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Morning Briefing Strap Line
Fri 16th Jan 2015 - Friday Opinion
Authors: David Martin, Martyn Cornell and Paul Chase
Subjects: The problem with predictions, Chef & Brewer and New Year fibs

The problem with predictions, by David Martin

The turn of the year put us once again in the annual List Season: when pundits of every flavour predict the hot trends for 2015. The public seems to love them, since they come out every year, attempting to tell us what we are going to see in the coming 12 months.
And yet, most forecasts are wrong. The “Undercover Economist”, Tim Harford, in an article in 2014 on the accuracy of economic forecasts, described a “quite astonishing record of utter failure” and talks of “our inability to peer into the future of a complex world”. His blunt conclusion was that “There is not a lot of point asking an economist to tell you what will happen to the economy next year – nobody knows.”
Here is one prediction I can confidently make, though: most people in our industry believe that eating out will continue its steady long-term growth. Expectations may have been prudently tempered in recent years, but there has long been an air of confident certainty about future market expectations. Optimism has been the rule.
Much of the foundations for this optimism are well-grounded: rising long-term affluence, a growing population, healthy and wealthy boomers, increasing brand reach and availability, just for starters.
But most of these are extrapolations, intellectual straight lines, helpfully supported by the example of the market in the United States, offering a handy template for those straight lines on the whiteboards at presentations in Britain about the trends in the home market. With around 50% of the US food dollar spent out of home, this was the imagined Promised Land for the future of UK eating-out. But as that noted business-watcher Dilbert once cautioned: “Studies have shown that accurate numbers aren’t any more useful than the ones you make up.” In recent years, reports from the US seem to suggest that in-home dining is now staging a fightback, retaking its share of consumers’ wallets, a trend-reversal that certainly wasn’t part of the forecast.
Here are some relevant recent observations from McKinsey’s work on consumer sentiment in the US: “With food as the second-largest household expense after housing, many Americans say they are cutting back on the most costly eating options: dining at restaurants and ordering takeout … Multiple years of austerity have left consumers with altered views about spending. Almost 40% say they will probably never go back to their pre-recession approach to buying. Cautious spending behaviour is the new normal and is unlikely to change in the near future. American consumers continue to cut back on spending by … eating more meals at home.”
I know all too well from my share-picking inability that “past performance is not a guide to future performance”. The unfortunate reality is that predictions of future consumer behaviour, as much as we need them, are probably about as accurate as economic forecasts. 
Just consider the example of food retailing. The one-stop weekly shop was seemingly permanently embedded in consumer behaviour, and the big retailers duly spent billions of pounds developing large out-of-town stores, to meet the perceived convenience of the car-borne shopping trip. Online shopping initially seemed to pose no major threat, until consumers embraced mobile technology, and began to live their lives by it – and then, suddenly, retail norms were well and truly disrupted. The spontaneity and immediacy enabled by mobile seems to have catalysed major changes in consumer attitudes and behaviour. For food retailing, the new normal no longer means one main weekly shop. Instead we are using several retailers online and offline, clicking and collecting, and buying top-up food day-to-day from the modern corner shop. 
Superstores may not be perfect, but to some eyes (like mine) this new mode of shopping often appears to be an inefficient use of consumers’ scarce time. However, the old conventions of “convenience” are suddenly outmoded, and, equally quickly, the retailers’ real estate is now being questioned. Goldman Sachs, for one, thinks as many as one in five food stores should close to restore like-for-like growth to the sector. 
It is a stark example of perfectly plausible extrapolated assumptions being derailed by unforeseen shifts in consumer behaviour. It also highlights how the initial visible responses to (in this case) mobile technology may not have as much long-term impact as the hidden triggered attitudinal changes. In the foodservice sector, it is arguable, we have yet to see the full consequences of such attitudinal shifts. 
Of course no one doubts the significance of technology in eating out. Starbucks’ chief executive, Howard Schultz, talks of “a seismic change in consumer behaviour … brought about by technology and the access people have to information”. Luke Johnson has observed that “the eating experience is being reinvented by technology.” But there can be no guarantee that the long-term trends, and nor, therefore, the future expectations for the balance of eating out versus eating in, will remain unaffected, because mobile technology’s ultimate impact is not yet fully known. 
Conventional distinctions are already breaking down fast between eating in and eating out, between retail and foodservice, between the on and off trade: coffee in the car, snacking on the street, desk-dining, tapas in the wine shop, tasting evenings at bottle shops, and in the United States, wine in Starbucks, and dining at the supermarket (aka the “grocerant”). 

