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Morning Briefing Strap Line
Thu 5th Apr 2012 - Beds and Bars, Mitchells & Butlers and March trading

Story of the day:

Beds and Bars set for £100m US expansion; appoints Ellie Frost as director: Beds and Bars, the pan-European hostel operator led by Keith Knowles, is close to securing £100m in backing to fund the opening of hostels in a number of key American cities. The company has received offers of funding from two US-based operators and two private backers for the US expansion – New York, San Francisco, Boston, Washington and Miami are on the target list for openings. The US expansion plan comes as the company is set to appoint highly rated former Jamie’s Italian executive Ellie Frost to its board as special projects director. Beds and Bars had a turnover of £35m in its most recent year and a further £5.5m in joint venture businesses. The company has enjoyed tremendous success in the European market. Its 375-bed Paris site saw a turnover of five million Euros in its most recent year while its 198-bed Amsterdam hostel turned in an Ebitda of 2.1 million Euros in the latest financial year, with 98 per cent occupancy rates (beds are charged at a maximum of 34 Euros a night). The company is planning two more large European openings. A 450–bed site in Barcelona is due to open in the summer and early next year a 650-bed hostel is scheduled to open in Paris – it will be a 34 million Euro investment. Knowles, who celebrates a 35-year involvement with the business this May, told Morning Briefing: “I’m very proud of our company. We had 700 applicants for ten managerial jobs recently and many of our senior staff started at the bottom – our retail director Ed Passey, for example, started with us as a part-time barman.”

Industry news:

Families £551 a year worse off: Families will be £511 a year worse off from tomorrow as a result of changes to tax credits announced in the Budget. As many as one million households will lose their child tax credit or working tax credit. On average, families will be £1,335 worse off if all the Coalition’s tax reforms since 2010 are taken into account.

Blumenthal criticises pasty tax: Celebrity chef Heston Blumenthal has claimed the so-called pasty tax could “strangle” artisan bakers. He said: “We have some great artisan people in the food business. If we’re not careful we’re going to make it difficult for them to grow.”

James Bond to switch from Martinis to Heineken: Advertising Age has reported that Heineken has struck a deal that will see James Bond drink Heineken in his next movie. There will be a new Heineken ad tied to the Bond film and Bond will reportedly be shown drinking Heineken in at least one scene in the movie itself.

Domino’s new US television adverts tell customers “no”: Domino’s new television adverts in the US will stress its lack of tolerance for finicky customers. The ad campaign will say “no” to customers who want to add or remove any toppings from its artisan pizzas. The company wants to recast itself as a purveyor of high-quality pizza, with a voice-over in the ad noting that the company spent years “perfecting the balance on our artisan crust toppings.” Customers can still customise other pizzas.

David Beckham enlisted to sell Burger King in the US: A host of celebrities have been signed up to underscore major menu changes at Burger King in the US – the largest single menu change in its 58-year history. With the tagline “Exciting things are happening at Burger King”, the campaign debuts with a spot featuring Jay Leno driving through a restaurant in one of his classic cars and ordering some of the new items. In another advert David Beckham orders a strawberry-banana smoothie as a female cashier gazes lovingly into his eyes. Other celebrities featured are Mary J. Blige, Steven Tyler of Aerosmith and actress Salma Hayek.

Company news:

