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Morning Briefing for pub, restaurant and food wervice operators

Thu 22nd Mar 2012 - Domino’s, Spirit and Marston’s

Story of the day:

Domino’s Pizza targets new trading formats: Domino’s Pizza wants to trial the delivery of pizza to people in their seats at a major sports stadium this year. Chief executive Lance Batchelor said the stadium trial is part of trialing Domino’s Pizza in new formats – a trial at a Tesco in the Midlands is underway and also at a food court in Basildon. He told the Numis Securities Leisure Conference: “We would like to do a trial in one or more major stadiums in 2012. Customers sitting in their seats would order by seat number and five to seven minutes later the pizza would be delivered to their seat.” The sports stadium trial would be a good way of introducing Domino’s Pizza to those who haven’t tried it before. Batchelor said the wider aim was to have 1,200 stores by 2020, which would mean an average household count per store of 22,000 – it has 720 sites at the moment. But in the parallel markets of Australia and the United States, household count per store was 14,000 to 15,000, which suggested it was possible for Domino’s to penetrate even deeper into the UK market. Batchelor reported that 46.5 per cent of sales, worth £180m a year, were through online channels. He said: “Online sales are virtually error-free – people place their order and get exactly what they wanted. There are economies too – no human interaction is required.” The company’s franchisees would have needed to employ thousands more staff in-store by now if there hadn’t been this switch to online ordering, he added. Asked about the relatively high price-points for Domino’s pizzas in the UK market, Batchelor said: “UK consumers seem to revel in high price points and deep discounts.” He reported that the company’s most popular pizza is the Pepperoni Passion, which has a menu price of £15 but had an actual average sale price of £10.50 after discounts.    

Industry news:

Chancellor wastes opportunity to create jobs: The Association of Licensed Multiple Retailers (ALMR) has argued that Chancellor George Osborne spurned the chance to create licensed hospitality jobs in yesterday’s Budget. Research by the ALMR shows that Britain’s pubs and bars are already responsible for creating one in eight of all new jobs – and crucially one in six of those for school leavers – and the sector had called for investment and support from the Chancellor to sustain that going forward and to regain the levels of pre-recession growth and job creation. Strategic affairs director Kate Nicholls said: “We needed the additional costs and burdens of yesterday’s Budget like a hole in the head. The Chancellor may have said “no change” but a 5.7 per cent increase in excise duty is nothing to be sneezed at. It will be felt immediately in price increases across the bar and that is before you take into account the planned introduction of tax stamps and gaming machine duty, which will all increase costs. “Operators were already warning that the UK’s tax regime for pubs and bars is threatening investment and the Budget has done nothing to address that. “We are still at a competitive disadvantage – with supermarkets using their tax-free status on food to subsidise loss leading and pocket money pricing of alcohol. Using the tax regime to introduce a price floor will simply erode the viability of more community pubs.”
New machine duty undermines vital income stream: The government’s proposed introduction of a new 20 per cent tax on gaming machine income is unsustainable, according to ALMR strategic affairs director Kate Nicholls. She said: “Just like alcohol excise duty, the Chancellor is playing semantics. He said there would be no change in alcohol duty – it has gone up by 5.7 per cent. He said the change from Amusement Machine Duty to a gaming machine tax would be ‘fiscally neutral’ – it isn’t. On average, our members will see their tax bill for gaming machines rise by ten per cent - that’s simply not sustainable.” The Association’s Annual Benchmarking Report shows that gaming machine income accounts for two per cent of turnover across the pub sector as a whole, but a critical 4.5 per cent of turnover for community locals. In 2007, the figures were four per cent and six per cent respectively. Machine income has suffered as a result of increased competition in the high street. Nicholls added: “Machine takings are a vital income stream for traditional community locals and make a valuable contribution to many operator’s bottom line. This additional tax will simply erode that further and make many unviable in the longer term. We urge an immediate rethink.”

