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Morning Briefing Strap Line
Fri 28th Feb 2014 - Friday Opinion
Subjects: An evergreen business model, focus group buzz, Early Morning Restriction Orders and the argument for craft beer producers to ditch supermarkets
Authors: Martyn Cornell, Ann Elliott, Kate Nicholls and Steve Nuttall

An evergreen business model by Martyn Cornell

It may be a truism, but it’s no less true: what goes around comes around. Probably the oldest business model in the hospitality industry is the pub that brews its own beer. Archaeologists found an example of one in the ruins of Roman Verulamium. Even in Victorian England, whole swaths of the country were dominated by own-brew pubs. In the 1870s there were almost 30,000 pubs and beerhouses in England and Wales brewing their own, and they made almost a quarter of total commercially brewed beer.

High taxes, declining beer sales and the increasing power of the bigger brewers hammered the home-brew pub sector, however. Preston, to name just one former centre, had 142 home-brew pubs in 1920, 54 in 1940 and three in 1951. When the Campaign for Real Ale (Camra) brought out its first Good Beer Guide in 1974, it could find only four own-brew pubs still operating in Britain.

The revival of interest in beer that Camra brought began a revival in the home-brewed pub scene, which took off in 1979, when David Bruce opened the first of what was to be a chain of Firkin home-brew pubs in a run-down boozer in Southwark, London.

By 1988, the number of own-brew pubs in the country was up to 70 or so. Bruce’s Firkin chain eventually ended up in the hands of Allied Lyons, which boosted it to 54 pubs with breweries attached. At the end of the 20th century there were some 160 pubs in Britain brewing their own. However, in 1999 Allied sold all the Firkins to Punch Taverns, and the brewhouses were closed.

Although homebrew pub numbers slumped in the next few years, the introduction of Progressive Beer Duty in 2002 has given a considerable fillip to anyone wishing to operate a small in-house brewery. According to the statisticians at the Quaffale website, of the 585 breweries opened since the start of 2009, 127, or just under 22%, are brewpubs. The best guess today is that Britain now has around 250 pubs that brew their own beer: more than at any time since the 1930s.

Alongside the solo brewpubs, there are a growing number of operators running several brewpubs together, including breweries that also run microbreweries, such as Ossett in West Yorkshire, which owns 18 tied houses, of which three have their own microbreweries attached. There are also multi-site pub companies installing breweries into some of their pubs, such as InnBrighton, the 45-pub operator led by Gavin George, which now runs own-brew pubs in London and Brighton.

Among the more ambitious operators, is Brewhouse Pub & Kitchen, the EIS-funded operation started in 2011 by Simon Bunn, a former Mitchells & Butlers executive, and Kris Gumbrell, ex-chief executive of Convivial Pubs. It is currently only at two outlets, in Portsmouth and Dorchester, but has aspirations to grow to ten. The brewery in each pub is an important part of the offer: “Consumers are seeking more than a visit to pubs just for a beer,” Bunn says. “Pubs with more reasons to visit provide more opportunities to extract sales from their guest base. Adding the brewing element to the pub provides great credentials around drink, in addition to the home-cooked-to-order food we have on offer.”

There are drawbacks to the homebrew model: “Adding your own production plant within the pub makes it more complicated. Brewing is like adding another kitchen to your outlet,” Bunn says. “However, brewers are recruited more easily than head chefs. Small organisations can compete in a very different way. We battle on quality, and not price. We have attempted to be a brewpub with a difference: most are geared to men. We have a selection of our own glassware which is designed to be female-friendly: we worked with Bournemouth University on this.”

City Pub Company, founded in 2011 by David Bruce, Clive Watson, his former partner in Capital Pub Company, and John Roberts, the former head of the beer division at Fuller, Smith & Turner, has 13 pubs now, and three, in Cambridge, Henley and Bath, have their own breweries attached. Brewpubs are not for everybody, Roberts says. While a second-hand brewery can be bought today for much the same sort of price as a second-hand car, there are still set-up costs involved, the need to find a good and reliable brewer and the necessity to have suitable space in the pub for the brewing vessels.

In addition, he says, the suitability of a brewpub operation as part of the overall business mix “depends very much on the pub operator, its style and the locations it trades in. It is not as simple as ‘plug and play’ with a brewery, and you need passion, dedication and experience to make it work well. There is nothing worse that poor beer from a pub/micro brewery – and there is a lot of that out there, I’m afraid – so my only advice is: if you are going to brew beer, do it really well or not at all.”
Martyn Cornell is managing editor of Propel Info

What the focus groups are saying by Ann Elliott

Over the last few weeks, I have personally conducted a number of focus groups, analysed the results of a raft of quantitative surveys, read a wide spectrum of industry reports and visited over 42 restaurants, hotels, pubs and bars.

