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Fri 18th May 2012 - Joe Lewis, Yummy Pub Company and Wadworth

Story of the day:

Joe Lewis goes into burrito overdrive: Tavistock Restaurants, the US restaurant chain owned by Mitchells & Butlers shareholder Joe Lewis, oversaw one of the US market’s most dynamic expansions in the most recent year. The company expected to have tripled the size of its estate by the end of 2012. His Freebird World Burritos estate added 36 sites to the estate of 35 venues it ran a year ago. The company will add at least 30 new openings in 2012 and is expecting to end the year with more than 90 Freebirds in California, Texas and Oklohoma. Spokesman Jeff Carl said: “Being privately held, we don’t publish financial reports for the concepts. However, we can say that we are continuing with an aggressive development plan and have signed our first franchise deal to develop multiple franchised restaurants in Kansas, Missouri & Nebraska.” He added: “(We) provide each guest with one-to-one service so that we can help the guest fully customise their burrito to their very own personal flavour profile.” The brand has the tagline “Freedom to Choose” and features the Statue of Liberty riding a full size Harley Davidson motorbike whilst holding a burrito. 

Free Report: Paul Charity has written a report on menu trends, the drivers of US dining occasions, the franchise business model and other key areas of the US foodservice market and their significance to the UK market. The report, based on a visit to the National Restaurant Association show in Chicago, is produced in conjunction with the Association of Licensed Multiple Retailers and sponsored by CPL Training. It is free and is available by e-mailing Paul Charity on

Company news:

Yummy Pub Company begins viral marketing campaign: Yummy Pub Company, the four-strong pub company headed by Anthony Pender and Tim Foster, has begun a viral marketing campaign for its much-anticipated Ssshh Supper Club. The Club is located in London but has been cloaked in secrecy. The Facebook page for the Ssshh Supper Club reports: “Word is starting to get out and members of our community are spreading the word. Remember before you spread the word, like-minded people only!” Another posting states: “The invites to the secret opening are now winding their way to the first guest and they will be the first to learn what lies behind the bookshelf. Watch this space to find out more in the coming days!” The Ssshh Supper Club is understood to launch early next month. 

Pubs and restaurants enjoy strong first month King’s Cross sales: Pubs and restaurants have had a very strong first month of trading at the new Western Concourse development at King’s Cross, according to Eat Out magazine. The 22 outlets, which include Fuller's flagship pub The Parcel Yard, have recorded average sales of £600,000 per week, which is almost double the sales achieved last year. Network Rail forecasts that retail sales at King's Cross will reach over £34 million by the end of 12 months trading, representing an increase of £15.6 million from the previous year. 

McDonald’s struggles to find franchisees in China: The chief executive of McDonald’s in China, where the company has 1,400 restaurants, has revealed the company is struggling to find franchisees. At the moment, 80 per cent of McDonald's sites worldwide are run by franchisees but in China only 36 restaurants are franchised. Kenneth Chan told CNN Money: “We are working hard on this. In addition to the conventional franchise model in mature markets like the US, we also implement what we call a “developmental licensee” model. In certain provinces where we don't have the capacity to reach out for many years, we are looking for licensee partners who have strong financial backgrounds and strong business experience. China had seven conventional licensees and two developmental licensees as of 2011. It's still a very low percentage and over a very short time that will change. The pace of franchising in China depends largely on finding the right partners.”

Douglas Jack: Restaurant Group only a “hold”: Douglas Jack, leisure analyst at Numis Securities rates the Restaurant Group, which reported four per cent sales growth yesterday, as a share worth “holding”, with a preference for Marston’s, Spirit and Domino’s Pizza. He also reports that the average drink price at Restaurant Group has risen by 27 per cent from £2.38 to £3.03. He said: “Yes, it rained, driving custom into leisure and retail parks. Given this, some hefty drinks price increases, a soft like-for-like sales comparative of just 0.5 per cent, the four per cent rise in like-for-like sales is unsurprising (Cineworld achieved 8.3 per cent LFL on box office). We are holding our forecasts. In addition to an increasingly competitive environment, Restaurant Group now faces a like-for-like comparative of four per cent for the rest of the year. With the shares in line with our target price, we are moving our stance to Hold (from Reduce).”

