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Morning Briefing for pub, restaurant and food wervice operators

Fri 8th Sep 2017 - Friday Opinion
Subjects: Charity begins at home, pulling up drawbridge on overseas labour risks long-term damage, and divide and rule
Authors: Glynn Davis, Kate Nicholls and Paul Chase

Charity begins at home by Glynn Davis

Scottish brewer and retailer BrewDog has never been shy about making grand statements. It has arguably built its business on extravagant claims and madcap stunts (along with brewing decent beer). These escapades have served it tremendously well and shown how a small business can punch well above its weight.

Its marketing has been so powerful, I’d even say it warrants a Harvard Business Review case study and should be taught in business school to highlight marketing best practice for SMEs fighting for market share against big competitors.

As a shareholder, BrewDog’s swashbuckling activity has been fine with me because its management’s objectives have been in line with my own. I’ve been clear about investing in the business to make money and not merely receive discounted beer and free bottle openers. However, things have gone disappointingly awry. The recent announcement BrewDog is to give away 20% of its profits in perpetuity is the first time I’ve felt a divergence between my own interests and those of the company’s founders – honestly!

As with all big decisions at BrewDog this one was taken without consultation with its small shareholders – the 50,000 “Equity Punks”. In the past I’ve railed against this description because none of the minority investors holds the same “equity” as the founders and their early private equity shareholders. They do not have the same rights and so are not consulted on matters such as giving away 20% of profits each year.

It’s not that I’m uncharitable, my grievance is with giving away profits at a time when the business is still pretty small in the general scheme of things, generating modest profits of £7m pre-tax for 2016. Agreed, this is not a bad level but we are talking about a business valued at £1bn. There is much more to be delivered before that valuation can be justified. Clearly what it requires is for all profits to be ploughed back into the business. 

This £1bn figure is a result of the £213m investment in April by TSG Consumer Partners that enabled £100m to be invested in the business and the remainder to be cashed out by the two founders and other early shareholders. Management mindsets can be easily diverted when respected investors come knocking on your door with platitudes and a sack of money. But I hope this does not mean BrewDog has forgotten the many thousands of other individuals who have money tied up in this business and have not yet seen a return that would enable them to also suddenly come over all philanthropic and charitable.

The statement from BrewDog to announce the move to give away 20% of its profits included: “This is not about altruism. It is about impact. This is not about profits. It is about purpose.” I suggest it should all be about profits – partly because many shareholders still have this as a priority and also surely the sensible approach to giving away profits is to undertake such a move when the business has grown sufficiently large to make the sums given away meaningful.

BrewDog reckons if it hits its targets it could give away £45m in the next few years. This figure is probably fanciful based on where profits currently stand and so would it not be better to concentrate all available funds at this stage into building a more substantial profit base before committing to giving away chunks of profit? Ultimately, this would deliver superior long-term value to shareholders and charitable causes. 

I hope we won’t face a flurry of outlandish pronouncements from BrewDog around an array of peripheral activities and headline-grabbing initiatives. When it was just about the brewing then the grand-standing was acceptable and part of the game. But the more they go off-piste with these other initiatives then the more worrying it becomes in terms of where the business is heading and what will be the ramifications for the minority holders of “equity”.
Glynn Davis is a leading commentator on retail trends

Pulling up drawbridge on overseas labour risks long-term damage by Kate Nicholls

In light of a leaked Home Office document on potential post-Brexit curbs on immigration, it’s important to remind ourselves (and the government) that almost half of workers in UK pubs, bars, restaurants and hotels come from outside the UK. In cities such as London the number is higher and in restaurant kitchens, for example, higher still, so it is clearly a critical issue for the hospitality industry. 

While it is a legal document talking about the framework after EU directives cease to have legal force in our courts – essentially the end of “free movement” of labour – that will feed into a wider play on the future of UK migration, we need a sensible solution that doesn’t bring the shutters down for our sector.

Eating and drinking out businesses generally rely more on migrant workers than the wider hospitality and tourism sector – 37% of full-time jobs are filled by migrant workers, rising to 55% when expressed as a total headcount. Of these migrant workers, 45% come from other EU countries.

The ongoing uncertainty around the rights of EU nationals working in post-Brexit Britain has meant some operators are struggling to retain employees, even those who have been employed for some time. There is also evidence there are fewer EU nationals coming to the UK looking for employment (although a weaker pound must also be a factor). It will be interesting to see if these leaked proposals exacerbate this worrying development. 

In this country, the eating and drinking out sector is the second-largest employer of non-UK workers. Our reliance on non-UK labour to augment the thousands of jobs already filled by Britons is key to the ability to operate and grow a sector that creates one-in-seven new jobs in the UK economy. 

It is becoming increasingly harder to recruit with the labour market becoming much more competitive. It is estimated the hospitality and tourism sector will need to recruit an additional 1.3 million staff by 2024. The most acutely challenging occupations to fill continue to be front of house (reported by 54% of employers with hard-to-fill vacancies) and chefs (42%). There is a clear relationship between the hard-to-fill vacancies and the percentage of non-British workers employed.

The leaked blueprint is littered with unhelpful ideas that include limiting the time “low-skilled” workers can stay or restrictions around certain areas of labour or skills shortage. However, it stresses these are only considerations and future policy will be based on economic evidence commissioned from the Migration Advisory Committee (MAC). The committee is consulting on this and the Association of Licensed Multiple Retailers (ALMR) has already met with the MAC. Encouragingly, as a result of our research and input, its background paper already recognises eating and drinking out as the second-largest employer in terms of absolute numbers of staff, and fifth-largest as a proportion of staff. 