Very much top-line and in no specific order I have found:

1. Customers love JD Wetherspoon contrary to the musings and mutterings of the London restaurant cognoscenti as to how this could possibly be the case. It is reasonable quality food for under £5 served consistently well in nice enough surroundings by nice enough people. Job done, according to many customers. The £5 price point is key – lower is even better to the woman on the street.

2. It only takes an ‘“average” experience to stop any one from visiting a brand for a long, long time. Customers will not put up with feeling unvalued or being taken for granted. They are extremely unforgiving – much more so than they have ever been. Their expectations have increased exponentially over the past three years. Every team-member needs to understand this with every inch of their being.

3. I know I have written about this before, but women do really make the decisions about when and where to eat out. They are bewildered and frustrated by the myriad of tiny things that operators could so easily to do make them really love each and every visit to a restaurant or pub.

4. Pre-loading consists of half to three quarters of a bottle of vodka or a bottle of wine – each. Middle of the evening on a big “evening out” is 12.45am. Casinos are the late-night “go to” places.

5. Loungers has had a bigger impact on the regeneration of a high street than anything Mary Portas might have tried to do. It is simply amazing at recreating and rebuilding neighbourhoods.

6. The current upheaval in the eating-out market in terms of changes in consumer patterns is unlikely to settle down – change is the future. It isn’t going to “land”. We all need to get used to constant change in frequency of eating out, spend per head, promotional response and social media. Customers are restless.

7. Customers are grocery-shopping more often and spending less on each shop than they used to – this has impacted how they eat out, too. More than ever we need to understand how people shop to understand how they eat and drink out.

8. Nondescript, non-differentiated pubs will not survive. This is nothing to do with the rate of VAT but everything to do with the inability of some licensees to understand what customers want and to respond to those needs. It is also about the failure of some licensees to accept that the blame for their pub’s lack of performance is down to them and not due to malevolent external forces. Customers will not visit crappy second-rate pubs serving average food (or no food at all), no matter how cheap their beer. They tell me that time and time again every time I hold pub focus groups.

9. We have known this forever but, having seen both Pint Shop (Cambridge) and Le Bistrot Pierre (Leamington) in the past week, it’s confirmed my understanding that great offerings can successfully go off-pitch and, by doing so, really impact both rent and rate percentage.

10. Reds, the barbecue brand founded in Leeds, is a fantastic brand. How anyone can launch a brand doing those sales within such a short space of time and with no previous operator experience is beyond me. Simply awesome. No baggage can be a brilliant thing
Ann Elliott is chief executive of the leading sector marketing and PR company Elliotts – www.elliottsagency.com

Night-time partnerships, not early morning restrictions by Kate Nicholls

Another week, another EMRO: this time in Clapham, South West London – and it is one that is being scrutinised closely for its implications on high streets up and down the country.

Whereas Blackpool’s proposal was an ASBO for the whole of the town centre, based on detailed police crime statistics, the Clapham proposals are as tightly drawn as they can be – to just four premises on a single crossroads – and based on complaints from a very small number of vociferous residents.

We have all seen cases, like Hope and Glory versus Westminster, where residents’ complaints have had a disproportionate influence over licensing committee decisions. With the Anti-Social Behaviour Bill about to give police new powers to close premises when triggered by community complaints, it is small wonder that EMRO cases like Clapham are attracting attention from more than just late-night businesses.

And that is why the Association of Licensed Multiple Retailers (ALMR) has been leading from the front in the legal debate, four having gone to a hearing and eight have been in consultation. We estimate that, as a direct result of our campaigning in this area, we have saved affected businesses more than £15m in lost sales, not something you can strip out of an area without having a substantive socio-economic impact.

So are there any lessons that can be learnt from looking at these cases as a whole and the debates which have gone on at a local level?

First, where we have been able to be most successful in diverting local authority attention away from even considering the nuclear option of an EMRO, we have had a united trade, working well together, well plugged in to existing partnership initiatives and with open channels of communication with police and local residents.

Second, what has been surprising in all the cases has been the lack of care and attention that has been paid to due process and procedure in pursuing these measures. An EMRO should be a matter of last resort, because it is so potentially damaging to businesses, and that is why, unlike levies, the government put stringent legal requirements on the evidence threshold and the procedure to be followed before it is introduced. Unique among licensing decisions, it requires a whole local authority sign-off and endorsement. Given this, it is surprising that many police and licensing officers have taken such a cavalier approach to procedural points, and reassuring that our elected local representatives have taken a very dim view of this.

