of faith for us, costing us £31,000 for the year. But what that means is that the hosts can retain their tips now so they can move from a position where they can take £40 to more like £140 per shift. That changes behaviour – staff really go the extra mile.” The Popes, who were voted BII Licensees of the Year in 2011, are close to securing their second site, an Enterprise Inns venue.

Lindley Group wins £3m contract: Derby Theatre has awarded a new six year contract to provide and develop all of the catering services at the 649-seat arts venue to Lindley Heritage – the division created by The Lindley Group in 2011 to offer a bespoke, high quality catering service for arts and leisure venues, museums, historic houses and visitor attractions. As well as re-launching the existing Bistro Deli Café, which provides the local community with a meeting place throughout the day, with a new offering; and operating the first floor Lounge Bar, which is open for evening and pre- and post-theatre production drinks; Lindley Heritage has created a new 50-cover dining area adjacent to the Lounge Bar to offer pre-theatre meals. The new restaurant facility – The Bistro – will be cross-marketed and promoted by the theatre through the booking office.

McDonald’s opens its smallest ever site – in an Australian TV studio: McDonald’s has opened its smallest ever site, a functioning outlet as part of a new Australian morning TV show, “Wake Up”. The McDonald’s operation won’t be available to the public. Instead its two full-time staffers will be preparing breakfast items for the show’s on-air talent and guests, The Sydney Morning Herald reports. The unit will be part of the studio but not part of the show’s set. The “Wake Up” program has not yet begun airing. 

Cask ale 'attracting young people to the pub': The annual Cask Report kicked off Cask Ale Week by revealing that cask ale has lost its image as an old man's drink, with almost two thirds of licensees saying it is attracting younger customers into their pub and a similar number saying that more women are drinking it. The report says the drink is out-performing the overall beer market by 6.8%, and while people are drinking less and going out less, when they do go out, they are choosing their beers more carefully – and cask ale is a main beneficiary. Nearly one in five cask ale drinkers only tried it for the first time in the past four years. Beer writer Pete Brown, author of the seventh edition of the Cask Report said the report shows how people are turning increasingly to cask ale in the search of flavour, natural ingredients and craft production methods. He said: “There has been a sea-change in attitudes towards cask ale over the past few years, which explains why it’s now out-performing the beer market. It’s completely lost its image as an old man’s drink and now appeals to a broad range of drinkers, male and female, young and old. More people see it as crafted product made from natural British ingredients and like the fact that it’s available only in the pub. This is great news for all those who care about the future of the British pub since it helps guarantee a new generation of drinkers who will help keep pubs relevant – and open!” Brown said more than 10,000 pubs held beer festivals during 2012, encouraging people to try out cask ale and modernising its image. However, the report found that while people wanted choice, licensees were changing their cask beer ranges quicker than drinkers liked. One in three cask ale drinkers thought a guest ale should be on for at least a month, against only one in 12 licensees who would keep a guest ale on that long. Conversely, half of all licensees thought a guest ale should be on the bar a week or less, against barely one in five drinkers. At the same time, Brown said: “People love the opportunity to support local breweries but aren’t looking exclusively for beers from their own region. In fact 70% of drinkers would like to try beers from different parts of the country more often. This provides a great opportunity for pubs to diversify their range – and for the country’s 1,150 breweries to sell beyond their own doorstep.” Activities for Cask Ale Week, which runs from tomorrow, 27 September to 6 October, range from master classes in ale tasting to beer quizzes, meet the brewer evenings, beer festivals, sampling and free pint offers. The theme for the Week is The Great Big Taste Challenge.

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