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Fri 22nd May 2015 - Friday Opinion
Subjects: The size of Enterprise’s challenge, lessons from Chicago, roof-top bars and basement speakeasys in Chicago
Authors: Paul Charity, Kate Nicholls and James Hacon

The size of the Enterprise challenge by Paul Charity

Few would have guessed that Enterprise Inns’ strategy review would have produced as radical an outcome as it did last week. The most startling aspect was the setting of a target of opening circa 800 managed pubs within five years. This monumental goal is little short of the most ambitious thing ever attempted in the sector. The extent of Enterprise’s managed ambition is all the more of an eyebrow-raiser given the fact that the company remained the model of the non-interventionist tenanted pub company for so many years under founder Ted Tuppen. I remember a disputatious email from Ted in 2011 when I suggested, in a leader column for a trade magazine I edited, that Enterprise lacked imagination in not co-developing more pubs with its best retailers. The column had been prompted by the sale of the Realpubs business to Greene King – the business was based on a number of key former Enterprise freeholds and I suggested that the rigidity of Enterprise’s business model had meant in this case that shareholders had lost out on capturing the full value of Realpub’s London pubs. Ted rejected the suggestion, insisting that the company’s founding principle held true – the best pubs are run by motivated and dynamic single site operators.

Last week’s strategy review assimilates my suggestion from 2011 – Enterprise will seek to create a lot of value by investing in pubs in partnership with some of its best retailers, whom it refers to as “managed experts”. It envisages 100 schemes within five years, with each pub turning over at least one million pounds per annum after a £400,000 investment. To my mind, this is the most straight-forward part of Enterprise’s managed plan, co-opting experienced retailers, properly incentivised, to apply their knowledge to some of the company’s finest properties.

Opening the additional 700 managed pubs under two proposed formats – Bermondsey Pub Company and Craft Union Pub Company – is where Enterprise will have its hands full. The starting point here is far less about the forthcoming Market Rent Only option, ending the beer tie, than observers might think. Townsend began his strategy review a year ago, six months before MRO became a serious and cemented option. What became clear during Enterprise’s analysts briefing was that Townsend fears far too many Enterprise pubs, run less than brilliantly, often in screaming need of investment, are being left behind in their local market. The company simply needs to develop the capability to run many more pubs itself rather than trust in the often-unreliable process of re-letting to a fresh tenant, too often producing a clattering failure or a sub-standard operation.

Enterprise early steps look like the right ones. It’s spent serious money on an estate-wide market segmentation exercise, hired managed sector expertise, out-sourced back office support to minimise costs. But, right now, it stands at the foot of the mountain gazing upwards. There is the challenge of spending £350m over the next five years. So far, it has just 16 managed pubs, of which six have been trading for a reasonable amount of time. Finance director Neil Smith told City analysts that four of the six pubs are trading well whilst two are proving problematic. Early days teething troubles, no doubt, but successfully opening 800 pubs will throw up plenty of headaches at each and every site. The only investment and segmentation exercise of recent times to remotely compare to this job-list is Mike Tye’s work at Spirit. Major difference though: he was working with pubs that were already managed.

The question arises: is the Enterprise estate capable of carving out 800 managed pubs? Isn’t this estate tenanted and leased for a reason? Certainly, the company’s forecast mid-range average weekly take of £12,000 is on the low side for managed pubs. Undershoot this by much and the argument for managed conversion is vaporised. Townsend told analysts that he believes 1,500 pubs are effectively run as managed pubs already within the Enterprise estate because their leaseholder employs a full-time manager. There will be leaseholders, current and past, who will have trouble disguising their glee if Enterprise finds it harder than envisaged to out-perform its former tenant.