The bottom line is we not only need the so-called “brightest and best” of the EU workforce but the capacity to recruit the migrant workers who are vital to the continuing success of the UK’s eating and drinking out businesses. 

Without these workers, pubs, restaurants and bars will not only be unable to grow, they will face a severe shortfall of workers who make up a significant portion of these jobs. A recent industry study stated the figure could be as high as 60,000 workers per year.

The government has said it will look to base its future immigration policy on the economic needs of the UK. This must include the businesses that drive growth across UK high streets. Our sector provides important social hubs as well as being a huge contributor economically. Any deal after Brexit that does not give these businesses the best chance to fill vacancies and continue driving investment in local areas will, in short, be a huge mistake.

The ALMR has outlined its priorities to government for a post-Brexit settlement and will continue to do so to reinforce the importance of this decision. In the short term, it is vital EU nationals living in the UK are given the right to remain. There needs to be certainty about what the future right to work in the UK would look like. 

Pulling up the drawbridge on overseas labour risks long-lasting damage to our sector and the wider economy. The government must listen to the clear voice of business before presenting its final plans later this year.
Kate Nicholls is chief executive of the Association of Licensed Multiple Retailers 

Divide and rule by Paul Chase

A new report has just been published by the Institute of Alcohol Studies (IAS), otherwise known as the UK Temperance Alliance. Entitled “Pubs Quizzed”, it is ostensibly about why the number of pubs has declined significantly in recent years. Its real purposes are two-fold – to suggest support among publicans for temperance dog-whistle measures such as minimum unit pricing, higher alcohol taxes and lower drink-driving limits is greater than one might expect, and to drive a wedge between the off-trade and on-trade in relation to alcohol policy. 

Indeed, this divide-and-rule strategy is typical of the health lobby. In Scotland, for example, the Scottish government and Scotland’s alcohol charity, Alcohol Focus Scotland, have long argued that the on-trade supports minimum unit pricing and only supermarkets are opposed. Unfortunately, the Scottish Licensed Trade Association has gone along with this short-sighted view, but that’s another story.

The IAS commissioned CGA Strategy, the leading market research agency for the UK on-trade, to conduct a survey of publicans from across the country. In total, 103 telephone interviews were carried out in February. Quotas were set to achieve a broadly representative sample of pub types, locations and ownership structures. Within each stratum, pubs were randomly selected for approach from CGA’s comprehensive database of UK pubs. 

However, what IAS did in its report was to imply approaching a sample of pub types that were nationally representative would garner opinions of pub managers who were nationally representative too. By conflating and confusing the representative nature of the ownership structures and pub types with the typicality of the opinions expressed by the managers of these pubs, IAS was able to arrive at its headline conclusion that “typically pub managers are much more supportive of public health dogma in relation to alcohol than you might expect”. I find the results of this survey interesting but to suggest a telephone sample of 103 publicans out of about 50,000 is a representative sample is clearly nonsense.

In relation to alcohol policy, here are the headline conclusions: 
– 54% of the 103 publicans surveyed think the UK has an unhealthy or very unhealthy relationship with alcohol
– 22% think it is healthy or very healthy and 35% think it is neither healthy nor unhealthy, which seems to me another way of saying “don’t know”

But what exactly does “healthy/unhealthy relationship with alcohol” mean to those surveyed?
– 48% see cheap off-trade alcohol as a threat to the health of pubs and to public health, with 48% of respondents singling out supermarkets and saying government should act on supermarket pricing; you can see where this is going! But just in case you were in any doubt, 48% of respondents were in favour of minimum pricing and thought it wouldn’t really affect their pub in a negative way.
– 45% of respondents thought alcohol taxes on pubs should remain the same, with 53% saying they should be reduced
– 59% thought health and wellbeing of the local area should be taken into consideration by local authorities
– 58% (surprisingly) of respondents were in favour of a reduction in drink-drive limits to bring us into line with Scotland

What should we make of the results of this survey and IAS’s use of it? To some extent it measures the success of neo-temperance propaganda in relation to the public health measures it advocates. If you tell publicans minimum pricing is only ever going to affect supermarkets and off-licences – their competitors for alcohol spend – and that it might tip people out of their living room and into the tap room, it is not surprising if this garners support from people who have been led to believe the measure has an up-side for them, but no down-side. If publicans realised a minimum price for the off-trade imposed nationally would open the door for a minimum price for the on-trade imposed locally they might take a different view.

Respondents didn’t think reductions in alcohol duty benefited them – presumably because they didn’t feel such reductions got passed on to them by their brewery suppliers. 

Support for health and wellbeing being taken into consideration is hardly surprising, given the vagueness of the question. More surprising is the support for reducing the drink-drive limit, and one wonders whether there isn’t an element of virtue-signalling going on here as publicans would be reluctant to signal they in any way endorsed drink-drivers.

What IAS has consistently done is build support for the “three As” – reducing alcohol’s availability, affordability and its advertising. IAS’s research, reports and the surveys it commissions are all pressed into service to support one or other of these whole-population policies – and this report is no different in this respect from the dozens that preceded it.
Paul Chase is director of CPL Training and a leading commentator on on-trade health and alcohol policy

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