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Morning Briefing for pub, restaurant and food wervice operators

Fri 11th Dec 2015 - Friday Opinion
Subjects: Why the knight of alcohol and dementia is wrong, BrewDog, benchmarking the sector, and sugar tax
Authors: Tim Martin, Andrew Ball, Glynn Davis, and Paul Chase

Why the knight of alcohol and dementia is wrong by Tim Martin

If you, or I, in a deliberate act and from a position of authority gave information to the public, which we knew to be false, we would risk being clapped in irons or, more worryingly, transported to Australia.

However, a minority of senior representatives of the medical profession often representing government or government-approved agencies, seems to trot out abject nonsense at will – which often goes uncorrected for years or decades, at least in the public’s mind.

A recent example related to lurid front-page headlines in a number of newspapers, in which a report sponsored by the government health organisation NICE said that there was no safe alcohol limit for dementia and that even light or moderate alcohol consumption increased the risk of this terrible illness.

The source of the myth was Professor Sir Ian Gilmore, formerly head of the Royal College of Physicians (if you want to become a knight, curing the sick is not enough on its own) and inveterate anti-alcohol campaigner.

This is the same Gilmore (as he then was), I think, who assisted the major brewers (I kid you not) in opposing Wetherspoon’s licence applications for new pub licences in the 1980s and 1990s. It’s also the same Gilmore who advocated legalising heroin and cocaine, as reported in various newspaper articles in about 2010. Logic and consistency of argument are not the professors’ strong points, as is evident from this brief paragraph.

The Daily Mail was one newspaper that highlighted the ludicrous claims about alcohol and dementia on its front pages, yet, to its credit, published a long article in rebuttal from Tony Edwards, an author and journalist, who has studied these subjects in some depth. The basic argument of Edwards is that Gilmore is talking nonsense. The overwhelming conclusion of the studies, which he has made, and those which have been made by the medical profession itself, is that moderate alcohol consumption is a protecting factor in respect of dementia.

Edwards states that he was surprised that Gilmore had drawn conclusions, which were the polar opposite of the truth, since he was a gastroenterologist and had no apparent training or experience in dementia. Edwards asked NICE for a copy of the “independent” report on which it relied, before it issued a press release linking alcohol to dementia; he was surprised to find that Sir Ian’s report dealt with the issue of the link between alcohol and dementia in only 92 words – hardly a considered analysis of this complex area.

He was also surprised to learn that Gilmore is an inveterate anti-alcohol campaigner and president of Alcohol Concern, so not exactly an objective commentator. If, in the past, you have taken what most people regard as extreme anti-alcohol views, as well as views in respect of heroin which most would regard as outrageous, it is unlikely that many would believe you to be sufficiently unbiased to give advice on this important subject.

This is the second time which I can recall that we have taken issue with a supposed learned professor on a medical matter. The last time, we questioned the health benefits of Britain lowering its salt consumption and referred our readers to a brilliant article by Gary Taubes in the New York Times in which he stated that the evidence indicated that lowering salt consumption worsened health outcomes for individuals and, in so many words, that the current levels of salt consumption in western countries were not harmful. The anti-salt arguments, most vociferously advocated by Professor Graham MacGregor of the Wolfson Institute, seem to have been adopted wholesale by the NHS, which advocates a reduction in salt consumption from a daily average of about eight grams in Britain (the lowest in Europe) to six. There is simply no scientific evidence for this advice, at least as I understand it. You shouldn’t take medical advice from me, and I am not exactly an unbiased commentator when it comes to the question of alcohol consumption. Pepsi, including Diet Pepsi, is our biggest selling draught product, and we sell more coffee and tea than we do Pepsi; so, many customers have reduced their alcohol consumption, probably to their benefit, in many cases.

However, the last 45 years have seen health scare after health scare, which have subsequently proven to have been misleading and wrong. Butter was supposed to be bad for you – that advice has now been retracted. You were supposed not to consume more than two eggs a week, said the NHS – eggs are now regarded as a superfood. You were supposed to drink two litres of water a day (not sure to what extent the NHS backed this one) – this has turned out to be utter balderdash. Running five miles a day is good for you – no, it’s not, in most cases – we now know that you are better off walking the dog for 30-40 minutes a day. A low fat and high-carbohydrate diet will improve health – now regarded as completely untrue – and the whole link between dietary fat and heart disease has been questioned and depending on what you read proven to be untrue.

As far as I’m concerned, Gilmore was not telling the truth in his report to NICE and NICE, itself, is not telling the truth, by implication, by not retracting the information, which it sent out, based on what Gilmore said. The attitude, which is implicit in the approach of NICE and Gilmore, is that it is legitimate to mislead the public in pursuance of the objective of persuading people to reduce their alcohol consumption, even if, perversely, it leads to an increased incidence of dementia. This is not a line of reasoning with which most people would agree.
Tim Martin is chairman and founder of JD Wetherspoon

Benchmarking the sector by Andrew Ball

With 80 respondents included, the haysmacintyre UK Hospitality Index was released last week. Overall, the results showed a positive buoyant position for the sector, with respondents’ turnover up by 18% through a mixture of organic like-for-like growth, the opening of new sites and the purchase of current trading business and assets. Like-for-like site growth is up on average by 3.6%, taking the average site’s turnover up to just over £1.03m. Throughout the sector, there is also a positive outlook for turnover for 2015/16 with an average projected growth of 17%.