20 per cent VAT on hot takeaway food: A VAT rate of 20 per cent is to be imposed on all hot takeaway food not just items sold by fast food chains. The move will add 18p to a 90p Greggs hot sausage roll and 30p to a hot pasty.  And a hot rottiserie chicken sold by a supermarket for £5 will rise in price by £1. The new guidelines state that 20 per cent VAT will be added to all hot food, including rotisserie chicken, pies, pasties, toasted sandwiches and other products that are “above the ambient air temperature at the time they are provided to the customer”.
CGA – 1,308 on-trade outlets changed trading style in the past year: On-trade information company CGA has reported that venues are “adapting and innovating to survive”, with 1,308 venues out of the total on-trade universe of 127,151 changing their operating style in the past year. Of the 1,308 venues, 17 per cent were wet-led pubs with 42 per cent of this sub-group becoming premium locals or young persons’ venues, 26 per cent moving to become food pubs and 21 per cent becoming ethnic restaurants.  Chief executive Jon Collins told the Numis Securities Conference “outlets are (also) looking hard at pricing and ranging based on changing demands of customers”. The total number of on-trade premises declined by two per cent to 127,151 in 2011. There has been shrinkage of ten per cent in the past five years – a loss of 14,000 outlets. Pub closures have now stabilised at 15 net per week. Chief operating officer Phil Tate told Morning Briefing that 360 young persons’ venues had broadened their offer in the past year to trade all-day. Also, a broadly equal number of sites had become branded and unbranded – premium food venues that had unbranded had been matched by sites with value-food offers becoming branded.  
Pub operators need to emulate fast casual: Pub operators need to think beyond traditional pub food and compete head-on with high street restaurant chains in order to secure their survival, Peter Backman, managing director of food service consultancy Horizons, told the Numis Securities Conference.  While the pub food market is heading for saturation, there are still growth opportunities in the UK for mid-market, quick service and casual dining restaurants serving cheaper food, more quickly. He said: “Brands such as Wagamama and Nando’s are profitable because of their fast turnover and high footfall, while cash-pressed customers are attracted by their value-conscious, reliable food. This is the market pubs need to emulate, where there is still opportunity for growth.”

Company News:

Innventure stages Cambridge tax protest: Innventure, the operator of six pub and restaurant venues led by former Mitchells & Butlers executive Chris Gerard, is staging a beer duty protest at its Cambridge site, d’Arry’s. Customers of d’Arry’s Cookhouse and Wineshop on Cambridge’s King Street will be able to buy pints of beer at £1.30 off the normal price to highlight the punitive taxation on the nation’s favourite tipple. Starting on Budget Day yesterday, the offer runs between 3pm and 5pm on Mondays to Fridays. The venue is also offering VAT-free hand-cut chips between 3pm and 5pm to highlight that supermarkets pay no VAT on food sales while pubs and restaurants pay 20 per cent. Andy Lilley, managing partner of d’Arry’s, said: “We will stick to it and send a protest petition to the Chancellor in September describing what it has cost us: “This offer leaves us with just about enough to pay the brewery, but at least Cambridge will be happy and we hope we will have made our point.”

Urban & Country Leisure in talks with investors for Lazy Cow expansion: Urban & Country Leisure (UCL), the pub, restaurant and hotel operator led by Ross Sanders, is in talks with a number of private equity investors about the expansion of its The Lazy Cow (TLC) boutique hotel and restaurant brand. The company is also understood to have been talking to brokers about a possible AIM listing. UCL opened its first TLC in Warwick in October 2010 at the former Globe Hotel - the site has been averaging around £50,000-a-week in takings. The company opened a second TLC site in Salisbury in September 2011. Morning Briefing understands the company has two more sites for TLC developments in Midlands town centre sites, with openings scheduled for June and July this year. The company has been exiting destination country pubs. Among the sites it no longer runs are The White Horse in Harpenden, now run by Peach Pub Company and The Huff Cap in Warwickshire. The company revealed last year that it plans to invest £20m in the roll-out of TLC, with Bath, Cheltenham, Gloucester, Solihull, Newbury and Poole some of the towns on the target list. 
Spirit to spend £350,000 on York leased-to-managed conversion: Spirit Pub Company is to invest £350,000 on converting The Windmill Inn, formerly a Spirit leased division site in York’s Blossom Street, into an Original Pub Company managed site. The brand’s tagline is: “The place to meet noon and night.” Located in secondary town and city centre locations, venues open for breakfast and have a modern, light and airy environment. They’re female-friendly with an open plan design and booth seating. Chief executive Mike Tye said the brand is described internally as a “town pub where there’s always something going on”. Work on the York site starts on Monday 2 April. Former lessee of The Windmill, Paul Gardner will continue to run his two other pubs – The Cross Keys in Dunnington and Terrace on the corner of Fossgate and Stonebow. Spirit has identified 80 more possible conversions from the managed estate to Original Pub Company sites and believes there is the potential to run 150 in the long-term. Food is 16 per cent of turnover at Original’s current 24 sites, with an average of 300 covers a week producing average spend-per-head of £6.40 including VAT.