Lastly comes the major supposed negative. Enterprise no longer grants long, tied leases. It still plans to run 2,400 tied tenanted and leased pubs but on five-year lease terms. In this respect, it becomes more like the family brewers who have always kept tight control of their pub estates through shorter term agreements. But the long, tied lease was supposed to perform a valuable function. It was supposed to encourage long-term commitment to particular pubs by partnership of tenant and landlord sharing a co-interest. It was supposed to be a tool to attract high quality tenants looking to make large investments who needed long lease terms to ensure appropriate returns, but who could, if worst came to worst, call on additional help from their landlord. Some would say the long tied lease merely led to the overall decline in the physical standards of thousands of tied pubs – as many could not afford to meet their repairing obligations. The truth is that five years is quite a sensible time to commit to a pub – it’s one year less than the current Enterprise estate average tenure.
Paul Charity is managing director of Propel Info

Lessons from Chicago by Kate Nicholls

I have spent most of the past week in another time zone. The first half of that literally as I popped over to Chicago for the Propel/ALMR NRA Study Tour – where a further timeslip happened as much of the nightlife seemed to be set in the 1980s – and the second half metaphorically as I since I have got back, I have done little but talk about it.

Going to the National Restaurant Association Show in Chicago in itself is an overwhelming experience, it would take several days to see it properly and explore the new products and technology out there – but travelling with a group of operators and suppliers, learning from them, debating and discussing our trade not only brings it alive but enhances it immeasurably. Throw in the on-the-ground research from Technomic, Propel and Elliotts in taking us to some brilliant – and some ‘unique’ – venues, presentations from industry gurus like Jim Sullivan and this is fact finding with a vengeance. The learning experience is phenomenal but I wanted to share with you some of my main take-outs from the trip.

1.  Anything you can do, we can do better: It is ten years since I last went to the US for a trade show and five years since I visited for business. And boy, what a difference that time has made! Then, it was easy to spot the next big trends and to future-map how the UK market would develop. Now, we have not only caught up with our transatlantic cousins, we have significantly upped our game and I think we have overtaken them. The London eating out and nightlife scene is edgier and the northern powerhouse night time economies grittier, matching London and the US experimentally and experientially. Pop-ups and initiatives like Street Feast mean the maelstrom of influences is more dynamic and varied and food porn means that those influences spread more rapidly through the mainstream. I was also struck by the polarisation of the US market – full service or fast casual. All the new food trends on show in Chicago were already in the UK – the big difference was how they were presented.

2.  Speed, premiumisation and the human touch: Where the US market is ahead is in delivering a good quality product quickly. The only real area of growth is in fast casual but whereas in the UK that market is dominated by grab and go chains and impersonal experiences, in the US the focus is on delivering a personalised, fresh product in the time it would take to queue at Pret. Conveyor belt production approaches – what we only see in Subway – were everywhere. From Greek to lobster rolls, American BBQ rolls to sushi, burgers to handcrafted salads and raw food, the mantra is ‘have it your way’. Whether it would work in the UK, where customers are far less inclined to pick off-menu or feel confident enough to personalise their order remains to be seen, but it did highlight the importance of limited service and the fact that this need not be at the expense of speed. Clearly Americans value the human touch.

3.  It’s all about the people: And that brings me to service – previously the one big differentiating factor between the US and UK markets. When we were discussing what we had seen on the tours, this was one point to which people returned time and again. The market was not ahead of the UK except on service. Thinking about this when I got back home and tested out the service in our local bars and restaurants, I’m not so sure that this is actually the case. American service is big, brash and smiley – but just because it is overt and in-your-face doesn’t necessarily mean it is any better. One interesting point I noticed was the very limited point of sale material, particularly in the bars. In the UK, product is very visible and you subliminally absorb a lot of the information you need to make your decision and place an order from a quick look at the beer pumps and back bar. If the beer pumps are plain copper pipes or sculptured fists with no clip or abv displayed, bottled product is stored out of sight and the drinks menu is the equivalent size to an American novel, you are forced to talk to the bartender and rely on their knowledge to help you choose a drink – it appears to be great service, in fact it is great product knowledge (training, training, training) and a confidence to make recommendations which puts our teams to shame. The customer feels they’ve been well served, in fact they have been well sold.

