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Fri 4th Aug 2017 - Friday Opinion
Subjects: Craft brewers should be careful what they wish for, turning around the underperformers, and be bold and distinctive – and unreasonable
Authors: Glynn Davis, Ann Elliott and Ian Dunstall

Craft brewers should be careful what they wish for by Glynn Davis 

Bohem Brewery is a pretty small micro-brewery located in a former retail unit with output dedicated to Czech-style beers because its founders come from the Czech Republic and wanted to enjoy the beers of their home nation in London. But even with the most modest of production levels, Bohem already has its own pub.

Its micro-pub is run as a tap room down the road from the brewery and typically stocks five Bohem beers and a changing guest brew from a local producer. Being able to sell beer through their own channel direct to the customer has always been the intention of its co-founders because the margins are so much better. This has always been the case for integrated operators (combining a brewery with pubs) and has historically been the way beer businesses have been built.

It should therefore be no surprise we’re seeing a growing number of the craft brewers that set up in the past few years starting to open their own standalone outlets. In London alone, where there must be about 100 breweries now, it has been a particularly fervent period as a growing number of them try their hand at adding pubs into their business models.

Among them is Hammerton Brewery, which took on an Ei Group lease in July on the Wig & Pen pub in Holloway Road, north London, which it reopened as House of Hammerton. Its brewery up the road has always opened on two evenings at the end of each month to run its tap room, but owner Lee Hammerton admitted these open days have been affecting production. This is problematic as it is proving tough for the brewer to keep up with growing demand – especially for its popular N7 Pale Ale that is stocked in many local pubs.

Camden Town Brewery added a pub to its business when it opened Camden’s Daughter around the corner from its tap room at its original brewery in Kentish Town, north London. Another brewer from the same part of town, Redemption, recently opened a previously boarded-up boozer, The Angel of Bow, in collaboration with the newly formed Angelic Pub Company. The latter is handling the operational side of things while Redemption deals with all beer aspects – mainly providing its own range along with a changing mix of guests. The plan is to add a further five pubs across the city with a focus on bringing failed boozers back to life.

Another interesting partnership enabling a craft brewer to bring pubs into its model is Truman’s, which has linked with Hippo Inns (itself a partnership with Ei Group, nobody said pub structures were a straightforward thing) to have the resurrected brand’s beer supplied to what were originally Truman’s boozers. The first to open was The Eagle in Notting Hill and it has been joined by the Royal Oak in Twickenham (not quite London I admit), which both offer Truman’s RAW tank lager as a key feature. This is delivered fresh from the brewery every three or four days. Just across town, One Mile End brewery is effectively running a tap room at The Alma pub in The Angel area, where its full portfolio of beers is available on draught and in bottles to take away.

While each of these brewers owns merely the odd pub, these venues retain something worth travelling to but, should they build a portfolio of outlets, the situation would be different. Ultimately, we could end up with the same old situation where the brewers own the majority of pubs and customers face a loss of choice.

Clearly we are a long way off this scenario but what might be an issue for the craft brewers in the future is that as they grow they are likely to accrue shareholders who will undoubtedly put great pressure on them at some point to offload the brewery element and concentrate on running the pubs.

If you tell any of today’s small craft brewers they will be under pressure to sell their brewery if they end up running a decent block of pubs they would no doubt think you crazy. But this is the reality. Consider Young’s, Charles Wells and many others that have abandoned their brewing heritage to simply run pubs. Brewers such as Fuller’s also come under frequent pressure from certain shareholders to concentrate on their pubs division.

As the craft brewers increasingly venture into running their own estate of pubs, this should be seen as interesting food for thought in terms of where pub ownership might unexpectedly take them. The law of unexpected consequences comes into play again in the brewing and pub sector.
Glynn Davis is a leading commentator on retail trends

Turning around the underperformers by Ann Elliott

How do you turn around underperforming sites? It’s a question often asked of us – more so now than ever before. What used to be a great site a few months ago can suddenly find sales lagging behind budget, covers falling and spend per head off the pace. It hasn’t become a poor site overnight – the team haven’t started to ignore customers for no reason and the whole of the customer base hasn’t gone on holiday. So why isn’t this site doing so well?