In our data-rich world, we may be encouraged to think we have become smarter at predicting the future. But here is Dilbert’s view of forecasting: “You can put well-researched facts into sophisticated computer models, more commonly referred to as ‘a complete waste of time’.” For more credibility, I could cite the Danish quantum physicist Niels Bohr: “Prediction is very difficult, especially about the future.” Or we could refer to the celebrated economist JK Galbraith: his view was that there were two sorts of forecasters: “Those who know they don’t know and those who don’t know they don’t know.”
In essence, nothing is certain about future consumer behaviour. Extrapolation is almost certainly wrong, especially given the disruptive effects of mobile technology. If I were a scale food and drink operator, I would be regularly consulting my customers, and looking for clues in the way it is affecting their life, their thinking and their eating behaviour, in and out of home. And I wouldn’t start in Shoreditch.
David Martin is managing director of Red Circle Insight, a market and customer insight resource

Chefs, brewers and beer choice by Martyn Cornell

There is a book to be written about the history of Chef & Brewer, Britain’s original, and oldest, pub-restaurant chain, a history that places it at the heart of many of the changes that have shaken the industry over the past 50-plus years. Chef & Brewer originated in the first half of the 20th century with a catering company and pub retailer called Levy & Franks. Levy & Franks itself dated back to the acquisition in 1887 of a pub called the Pitt’s Head, in Old Street, on the edge of the City of London, by Isaac Levy a former bookmaker. Levy prospered greatly, going into business with his son, and his son-in-law, Harry Franks. Their operation was a pioneer in selling good pub food: a feature on Levy & Franks pubs in the Daily Telegraph in 1905 called “Lunch for the Million” revealed that in the public bars of Isaac and Harry’s outlets, workmen paid two (old) pence for a “pint and a buster”, a glass of beer and a ham or cheese roll. In the private bar, the more up-market clerical class paid a penny-ha’penny for a pint, a penny for a Welsh rarebit or a Cornish pasty, and threepence for a sausage and tomato with a roll. In the saloon bar, the management class bought hot steak and kidney pie for threepence, or a plate of beef for fourpence.
Levy & Franks became a limited company in 1911, and by 1946, when it became a public company, it was running some 44 pubs in the Greater London area under the Chef & Brewer banner, a name thought up by Harry Franks. Its pubs included such gems as the King Lud at the bottom of Fleet Street (a site now occupied by a branch of Leon), and the Yorkshire Grey on Theobalds Road. In 1950 the “well-known” Chef & Brewer signs were described as “familiar throughout London”. The company continued on through the 1950s, but hit financial problems in the next decade, and Levy & Franks was acquired by Maxwell Joseph’s Grand Metropolitan Hotels (as was) in 1966. Four years later, in 1970, Joseph also bought Chef & Brewer’s rival, Berni Inn, to take his pub-restaurant empire up to some 250 outlets. A firm believer in vertical integration, Joseph decided that he had the chefs and he ought to have the brewers to go with them, launching a bid in 1971 for the East End of London brewer Truman Hanbury & Buxton. It took two months for Joseph to win control of Truman’s, after a ferocious fight with the large London brewer Watney Mann, but once Grand Metropolitan had acquired Truman’s Brick Lane brewery it started replacing all other brewers’ beers in its Berni and Chef & Brewer pubs with Truman’s. However, acquiring one brewer had evidently given Joseph an appetite, and the following year he fell on and swallowed up Watney’s itself, to make Grand Metropolitan one of Britain’s biggest brewing companies.
For the next two decades, Chef & Brewer sat in the Grand Met empire, eventually becoming the name of the group’s managed pubs business. But in the aftermath of the Beer Orders of 1989, Grand Met gradually dismantled itself, its breweries going to Courage, its pubs, most of them, going into the first of the giant pubcos, Inntrepreneur. Chef & Brewer, however, having had some 500 extra managed houses stuffed into its pockets, to take it to 1,645 outlets, was sold to Scottish & Newcastle in 1993 for £629m – leaving Whitbread, which had been the favourite to buy the chain, sniffily declaring that S&N had paid too much. There was a slight blot on the deal: the pubs were tied to Courage until 1995, though S&N eventually solved that problem by actually acquiring Courage.
Under S&N, Chef & Brewer became a brand again, rather than an umbrella. Then in 2003, after a decade of fragmentation and frantic remergering among Britain’s pub estates, Scottish & Newcastle announced that it was selling its entire managed pub division, including C&B. Mitchells & Butlers was one of the frontrunners to buy what was now a 1,450-pub estate, but in the end it was Spirit Group, demerged from Punch Taverns the year before, which put in the winning bid, for just over £2.5bn. Two years later, as Spirit began to look at a flotation, or a possible sale back to Punch, M&B came round again, suggesting that it would be interested in buying 500 or so of Spirit’s larger food-led pubs – including Chef & Brewer. However, late in 2005, Punch won the bidding and took Spirit back again, this time with Chef & Brewer as part of the package.