Staff costs have remained stable at circa 29% of turnover and it was pleasing to see that there was a general reduction in staff turnover.

It is key to consider how best to retain staff. Paying a competitive basic salary is an obvious starting point, but offering a well-targeted bonus scheme linked to the performance of the business is a straightforward incentive basis for the short term and makes a real difference to staff retention. When a key individual has been identified, giving them a stake in the business in order to prosper from its longer term growth shouldn’t be overlooked. This can take a variety of forms including shares, share options and EMI options. Investing in training can be key and online training is becoming an increasingly available option within the industry and is a cost effective means of advancing your staff. It is also critical not to forget the softer issues: for example understanding the motivational importance of allowing the chef’s own personality and food style to shine through shouldn’t be underestimated.

The turnover growth has flowed through to the bottom line where the average Ebitda margin has increased from 11.1% to 13.4%. Having said that it is clear that many of the respondents fall foul of the “blocky” nature of head office costs.

When a new hospitality business opens it usually operates from just one site. The owner often runs the business, in effect covering head office expenses such as HR, IT, marketing, operations and finances. If the business does well, the owner might decide to expand to three sites. Now running a four-site group, the owner can no longer cover all those functions and has to hire in additional expertise at significant cost to the business. To mitigate the impact of those costs, and leverage this new resource further, the owner must be able to quickly expand from four to, say, six sites to justify the new investment, given that the head office costs for four sites will often be comparable to a six-site operation. Bearing this pattern in mind, business owners should consider planning not just for their next stage of growth, but the one after that too.

It was also pleasing to see that there was an increase in the capital expenditure in general and also in capital expenditure financed by debt, indicative of an easing by banks on lending to the sector.

We are committed to future of the report, and would welcome any comments on either the 2015 or metrics you would like to see included in 2016.
Andrew Ball is a partner at sector accountancy firm haysmacintyre

Let’s hope BrewDog is not closing off options by Glynn Davis

Let’s start with an admission – I admire BrewDog. It produces some very good beers and has arguably rewritten the rule book on the marketing of beer. The way it has generated mountains of press coverage has undoubtedly made it the envy of many other brewers looking to shout louder than the crowd in an increasingly noisy marketplace.

Now for a disclosure – I own shares in BrewDog, partly for the reasons explained above. But here comes my grievance. The company seems to be looking to employ an equally shoot-from-the-hip, let’s-stir-it-up approach to its shareholders as it does with its marketing.

It is considering making amendments to its constitution that would effectively make it immune from a takeover or from doing a deal with a larger brewer – or even companies involved with large brewers’ products.

It has already made its feelings known on this issue in no uncertain terms. When US brewer Lagunitas recently sold a 50% stake to Heineken and fellow American brewer Ballast Point was bought by alcoholic drinks owner Constellation Brands, then BrewDog immediately announced it would stop stocking their products in its bars and online shop even though it (previously) expressed great respect for both brewers.

BrewDog has long crusaded against what it calls the large “monolithic” brewers and it is right to raise the question about their supposed new found “passion” for craft beer, which is leading to a growing number of them striking deals with high quality craft brewers. There has been a catalogue of buy-outs and stakes taken in such brewers by the big operators.

There have also been some private equity deals completed. One of the world’s greatest brewers Dog Fish Head recently took money from a private equity firm in exchange for handing over a 15% stake in the business. Some years ago BrewDog itself sold a 12.5% stake to The Griffin Group (that also purchased revered Anchor Steam Brewery in 2010).

While Griffin Group might not be a hard-bitten money management firm without any passion for beer, it is also not a benevolent charity and will have a long term objective of making a financial return from its BrewDog and Anchor investments.

The question is – who is the better party for a craft brewer to do a deal with – private equity or large brewer? BrewDog seems good with one but not the other. Neither has beer wholly at the heart of their decision making. Instead, they have a responsibility to their shareholders first and foremost. 

By potentially closing the door to striking a deal with a whole universe of large organisations in the future, BrewDog would be doing a disservice to its shareholders. The company has been clever in attracting over 35,000 shareholders – aka Equity for Punks – and the majority will no doubt applaud the gung-ho stance the company is taking in sticking two fingers up at the large brewers. But some will not. Or maybe I’m simply in a party of one. Either way, all voices have to be respected and heard – that’s what having shareholders means.

Whether BrewDog wants to acknowledge it or not, the fact is there comes a time in the life of any company when it needs a serious injection of capital if it is to grow at the rate its management (and shareholders) expect or the founders and shareholders want to realise their efforts and investments respectively. Crowdfunding can take you so far but then something more serious is needed.