Third, local business voices do matter. Yes, the legal weight and firepower of the national trade body helps to shape that and to articulate the economic arguments. If you look at Blackpool’s decision, it is almost word-for-word the ALMR closing submission. But what put paid to the EMROs in Blackpool and Hartlepool was the voices of the local operators, explaining in simple terms what it would mean to their livelihood and that of their employees. We need local operator input.

Fourth, there are lies, damned lies and statistics. Local councillors, a bit like judges, do not like to be bamboozled by them. This, of course, ties in to the point above about hearing it from the heart, and from local businesses. But it has been reassuring to see local committees grappling to understand what the real problem is, and recognising that an EMRO is a blunt instrument which will do little to resolve it.

Equally, we have found that operators simply trying to deny a problem or arguing that it is x number of crimes, not y, does not wash. The starting point has to be an acknowledgement that there is a problem, and to show a willingness to help to resolve it. In the three cases that went to a hearing, local councillors accepted that there was no causal link between licensing hours and alcohol-related harms.

Finally, partnership works. Hartlepool’s and Blackpool’s decisions were influenced, in part, by trade commitments to Best Bar None, Pubwatch and other voluntary approaches. Lambeth has also asked the trade to explore a Business Improvement District (BID), and voluntary dispersal policies and taxi management initiatives. In the Lambeth and Blackpool hearings, local licensing committees have sifted through the evidence presented by both sides and have asked repeatedly, what is the actual problem and will an EMRO actually solve it. It is our job to say that partnership, not penalties, delivers results.
Kate Nicholls is strategic affairs director of the Association of Licensed Multiple Retailers

Should craft producers ditch supermarkets by Steve Nuttall

Reading an article by Marston’s Brewing Company’s managing director, Richard Westwood, last week, I was applauding [in my head] his comments that it cannot be logical that the mighty Marston’s cannot compete on price with the craft sector. He is right, and I doubt any of us would argue with him: that is illogical. Craft beer is of superior quality and should cost more not less.

Craft is more costly to make and has a greater variety of hops [our spring seasonal has to be seasonal or it would bankrupt us]. Craft uses the best, most specialist malts and is made in small batches which allows for more individual beer. The resulting product should absolutely cost more, not less. English craft beer is the best in the world.

Retailers and consumers should gladly pay more and the price should not be subsidised by the government. There is an odd disparity in the market, with imported craft beer being sold at nonsensical prices. I have seen Blue Moon (made by MillerCoors) sold for more than £5 a pint, versus English craft beer being sold for less than standard mainstream lager. Why do UK craft brewers (and retailers) undervalue by such a large degree?

My business, Joule’s, has limited free trade sales because, like Marston’s, we also cannot compete on price. We don’t even sell to big retail groups, where retailers routinely demand prices around our cost of production. After factoring in containers and distribution, it becomes marginal. The only way it would make sense is if we were to pass on the duty relief: but does it make sense that the duty break is, in effect, being passed on to pub companies? We need to be very careful that it isn’t, and I sensed that the support expressed for Progressive Beer Duty benefits enjoyed by many craft producers is conditional. We DO need to price responsibly if we are to maintain that support and, critically, not underestimate Marston’s and others’ power to lobby against PBD or demand reform.

I would urge all craft brewers to cost their beer at the full duty rate. I am sure if we all do, then the market will stand it. My next wish would be for us all to withdraw bottling for supermarkets. I have yet to meet a brewer where bottle sales to supermarkets does anything more that provide brand awareness. It seems to me that craft brewers are all wedded to the on-trade and we live or die with pubs. Would it make a difference if English craft was reserved just for the pub and the pub alone? It might. Joule’s doesn’t bottle beer for supermarkets, in part, as there is no margin, and in part because it’s popular with our customers, on whom we depend. So if it is a choice (and it might be), the on-trade wins.

So, why don’t we all act together? First, because every one of us thinks we don’t matter in the grand scheme, and with more than 1,000 craft brewers now, that’s logical. Second, there is now over-capacity in the craft sector: retailers are awash with offers direct from brewers and distributors. I even sense weariness from the consumer, never mind the retailer. Over-capacity inevitably leads to fierce competition, and inevitably leads to sharp pricing and the temptation to reach into the duty reserve. When I see very aggressive free stock deals and sharp pricing, it is hard to know where it will end. But one thing’ is for sure, it won’t last forever.
Steve Nuttall is chief executive of the Market Drayton-based brewer and retailer Joule’s Brewery

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