All the same, M&B continued to express interest in acquiring Spirit, and Chef & Brewer, with discussions continuing about the possibility of a sale through to 2008. Nothing came of that, not least because Punch then hit the storms that almost sank it during the Great Recession. At one point in 2010, after its shares had crashed from £13.65 to 59p, there was talk of the company selling nearly 6,000 pubs to cut its then £3.1bn debt pile, and concentrate on the 800 remaining managed pubs – including the reliable, long-lasting Chef & Brewer chain. In the end, of course, Punch hung on to much of its tenanted estate, instead spitting out Spirit – and Chef & Brewer – once more, in 2011.
Now Spirit, and Chef & Brewer, is being acquired by Greene King. The Suffolk company, which is rising to more than 3,100 pubs – only a hundred or so pubs fewer than Scottish & Newcastle was in 1989, when the Beer Orders came out – will be the chain’s sixth different owner. The brand now covers some 130-plus outlets though not one is in the Central London heartland that Levy & Franks once dominated: indeed, there is only one modern Chef & Brewer inside the North Circular, and that just barely, the Bulls Head by the Thames in Chiswick.
So what does the future hold now for Britain’s oldest pub restaurant chain? Is it distinguishable enough from Greene King’s existing portfolio of pub restaurant brands? There is, I suspect, enough of a legacy of public goodwill towards the brand that it could sit happily between Hungry Horse and Taylor Walker as the Goldilocks of pub restaurants: not too cheap, not too dear. More Greene King beers on sale, surely? (The chain already carries Abbot Ale and Old Speckled Hen, in a portfolio of 16 or so cask ales.) One of the declared aims of Greene King’s brewing division is to “grow own-brewed volumes to drive market share”, and the brewers of Bury St Edmunds must surely be looking forwards to having the change to supply Spirit’s 800 managed pubs and 430 tenanted and leased pubs.
Except that … acquiring pubs is no longer just, or even largely, about boosting your own brewery’s volumes, as it was for the approximately 300 years that the pre-Beer Orders tied house system grew up and matured. In 1990, when Greene King had just 765 tied houses, and Chef & Brewer was still owned by Grand Met, the “guest beer” was a novel idea, and the chances of finding beer on sale in a pub from more than one brewery were still slim. Today, it is the tied house, selling just one brewer’s beers, that is the rarity. At the same time a growing percentage of the market is demanding beers that Greene King does not brew, and perhaps could not brew with much credibility. The deal announced back in July giving Greene King the exclusive rights in the UK to distribute beers from Goose Island, the much-admired, AB Inbev-owned American craft beer brewer, was the Suffolk company ensuring that it would not have to be reliant on someone else when it needed to put a genuine and creditable “craft keg” American IPA on its bars, as, surely, not least with a brand such as Taylor Walker now part of the family, it is increasingly going to find it will have to do
With Greene King now to become the biggest managed pub operator in the country, directly challenging operators such as Mitchells & Butlers with the range and extent of its branded pub offerings, is brewing, and beer distributing, becoming, not just an irrelevance but an embarrassment? The acquisition of all those pubs is not likely to see that huge a leap in beer production at Bury St Edmunds, and the brewing operation is going to become an even smaller part of the whole. I was with someone from Greene King in the George on the Strand in London (acquired by GK from the Capital Pub Co in 2011) on Monday and they were telling me, over a pint of Goose Island IPA, about how the company intended striking distribution deals for the American beer with Mitchells & Butlers, among others. But will M&B want to buy beer from its biggest rival?
How much added value does brewing bring to Greene King today? Maxwell Joseph thought it was worth having his own brewery to supply his pubs: but that was at a time when pubgoers pretty much accepted the beer they were given. The Greene King brewers are an excellent, dedicated bunch, who make many fine beers. But I hope they’ll forgive me for saying that few drinkers’ hearts ever leapt when they spied Greene King IPA on the bartop. There are some pub operators where, if their own brand of beer vanished tomorrow, sales would certainly suffer. That is not, I suggest, likely to be true for Greene King. Becoming a pure pub operator, as so many have done before it, may now be an attractive move with the added strength of the Spirit acquisition to boost its buying power.
Martyn Cornell is managing editor of Propel Info