We’re talking funding from a third-party – this might be from private equity, a big brewer or a flotation. BrewDog has plans to ultimately go down the IPO route but a lot of things can happen ahead of that to throw it off course and force it to reassess its options. By earlier closing the door to dealing with large brewers, this would represent a serious handicap to its abilities to raise capital. It’s naïve to think everything big is evil.

The reality is, the US is well ahead of the UK and the rest of the world in terms of craft brewing and a number of its early generation craft brewers are now faced with weighting up the options of how they move on to the next big stage of their growth and/or how the founders and early shareholders can release some cash from their long-standing investments in the brewery.

The way that BrewDog and some other more vocal parties in the brewing industry have castigated any of the US craft brewers that deal with money men or large brewing companies is blinkered. It represents a failure to see the challenges these smaller brewers now face as they seek to grow.

Balancing the needs of their companies and the (sometimes holier-than-thou) craft beer community will be a challenge faced by a growing number of brewers as demand for their quality product continues to grow around the world. BrewDog could well be in this position one day and I for one hope that it has all the options open to it.
Glynn Davis is a leading commentator on retail trends

Sugar? No thanks, I’m sweet enough by Paul Chase

The heading above is my stock response whenever anyone asks do I take sugar in my tea. I am, however, a self-confessed chocaholic and I prefer proper fizzy drinks – not the anaemic ones that don’t have any sugar in them. And what is more, I don’t think that is any of Sarah Wollaston MP’s damn business. The Commons Health Select Committee that she chairs has just recommended a 20% “sugar tax” on fizzy drinks, along with a number of other recommendations including product reformulation to reduce sugar content; the legal mandating of reduced portion sizes is also on the agenda, along with more labelling requirements. I think nine out of the 12 witnesses she called were from “Action on Sugar”, with only three from industry or people otherwise sceptical of this proposal. It seems that Wollaston has swallowed the Action on Sugar obesity-crisis-act-now-or-we’ll-bankrupt-the-NHS-think-of-the-chidren narrative, hook, line and sinker! Let’s face it, it’s not a proper crisis unless it threatens to bankrupt the NHS, or is in some other way a threat to this, our national religion.

On the BBC News site this story was presented under the heading “MPs Back Sugar Tax” – er…well, seven of the committee of nine did so – that’s just 1% of the total number of MPs in the Commons. We can take some comfort from the fact that two of the committee didn’t back this. Conservative MPs Andrea Jenkyns and Andrew Percy both dissented, with Jenkyns calling the proposal “patronising nonsense”. “Here, here” say I!

This whole campaign has been led by “Action on Sugar” – a crackpot group of healthist zealots who see sugar as one of the “industries of addiction” that need curtailing by government. In fact these people believe sugar consumption should be reduced by half – which would take us back to the levels of consumption last seen during the Second World War when sugar was rationed. This really shouldn’t surprise us. Whenever “safe levels” of alcohol consumption are discussed, anti-alcohol campaigners use 1952 as their starting point to show how much alcohol consumption has risen. This is because in 1952 rationing had just ended and people were short of money – so if that’s your comparator the increase in consumption to the present day is made to look pretty steep.

We hear a lot about austerity, but taking us back to wartime levels of consumption because it is “good for us” is a bizarre ambition. If we want to tackle obesity why single out sugar? A gram of sugar contains just four calories; a gram of alcohol seven calories and a gram of fat nine calories. People need to eat less and exercise more – and that is sensible advice, but it should be up to you if you want to take it.

Sugar isn’t just about sweetening things – it gives food texture and acts as a natural preservative. It shouldn’t need pointing out, but it does, that a sugar tax is regressive and will disproportionately affect consumers with low incomes. In any event sin taxes rarely affect consumption by much and reduce obesity not at all. Mexico’s sugar tax reduced consumption by just 6% and had no discernible impact on obesity. Denmark also embraced the idea of taxing its citizens’ skinny with a fat tax and a tax on soft drinks. It abandoned both.

So, with all this evidence, why do Wollaston and her ever-so-cute poster boy Jamie Oliver still champion this idea? For Oliver this is just another way of raising his profile although he’s empty-headed enough to believe it will work; for Wollaston I suspect this measure is at least as important symbolically as it is instrumentally. She is desperate for a victory over Big Soda now that the virtual demise of minimum pricing makes a victory over Big Alcohol less likely.

I really don’t understand what Wollaston is doing in the Conservative Party. Her ideology is state control of large swathes of industry so that “public health” campaigners become the arbiters of the consumption patterns of the poor. What about free markets and choice Sarah? No doubt she will blame Big Business if the government sticks to its policy of not introducing a sugar tax. After all, that’s what swivel-eyed health fanatics do. And talking of swivel-eyed fanatics, I think you should cross the floor and join Jeremy’s party Sarah – I believe he has a nice allotment and bakes his own scones. I don’t know if he puts jam on them though – but if he does, you should give him a darn good finger wagging!
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol trends

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