4.  But is it all about the money?: Now, when people talk about fantastic American service, they usually talk about the tip culture and the fact that this motivates staff. Again, I’m not so sure that is the case and the dominance of fast casual and more particularly the limited service conveyor belt fast casual belies that. Staff in full serve or limited serve restaurants were typically on the minimum wage of around $3-4 an hour, but with the standard tip now being 20% for average service and 25% for good, they clearly earn much more. The fast casual staff – where you went up to the counter and ordered even if you ate in the restaurant (many of which put our limited service spaces to shame) were on $10 with no tips – and yet the service and product knowledge was just as good. Obviously it is a huge generalisation, but what seemed to set them apart was a pride in their knowledge, their skills and their work – in some a sense of ownership or alignment with brand values – and from the customers’ side, a respect for a job well done. On neither side of the transaction is there a sense of a dead-end job.

5.  Valuing the night time economy: Shows and study tours aside, what I found most interesting wandering around Chicago as a consumer, particularly in the evening, was how much more relaxed people were about the vibrancy, noise and busyness of the night time economy. Live music is synonymous with Chicago and plenty of bars and nightclubs had their windows open, spilling people and music into the street. Hybridisation means that fast casual restaurants can sell cocktails and you can sit in comfy outside areas drinking from real glasses late into the night. There appeared to be no heavy-handed enforcement, no anxiety by the operators and their teams and, no expectation that there would be a problem. Speaking to one of the board members from the NRA, Fred Thimm, he was surprised when I told him that the police and local authorities in many British cities simply would not let this happen and it is clear that nationally and locally, the sector, its people and its jobs are hugely valued – something we need to continue to promote.

And finally, what I have been asked about most is the technology – it is what most people associate with trade shows after all. My biggest wow moment – seeing a 3D printer which prints with sugar crystals create multi-coloured geometric and interlinked sugar cubes or a mini crystallised skull; I can really see that catching on for distinctive drink and food garnish when the cost comes down. And my biggest disappointment – how far behind such a dynamic market is on ordering and payment technology – going back to swiping a card and signing for a payment took some time to get reacquainted with. I was met with totally blank looks when I asked about contactless and it is clear that this is one area where the American obsession with personal service gets in the way – they have much to learn from us!

And that probably is my biggest take from the four days away – we have so much fantastic innovation going on all around us and it is changing very quickly. The value of the trip is in getting a breathing space from the everyday operations to take time to look and explore but more importantly it is in sharing those thoughts with other operators, bouncing ideas and networking with them. So bring on the next Chicago but in the meantime, let’s explore and celebrate the great operators and experiences we have on our doorstep. Study tour anyone?
Kate Nicholls is chief executive of the Association of Licensed Multiple Retailers, which, in partnership with Propel, took 44 industry executives to Chicago last weekend for a four-day study tour

Upstairs and Downstairs by James Hacon

With the last twinges of jetlag slowly dissipating, it’s coming up to the end of a full working week since returning from Chicago, having joined the Propel and ALMR Study Tour over the weekend. The weekend aligns with the NRA Show, USA’s largest hospitality event and provides a superb opportunity to get to see what our American counterparts are up to across the Atlantic. As a regular visitor to the US and someone returning on this trip for the second year in a row, it gave me the opportunity to look at outlets and operators with a little more context.

Chicago is a city with a distinctly diverse culture, in all senses. City neighbourhoods stretch from hip historic precincts to corporate skyscraper-filled blocks, through to sprawling suburban areas, some of which sit in serious poverty. Adding to this diversity is the effect of being one of the key destinations for healthcare, government, retail and leisure for residents across USA’s Midwest. With a metropolitan population of nearly ten million and more than 50 million visitors each year, one thing is for sure, this is a busy destination. 

Since our visit last year two key trends that have continued to develop are rooftop bars and speakeasy type underground bar locations. From a commercial perspective, I really don’t need to point out that both are clever uses of otherwise disused space – also working to provide something unique and memorable for the guest.