Collyer – Greene King the only likely white knight bidder for Mitchells & Butlers: Mitchells & Butlers (M&B) shareholder Joe Lewis is free to bid again for Mitchells & Butlers on 13 April. Dutesche Bank analyst Geof Colyer has argued that Greene King is the only possible trade “white knight” bidder for the company, although this remains an “unlikely but not impossible” course of events. He said: “We see the arrival of a trade counter bidder as probably unlikely with such a major shareholder seemingly unwilling to sell, but not impossible. One might only appear once an actual bid transpired, and maybe not at the initial stages of the bidding process. Also, any white knight would probably have to have a fully funded counter bid, which might prove difficult given the timeframe and current economic climate. Although there could be private equity interest coming in for M&B, we think that the only real possibility of a trade buyer is probably Greene King. It is probably the only quoted one that we see with a strong enough balance sheet and experience of successful mergers and acquisitions - though M&B would be a very big deal for anyone. We can see the attractions of an all-share, nil-premium bid from Greene King – the market value of the equity for both groups is identical at £1.097bn - though we doubt whether the management or Greene King shareholders would want the baggage of all of M&B’s corporate governance issues. There is some merit in the idea of putting the two biggest pub retail profit generators together and extracting some synergies, should M&B seek a different counter bidder to Piedmont, though without any independent non-executives and executive dominance on the board, it is hard to see who would sanction an approach. Ahead of 13 April, expect the M&B share price to run in anticipation of Piedmont coming back, but as we have said, we do not see Piedmont in any hurry, and if Joe Lewis had wanted to sell his M&B stake, he could have sold out at 360p at the beginning of last year. As things stand, he seems to hold all the major bargaining power and could of course sell if he decided that the group hadn’t performed as badly as expected and that the other shareholders were staying around. He would still have doubled his money if sold out on 13 April, but somehow we don’t quite see that happening.” 

Aldo Zilli quits Soho restaurants: Chef Aldo Zilli has handed back the keys to his two adjacent Soho restaurants having sold the leases to Richard Caring, who is planning a Bill’s Produce and Grocery Store opening on the sites. Zilli told the Evening Standard he was paying £220,000 a year in rent on the two sites and had a rates bill of £90,000 a year. Bill’s opened its sixth site, in Islington, earlier this year.

JW Lees buys two sites: Family brewer and retailer JW Lees & Co, based in Middleton, north Manchester, has bought two gastro-pubs in Cheshire from Rochdale-based Deckers Restaurants for an undisclosed sum. The two sites are The Plough & Flail Pub and Restaurant at Mobberley and recently-refurbished The Rope & Anchor at Dunham Massey.

The “Betfair Arms” goes on the market: A pub in Cheltenham with 12 letting bedrooms opposite the train station has gone on the market with a price of £239,000. The pub re-brands itself as The Betfair Arms during the four days of the Cheltenham Festival. The pub makes around four months’ worth of profit in the four days of the races and serves up about 30,000 pints. It fills up with screens so those without tickets to the nearby racecourse can watch the races from the pub.

Pizza Express founder honoured by Queen: The founder of pizza Express Peter Boizot has been invited to be guest of honour when two gondolas are rowed up the River Thames as part of the celebrations for the Queen’s diamond jubilee. The honour has been granted because for the last 37 years, Boizot, 82, has donated part of the sale of one the chain’s pizzas to protect buildings in the historic city of Venice. The fund is called Venice in Peril and it has just hit the £2 million mark with a significant amount of that being raised by Mr Boizot’s decision to create the Pizza Veneziana in 1975 and donate 25 pence from every one sold to the charity. The Queen’s River Pageant is held in London on the 1st June.

Thorley Taverns reports “difficult year”: Thorley Taverns, the Kent-based pub operator led by Frank and Phil Thorley, has reported a difficult financial year to 30 June 2011. Operating profit dropped from £609,516 to £137,258 on turnover down £257,000 to £13,496,977. An exceptional item of £969,788 pushed the company to a pre-tax loss of £1,056,965. Since then, the company has sold a hotel to Shepherd Neame, and disposed of a leasehold site and bought three freeholds from Enterprise Inns for £3m. The company stated that it had restructured its banking facilities. On prospects for this year, Thorley Taverns added: “These changes are expected to have a positive effect on the company’s trading results.” Net asset value has increased from £10,062,309 to £10,991,380. In a Companies House filing, it added: “A number of factors have contributed to overall performance – poor summer weather, several bouts of snow during the winter and England’s poor performance in the World Cup and the additional 2.5 per cent added to VAT.”