New year, same old lies by Paul Chase 

There’s an old saying: “It’s an ill wind that blows nobody any good.” And so it transpires that the crisis in hospital accident and emergency departments, which has greatly exercised the newspapers and the politicians in this election year, features strongly in a letter published in the Daily Telegraph on 11 January and signed by “20 senior doctors”, including Professor Sir Ian Gilmore, chairman of the Alcohol Health Alliance.
Now you might think that a man so dedicated to the cause of public health would be lending a hand in his local A&E department, but not a bit of it! He’s a campaigner and January is one of his favourite months for letter writing; in fact I think he books his space a year in advance. He wrote a similar letter to the Daily Telegraph on 8 January last year lamenting the failure of the government to introduce minimum unit pricing (MUP), and describing the “deplorable practices” of the drinks industry in influencing government policy against this measure. Apparently industry trade bodies met with government and put across a contrary point of view. In the crazy world of simple moral certainties in which Gilmore lives, if you don’t co-operate with those who craft your doom, but actually beg to differ, that is “deplorable practices”.
So, what was the subject of this January’s little homily? You guessed it: minimum unit pricing. But this time a new claim is added to the list – MUP could solve the A&E admissions crisis! No need to throw more money at the NHS, just introduce MUP at 50p per unit and in one giant leap you will have outlawed cheap booze and solved the accident and emergency crisis. Now, being a leading public health propagandist Sir Ian has some statistics to back up his argument (don’t groan – I’ll try to keep it short): according to his letter “latest figures show that 20% of A&E attendances are alcohol-related. The figures rise to 80% during peak weekend periods on Friday and Saturday nights.”
So, is a count made every week, every weekend and in every hospital across the land of how many A&E attendances are “alcohol-related”? Well, no. So where do these numbers come from, and are they really the “latest figures”? A similar number is quoted in Alcohol Concern’s alcohol harm map – but they say it is 35% of A&E attendances that are alcohol-related, and they don’t mention the higher number at weekends. I think that if you combine the numbers estimated for weekdays and weekends they average out at 35% of all A&E admissions, so Sir Ian and Alcohol Concern are as one – what a surprise.
But here’s the problem: there is no actual count. The numbers come from a survey commissioned by the Cabinet Office in 2003 and conducted by Mori. The survey asked A&E staff what percentage of A&E admissions they thought were alcohol-related and the answers varied, which is why this number is usually expressed as “up to 35% of A&E admissions could be alcohol-related.” So, what Sir Ian is doing is taking the median number from a “So what do you reckon?” survey conducted over 14 years ago – “latest figures show” – and applying it to the 18 million A&E attendances every year, and arriving at a figure of 6,300,000 admissions caused by alcohol that would drastically fall if MUP could be allowed to work its magic by reducing the level of drinking across the whole population.
Someone needs to explain to Sir Ian that since 2004, and without MUP, there has been an 18.9% fall in alcohol consumption per head and consumption is now at its lowest level this century; since 2005 the number of men binge drinking has fallen by 17%; the number of women binge drinking has fallen by 23%; and binge drinking among 16 to 24 year olds has fallen by 31% (men) and by 34% (women). If, given these numbers, A&E attendances are nevertheless on the rise, then it is clearly not a problem that can be laid at the door of cheap alcohol or the government’s failure to implement MUP.
So, a crisis in A&E, which has causes that are numerous and complex; involving an ageing population, a lack of community care places for elderly people who then become bed blockers in NHS hospitals, together with increasing difficulty in making appointments with GPs – all these things are contributing to the A&E admissions crisis. But people like simple solutions for complex problems, and if we can find a bogeyman to blame – “cheap alcohol” – so much the better. Aren’t they lucky that Sir Ian Gilmore is here to help? The scandal is that he is far too intelligent to believe any of this tosh. But that doesn’t matter, telling lies is justified if you do so in a noble cause, and Sir Ian Gilmore is not above opportunistically conflating a fictional crisis with a real one if it helps to grind his axe. It’s an ill wind that blows nobody any good.
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol policy

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