Having done my research on rooftop bars I was keen to get a local opinion, so asked our concierge. Unfortunately the result was particularly helpful, with each of the enthusiastic guides sharing a list of three or four each – both unwilling to concede to the recommendation of the other. Luckily this is a subject popular amongst bloggers and journalists, providing me with enough ammunition in which to do some much-needed personal research.

A number of factors can be said across all the rooftop venues visited; clearly the views are always top of the bill, by default while disappointingly, the drinks offer was vastly the same from venue to venue. A mix of classic cocktails, small wine list, considerable amounts of bubbly and a limited craft beer collection – clearly trying to maximise space and streamline service, service was nearly all table-based, with a minimum spend allocated during busy periods. It would have been great to see real artistry around the serve, given the cool surrounds and price tag.

The most hip of the venues visited was Cerise, which can be found near the top of the newly launched Virgin Hotel Chicago, a brand new concept from the Virgin group, in their move beyond ultra-exclusive accommodation. Just three weeks old, the venue was clearly very fresh and well-designed, blending relaxed furnishings with vibrant décor. The service is what you’d expect from Virgin, friendly, dynamic and not at all pretentious. Clearly helped by the changing backdrop, the environment morphed well between a relaxed daytime setting for casual leisure guests and a night-time destination for the glamorously dressed Chicago elite after dark. I’m told the surprise addition of unannounced famous DJ’s is supporting loyalty and increasing dwell time, with locals not wanting to risk missing out. A clever tactic.

Shanghai Terrace at the Peninsula Hotel was absolutely breath-taking, while being a million miles away from authentic to its destination, it did have the wow-factor. When exiting the lift you feel like you’ve been transported back on a nostalgic journey to the 1930’. Unlike others, this space is maximised for dining as well as drinking. Residents of the hotel dominated here for dining and the exclusive atmosphere was well-maintained throughout the evening, with a strict door policy which included a desire to ensure the gender balance was maintained in the venue as the night went on.

As a bar and restaurant venue, independent from a hotel, Celeste has a completely different feel. The three trading floors are each very distinct with the ground floor offering unrestricted walk-in service, the middle a full service restaurant and a relaxed rooftop experience on top. Art Deco in style, the interior design is very respectful of the original feature of the building and even uses original designs from the glass factory that used to stand on the same spot.

The key challenge for all rooftop bars in the city is facility utilisation, with the city experiencing harsh winters these venues are more than halved in size for almost half the year, which is further affected through the deepest part of the winter when I’m told locals avoid the city centre due to the weather. Add to this the restricted opening times of the outdoor areas due to noise issues and you’ve got a model that has to pay its way in extremely short trading periods – with an increasing number popping up across the city, it’ll be interesting to see who’s thriving this time next year.

From rooftop to basement, the standout speakeasy type outlets are often the ones you can hardly find. I spent almost half an hour looking for one, with no signage and a doorway that couldn’t be more hidden. Playing on the hipness of being unknown, these venues put a lot more effort into the theatre of hospitality with big welcomes and impressive levels of bar service. In keeping with the Prohibition theme, a broad whisky offer and short but effective cocktail list represent the usual beverage offer. Two venues stood out from the crowd. Untitled was located in the city centre, hidden between a supermarket and pharmacy, not signposted at all. Where name signage should be, two blank gold plaques take pride of place. Unlike its competitors, the venue has a roaring food trade, busy until after 1am as a supper club I’m told. The other was The Violet Hour in the up-and-coming Wicker Park area of the city. Much more upmarket than its competitors, floor to ceiling curtains create distinct spaces. The venue trades on reputation with a reservation only policy for cocktails. Again with no frontage or signage, clear rules are displayed and a strict door policy applies. God knows how we all got in! 

As you’ll have seen, the trip provides lots of learnings to take back to your own business. An opportunity to break out of the cycle of day to day operations, breathe and truly lift your head to look around. Something that is not easy in a sector where we are notoriously busy. Beyond all of that, I love that it gives an opportunity to meet some superb people and an opportunity to talk about your business candidly, taking advice from others that do what they do amazingly well. One place for next year please.
James Hacon is managing director of leading public relations and marketing agency Elliotts –

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