Enterprise sells freehold of pub let to Peach Pub Company: Enterprise Inns has sold the freehold of a pub let to Peach Pub Company on a free-of-tie lease. Brookmans in Bradmore Green, Hertfordhsire was sold for £1.49m at a CBRE auction. The pub is let to Peach on a free-of-tie rent of £105,000 per annum for 20 years with annual RPI increase capped at four per cent. The sale price means a 6.7 per cent initial rent yield. Enterprise also sold a free-of-tie pub let JD Wetherspoon at an Allsops auction last week. The Everest Hotel, Eastway, Liverpool was sold for £900,000, well in excess of a guide price of £775,000 to £825,000. The pub is let to Wetherspoon for 30 years starting October 2011 and rent increases by 7.5 per cent on the sixth, eleventh, twenty-first and twenty-sixth year of the ease. The sale price means the buyer get an initial rent yield of 6.67 per cent. Last week, Enterprise Inns chief executive Ted Tuppen told Morning Briefing that the company is selling free-of-tie pubs at auction where it was simply the landlord on the basis that it is “not the company’s core business”.

Plan to turn Redhill’s Liquid and Envy nightclub into flats: A planning application has been submitted to Reigate and Banstead Borough Council in Surrey to turn the site of the former Liquid and Envy nightclub on Station Road, Redhill, into 19 one-bedroom and 28 two-bedroom flats, with a substantial retail unit facing Redhill Railway Station. Commuters and taxi drivers are worried that a new block of flats could cause traffic chaos at an already busy roundabout.

Leisure veteran’s Newcastle restaurant to open next month: Leisure veteran Bob Senior, who runs Utopian Leisure and was formerly chief executive of Ultimate Leisure, will open his Newcastle restaurant Fat Buddha next month. The new restaurant will see a 220-seat bar serving dim sum and other Asian snacks downstairs and a 125-cover restaurant upstairs. There will be views of the reproduction Victorian plasterwork in the giant arches of the former Royal Arcade. It will open next month and he is recruiting around 60 staff.

Brulines changes name to Vianet: Beer flow monitoring company Brulines has changed its name to Vianet Group. The company said that the name Brulines is very much associated with the group’s beer dispense monitoring services and does not reflect the wider nature of the Group’s other activities. It added: “In certain markets, the name Brulines is not appropriate and can be both problematic and potentially confusing given the group’s broader business activities.”

Property agent Christie & Co reports profit dip: Property agent Christie & Co has reported profit before tax dropped £300,000 to £600,000 in the 12 months to 31 December 2011. Revenue rose nine per cent to £53.2m. Chairman Philip Gwyn stated: “We believe that our market position is key to maximising the opportunities presented by both the recovering market on one hand and one showing signs of distress on the other. Our valuation and agency services are central to both de-gearing and transactional activity. The pattern of this economic downturn is familiar to us given our experiences of the recession in the early 1990s. However, this downturn has different root causes. From our previous experiences, we have a profound understanding of our own business, its base trading levels, the efficiency of our infrastructure and, importantly, the value in ensuring that we are attractive to our extended professional network and ‘business ready’. The group is ready for an upturn in the market and will benefit from the opportunity when markets open more fully.” 

Living Ventures plans second Alchemist: Cheshire pub and restaurant operator Living Ventures is to open a second Alchemist in Manchester – it will open on the ground floor of No1 New York Street. The first Alchemist opened in the city’s Spinningfields business district in December 2010.Tim Bacon, managing director of Living Ventures said: “We love the Alchemist and feel it will add nicely to another area of Manchester.”

Flavour of Trade: how was trading in March?

High street trading mixed – Intertain: Walkabout operator Intertain reported a “mixed” trading result in March. Chief executive John Leslie said: We ended up where we expected to be. Good weather is unhelpful to us, but what we lost on weather we got back on sport.” Leslie said there were three key trends that were evident in March. The company noticed a widening difference between performance of sites in the north compared to those in the south, with London stronger still than the rest of the south. Additionally, mid-week trade was described by Leslie as “soft”. “Customers only seem to be able to afford to go out once a week – even when here’s sport on it’s difficult to get people to go out,” he said. There is also a marked difference in performance between invested and uninvested sites. “People are choosy about where they spend their money.” The fuel shortages of last week had no discernible impact on trading, he added.