Pub People Company to re-open Hucknall site after refurbishment: Pub People Company, the 46-strong Midlands pub company led by Kevin Sammons, is to re-open its Green Dragon pub in Hucknall next Thursday (29 March). The pub has undergone a £150,000 refit with full external and internal decoration, new signs, refurbished toilets and bar. Operations director Andrew Crawford said: “The Green Dragon has always had a strong cask ale following and we have sought to enhance this by serving six real ales including locally brewed beers.”
Peach Pub Company re-opens The One Elm, Stratford: Peach Pub Company, the 15-strong multi-site operator led by Lee Cash and Hamish Stoddart, has re-opened the One Elms in Stratford after a £150,000 refurbishment. The pub boasts colourful wooden chairs and china plates on the wall. The Straford Herald said: “Some punters have likened it to the delicate style of fashion brands Laura Ashley and Cath Kidston.” A Trip Advisor review states: “Having recently had a refurbishment the place now looks quirky and fun whilst still maintaining its cosy character.”
Marston’s – there is life outside London: Marston’s, the Wolverhampton-based brewer and retailer, has reported that the 55 new-build sites it has opened across the UK since 2005 are achieving very consistent trading results. In a slide entitled “There is life outside London” finance director Andrew Andrea told the Numis Securities Conference that 55 new-build pubs across the UK were all trading in a similar fashion, with “pub location and offer” the key factor rather than their geographic location. He reported that: ten pubs in the north-east are achieving average weekly takings of £23,000 per week and a ROI of 18 per cent; 14 pubs in the north-west are achieving average weekly takings of £25,000 and a ROI of 18 per cent; six pubs in Wales are achieving average weekly takings of £23,000 per week and a ROI of 18 per cent; seven pubs in the south-west are achieving an average weekly take of £23,000 per week and a ROI of 16 per cent; and 18 pubs in the south-east are achieving average weekly takings of £22,000 and a ROI of 17 per cent.
Manchester’s Yang Sing restaurant plans Wokooshii roll-out: The founder of Manchester’s well-known Yang Sing Chinese restaurant, Gerry Yueng, is hoping to roll-out his new venture, Wokooshii, nationally. The new venue opened yesterday (Wednesday) in the Trafford Centre. He said: “The menu will feature a range of dishes that capture the very best of Japanese and Korean cooking. The restaurant will work well in the regions because we are catering towards a local market."
JD Wetherspoon gets alcohol licence in Lymington, Hampshire: JD Wetherspoon has overcome strong objections in Lymington, Hampshire to obtain an alcohol licence from the local authority. The company’s application received more than 970 letters of objection but also a 1,100-name petition and 110 letters supporting the plan. Wetherspoon agreed to move its opening time from 7am to 8am. It wants to convert the former Palfrey & Kemp store next to the 13th Century St Thomas Church in the town.

News from overseas:

Second generation McDonald’s franchisees on the rise: The proportion of second generation McDonald’s franchisees in the US has risen from 18 per cent in 2001 to 30 per cent now – and is forecast to rise to 37 per cent within five years, according to the Wall Street Journal. Second generation franchisees – sons and daughters of franchisees who have taken over the business – are credited with introducing fresh ideas. They have championed healthier foods – including gluten-free buns and organic produce – and more corporate responsibility on issues like recycling and providing community services like books for low-income kids. They have also suggested thicker patties - Angus burgers - that have boosted sales. Second generation franchisees have to undergo a one to five year process of running strong restaurants before taking over franchises. Among the ideas offered by second generation franchisees not adopted by McDonald’s are composting and installing roof gardens.

Starbucks unveils home coffee maker: Starbucks has unveiled a new Verismo home coffee machine – an assault on the $3.8 billion Nespresso home coffee market in the States. The company indicated that the UK will be among the first overseas markets where the product will be available after the US launch.

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