Our first job is to find out exactly what isn’t going well – and usually the answer is footfall. Topline sales and bottom-line profitability spring from that one dynamic. It could, of course, be something else and we need to know what. Our second job is to find out why. 

This is the hard part and begins with a deep understanding of the operation and the team in place. Has the manager suddenly started to underperform? If so, why? Great managers don’t become lousy managers overnight. Could it be something has happened in their personal life? Has anything changed with their relationship with their ops manager? If the ops manager and the manager are as good as ever, then have the team dynamics changed at all? Is that affecting their relationships with their customers? 

If all the operational team check out as unchanged and doing a consistently great job then what else has changed? Has anything happened in terms of the site, for example scaffolding, building works, traffic flow changes and/or external appearance to make it less appealing to the target market? Have competitors opened up and taken footfall? What other external factors need exploring?

Or has the offer changed recently? Has anything changed in terms of product, price, value for money, quality, presentation, service or ambience that may have had a negative impact on customer appeal? Even the most marginal of changes can have significant impact on customer behaviour. Personally, I always want to begin this work (post the operational piece) with some quick, dirty and cost-effective customer insight – usually qualitative and quantitative. Speaking with a customer voice rather than your own is very powerful. Without this, it all comes down to personal opinion, which is dangerous.

Once we know the reasons behind the change in performance we can start pulling a plan together that fits with the brand’s USP, values, positioning and offer and is targeted at its core target market. This plan is crucial. Quite often it’s easy to put hard-hitting promotions in place and just hit Facebook or Twitter in an attempt to drive covers. This is not the right thing to do – at all.

If the issues are around personnel, site or offer then these need to be addressed. There is no point blindly driving traffic to a site in a one-off hit only to see it fail to return because the fundamental issues driving the downturn in performance have not been addressed. This will do untold damage to the brand and the business. If the issues are at the heart of what’s happening, they need to addressed before any form of customer communication is put in place. 

If the issues are around awareness and trial then careful but dynamic and speedy attention has to be paid to activity, message and medium – and over a longer period of time than a few weeks. It’s easy to think in terms of getting social media numbers up but the most important thing is to get the content and story right in the first place. Social media is simply a route to market. It’s not an end in itself, it’s just part of the marketing mix along with email, PR, local activation, community involvement etc. 

The plan then needs to be clearly communicated to the team because their involvement and buy-in is vital. Then it needs to be implemented with focus and clarity. Underperforming sites can be turned around – the key to me is this has to be a long-term change not a short-term win.
Ann Elliott is chief executive of Elliotts, the leading integrated marketing agency in the hospitality and leisure sector – www.elliottsagency.com

Be bold and distinctive – and unreasonable by Ian Dunstall

During the past decade, there has been dramatic structural market change and innovation in almost all consumer markets. This has an impact on almost all key consumer expenditure categories – how, when and where they shop, how they purchase holidays, their ability to afford and finance their home, how they finance their car purchase, the impact on financial savings of student tuition fees and pension changes. And, of course, how customers use digital technology to access and select their purchases and share their purchase experiences.

The eating out market has also enjoyed its proportional share of transformation – including the rise of eating on the move, the shift from evening to all-day dining, the growth of the “at work” lunch and daytime market, the growth of more specialist and international flavour cuisines, the evolution of the pub into a dining market, and the location development of transport terminals, shopping malls and the high street. And, more recently, the emergence of the fast-casual segment and the delivery market. 

With market transformation, it is the new entrants that typically have the clarity of vision to specialise in the new sector opportunity and disrupt the market. Consider the car manufacturing sector and the move away from traditional petrol and diesel – Tesla is emerging as a credible (and desirable) scale entrant in the electric car market. 

Companies start with purity of intent but it’s harder for the core market to keep up with the need to transform itself when it has the day job to manage and previous investments to pay back. However as a positive example, Volvo has taken the bold decision to phase-out production of vehicles powered solely by petrol or diesel and, from 2019, all models the company introduces will be hybrids or electric – even though the market share of these fuel types is currently low.