Good weather in March produced “fabulous” trading – TLC Inns: TLC Inns, the operator of six venues, has reported “fabulous” trading in March after two quieter months. Managing director Steve Haslam said: “We thought Mother’s Day week would be the trading pinnacle with £126,000 of takings, but the company followed that with a £125,000 week and £143,000 last week.” The March results followed more subdued trading in February when takings hovered around the £80,000 per week level. “We had a good weather period in March and when the weather is good, we fire on all cylinders.’ The company’s latest opening Grand Central, Basildon is on “a nice upward curve”, said Haslam. “It’s pushing up nicely week-by-week.” He added: “After a long, drawn-out winter we are pleased with how March went – there’s no substitute for decent weather.”

Trading solid in March - C2 Investments: Lancaster-based brewer, hotel and pub operator C2 reported good figures for March Trade at its two pubs, the Mill in Ulverston and the Palatine in Morecambe, showed healthy rises over March 2011 of 6.2 per cent and 29.8 per cent respectively. Owner Matt Jackson said the figure for the Palatine was even more remarkable as it is the smallest unit in C2’s estate and the real ale house is “always crowded”. Food and drinks trade at the group’s two hotels, The Sun Hotel and Bar in Lancaster and The Duke of Edinburgh in Barrow, held up, but an easing of occupancy levels in the letting accommodation depressed the figures. Jackson remarked that Mother’s Day (18th) trade at the Duke of Edinburgh was very good and trade at the Sun had reached saturation point “and there’s not much more that we can do to increase takings”. The Sun has 16 letting rooms and The Duke has 34 rooms, both usually account for between 20 per cent and 22 per cent of turnover and Jackson fears future trade will be affected by the rising cost of petrol and diesel. “Fuel costs will have a massive affect on bookings.” So far, C2 hasn’t felt any effect from the increase in alcohol duty in the Budget. Jackson said: “The Budget is what the Budget is and people expect things to go up in price.” The other business stream within C2 is Lancaster Brewery, which started production on a new site last September. Jackson said production is currently running at around 50 barrels per week and the export market is looking promising with a Norwegian distributor the latest to be signed up. Also on the site is a visitors’ centre, which was originally planned to include a bistro pub. This has been changed to provide a 200 capacity function room. Jackson said: “Going down the function route has worked really well and we are getting lots of bookings as there is nothing like it in Lancaster.”

Trade affected by poor Champions League showing - All Our Bars: The poor showing of English football teams in the Champion League dampened trade in March. All Our Bars’ chief executive Paul Wigham said: “March is usually a good month for us. But this year, trade has not been particularly good and we are down by around 5 per cent.” The company’s wet-led estate has been hit by a number of factors, as Wigham explains: “St Patrick’s Day wasn’t as good as we had hoped. We are big in live football and takings during the Champions League matches have been hit because there is only one English team left in the competition.” He said the price increases from brewers earlier in the year together with the duty escalator in the Budget had severely affected trade at All Our Bars, which are predominantly located in London and the South-East. “The prices are too high for many people and we are genuinely seeing footfall drop.”

Mixed trading in March - Head of Steam: March brought mixed fortunes for North-east multiple Head of Steam. Turnover during the first couple of weeks in March was down around 4 per cent, but the latter part of the month saw a four to five per cent uplift in sales compared with figures for the previous year. Founder Tony Brooks said the company hadn’t passed on the full extent of the brewers’ price increases announced earlier in the year and he was “scared stiff of passing on any of the duty increase in the recent Budget”. Head of Steam, which operates eight managed houses and one tenanted pub, saw no benefit from Mothering Sunday - food sales only account for six per cent of total turnover. However, St Patrick’s Day went down well, said Brooks. Throughout the estate, the day was celebrated with beer festivals by sourcing around 20 different brews from ten Irish microbreweries. “It was excellent and nobody else had anything like it”, said Brooks. The better weather in the second half of the month also brought mixed fortunes. “Pubs with outside spaces and beer gardens did cracking business, but town and city-centre sites without the facilities didn’t do nearly as well.”

March saw big year-on-year drop - McGowans: Irish theme bar operator McGowans had a very bad month. Founder John McGowan commented: “We suffered a big hit, down 12 per cent on the previous March.” He attributes three reasons for the drop. “The price of beer has gone up significantly; the smoking ban is still having an impact on our business; and people are staying longer and drinking less.” McGowans has specialised in Irish bars since it was founded in 1986 and its 16 pubs are located in north London and Hertfordshire. St Patrick’s Day is usually a money- maker for the company when it falls during the week, but being on Saturday this year meant it did little to make up for otherwise slack trade. McGowan remarked: “We are always busy on Saturdays, so there was not really any extra trade.”

March was flat - Chris Fox: “Trade has been flat on last year,” says Chris Fox who operates two pubs in Tenbury Wells, Worcestershire, and one in Frome, Somerset. “Our pubs are in quite rural locations and have suffered from the general economic climate, which affects country pubs more than town and city pubs.” But for the good weather in the second half of March, Fox said the results would have been much bleaker. The two pubs in Tenbury Wells offer a total of 12 letting rooms and Fox says occupancy levels have been as low as 20 per cent during the month, mainly due to major bridge works in the town affecting passing trade. He also noted a drop in tourists coming to the town, who were choosing to stay in the nearby cities of Hereford and Worcester. Even the pubs’ regulars coming from outlying areas have had to take a six-mile detour to get into the town. He said Mothering Sunday brought a much-needed uplift in trade, especially the outlet in Frome. “The restaurant was pretty much booked out throughout the day.”

Cheltenham and football boost trade - Bravo Inns: Managing director Ken Buckley of the north-west multiple operator Bravo Inns said: “We had a very good March, the last two weeks in particular. We were ahead of last year and ahead of budget.” The 27-strong estate comprises “wet-led, sports-orientated, community boozers” and the strong showing in the latter half of the month was due to a strong sports programme on TV. “We had a good Cheltenham and there were some exciting televised football matches. We also had a good St Patrick’s Day.” The increases in duty in the Budget didn’t affect trade. Buckley noted: “We absorbed all the increases and didn’t increase our prices except for one or two obscure brands.”

Fuel scare hits destination pubs – Innventure: Innventure’s founder Chris Gerard reported mixed trading over the month. “The middle two weeks were good and significantly ahead of last year, but the first and last weeks were disappointing.” For the last week in the month, he remarked: “We and other destination food pubs were hit by the fuel scare. People just went crazy, queued up to fill their cars and then left them parked on the driveway.” Takings in the middle of the month were boosted by “a very strong” Mothering Sunday with “extra volume and extra demand”. Returns on letting accommodation were mixed throughout the five-strong estate, which has units in the south-east and East Anglia. Gerard commented that most bookings were connected with “local events’ like weddings and family get-togethers rather than holiday breaks.

Good weather confuses like-for-like comparisons – Loungers: Alex Reilley, co-founder of Loungers, said the good weather at the end of the month threw like-for-like comparisons with last year “all over the place”. The 22-strong estate comprises a mix of units, some with good beer gardens, some with limited space and some with no outside facilities. “As soon as you get the first decent spell of weather, people flock to the outside. Our outlets that have good outdoor facilities showed significant growth, while those that don’t did not so fare so well. Like-for-like sales at our unit in Plymouth were up 51 per cent on last year.” Compared with the previous March, turnover rose by 39.8 per cent, although a large part of this increase is attributable to the company adding five outlets during the year. Reilley also said that March had benefited from an increase in discretionary spending by customers during the early days in the week. “In January and February, things were quite tough with customers reigning in spending on Mondays, Tuesdays and Wednesdays, but March saw a return to much more consistent trading patterns.” Part of the duty hike in the Budget will be passed on to customers when Loungers reviews its drinks and food prices this month. Reilley added: “But we will be doing as much as we can to keep prices keen.” He is expecting good trade in April. “The earlier Easter comes in the year, the better we fare.”

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