The same is true in our eating out market. Established brands have enjoyed strong scale growth in the past decade. Location growth has been achieved at high capital investment, with commitments for investment payback. Now there are abrasive inflation headwinds on most aspects of cost that require intense management to control in the short term and may potentially require restructure of the business model in the long term. And this is before we consider the need for strong evolution to retain future customer relevance.

However, difficult as it is, there are some core consumer challenges to overcome:

– The recent growth of new supply has exceeded consumer demand growth, which will inevitably squeeze concepts harder. This is a buyers’ market, as I am regularly reminded when I run consumer research groups, in which consumers are delighted by the continual growth in choice and innovation in the market. They enjoy the promiscuity of choice and like to visit new shiny entrants in their locality

– Customers are becoming more specialist when choosing where to eat out and are seeking concepts that most sharply match the specific requirements of their desired dining occasion. Increasingly, consumers see through generalists that try to please everybody. The stronger space for brands is to strategically position at one end or other in the value and experience spectrum – competitively priced for speed and convenience or premiumised for a more engaging and experiential occasion. However, many brands have developed as mid-sector generalists. They can make tactical movements to try to appeal to other market segments but it’s harder to shift the totality of a brand concept – and even harder to gain credibility with new customers that the brand can meet new needs. This can create a negative cycle of over-protection and reliance on the loyalty of existing core customers rather than responding to the changing needs of the wider market. Multi-brand operations at least have the potential to switch to a more relevant brand format to maximise the potential of strong locations (as Mitchells & Butlers is with its Harvester to Miller & Carter conversions) but for single-brand formats it is difficult

– There is also the harsh reality that many brands lack a desirable depth of brand differentiation – as David Page, chairman of Fulham Shore, which owns brands Franco Manca and The Real Greek, recently said there are too many “me-too offerings”, “poor concepts” and “dated menus”. As Franco Manca is a shining example of a rapidly expanding concept with a differentiated and desirable offer – a distinctive pizza in an aspirational modern setting with quick service from circa £7 – he has every right to observe the challenges of others

So how do the brands that are too big to fail and too established to change navigate the evolution journey quickly?

At the Propel Inspirational Leadership Masterclass hosted by Professor Chris Edger, I spoke about the traits of brand leadership. These are the skills “above and beyond” the leadership qualities required to operate a good business. In my past 20 years working in multi-brand companies and brand strategy consultancy, I have supported more than 40 brands, giving me the opportunity to observe and learn from a broad range of brand leadership traits. 

Some of the most important traits observed are:

– They stand for something good, with a clear and differentiated brand positioning that is distinctive, relevant and credible. It’s not about being the best at everything, it’s about creating a brand experience of the sum of the parts (the ambience, product, service and personality of the brand) that the target market understands and craves. Look at McDonald’s in quick-service restaurants or Wagamama in fast-casual as prime examples

– They create a strong brand culture and personality that resonates with guests and staff alike. Nando’s achieves this brilliantly with its legends, symbols, stories and icons and is a brand with real soul

– They have a hunger for breakthrough differentiation. I have observed too many brands that over-react to competitor activity rather than creating their ownable white space. I am currently working on a project with TGI Friday’s in the UK and its focus and desire for strong evolution to become an experiential and unique “brand of one” is heart-warming – and positively evidenced in sales performance

Instinctively we all know – eating out demand will remain strong, even if short-term economic forces are shaky; there will be a degree of market churn soon and some brands will meet a point where they are not economically sustainable; and new entrants will continue to shake-up the market with concepts tuned to market need with high levels of differentiation.

The challenge for established brands is to be bold and distinctive – and unreasonable. Admiring the traits of some of the most successful brand leaders, I am reminded of George Bernard Shaw’s observation that: “The reasonable man adapts himself to the world, the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.” 
Ian Dunstall is a brand consultant advising hospitality businesses on brand strategy and development. He has a strong legacy of success, including startup brands and brand revitalisation

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