Marston’s – focus on upselling: Midlands-based brewer and retailer Marston’s has reported that it’s now selling an annualised 27.5 million meals a year, an increase of 11 per cent. The company’s training has focused on an upselling skills that has contributed to increased sales of starters, desserts and coffee, all of which have achieved double digit growth. The company has also reported that increased food sales has led to a growth in premium drink sales. Premium cask has grown by 13 per cent, premium lager is up six per cent and wine now accounts for around 20 per cent of drinks volumes. The company added: “Importantly, the majority of the growth in food sales has been achieved through higher sales volume rather than through price increases.”

Hoste Arms, Burnham Market reports £491,904 profit: The iconic Hoste Arms in Burnham Market, which was sold last month two years after the death of owner Paul Whittome, reported a pre-tax profit of £491,904 in the year to 1 May 2011. This was a decline from £565,122 the year before. Turnover was £4,715,300 compared to £4,669,822 the year prior. A Companies House filing stated: “The improvement in turnover arises from the development of a new spa in the period and also reflects an increase in the level and quality of accommodation in recent years. The gross profit, down to £1,893,000 from £2,046,000 the year before, has been affected by increases in food prices and the establishment of the spa. The directors anticipate that the gross margin will return to levels experienced in prior periods as the economy recovers.”

Wetherspoon has the lowest EBITA margin: A list produced by Geof Collyer, leisure analyst at Deutsche Bank, shows that JD Wetherspoon is working to the lowest EBITA margin of nine major managed operators. The list of margins in ascending order is: JD Wetherspoon (13.3 per cent); Spirit Pub Company (14.1 per cent); Tragus (16.6 per cent); Whitbread (16.8 per cent); Gondola (19.9 per cent); Mitchells & Butlers (21.4 per cent); Marston’s (22.1 per cent); Greene King (23.3 per cent) and Restaurant Group (25 per cent).

Wadworth buys The Hadley Bowling Green Inn, Worcester: Brewer and retailer Wadworth has bought The Hadley Bowling Green Inn for a price believed to be around £400,000. The closed venue featured in a fraud trial involving Wilmslow accountant Malcolm Carle who helped launder money for cannabis importer Walter Callinan. Money from drug dealing was used to buy The Hadley Bowling Green Inn for £1.2m. In a fraud trial in December, a jury heard police found messages from Carle to Callinan about the hotel, which stated it had been purchased with ‘dirty money’ and was meant to be a ‘hidden and long-term investment’.

Streathem pub opens crab shack: The Manor Arms in Mitcham Lane, Streathem, has opened its own crab shack, decorated in seaside deckchair stripes, in the courtyard garden. The pub’s website states: Our beautiful walled garden provides a simply stunning area for al-fresco dining, drinking and relaxing during the warmer months and even the colder ones, with our sheltered and heated section. Owner Richard Coltart said: “What is on offer each week depends solely on what the boats bring in. All our seafood is caught in British waters around the Channel Islands and delivered to us live.” The pub has a sister venue, The Abinger Hatch in Dorking.

Friday Opinion:

Subject: The power of franchising, Chicago versus London, VAT campaigning

Authors: Paul Chaity, Ann Elliott, John Hutson

The power of US foodservice franchising by Paul Charity: A trip to the US drums home one fundamental - the dynamic power of the franchise model in US foodservice. The power of US foodservice franchising by Paul Charity: A trip to the US drums home one fundamental - the dynamic power of the franchise model in US foodservice. A list of the top 200 franchises by system sales finds no fewer than 41 foodservice franchises in the top 100. Of the Top Five, four belong to the quick-service camp. In descending order they are: McDonald’s at number one ($77.2bn of worldwide sales), KFC at number three ($19.4bn of worldwide sales), Subway at number four ($15.2bn of worldwide sales), Burger King at number five ($14.8bn of worldwide sales). Also in the top ten are Pizza Hut at number eight (with $10.2bn of sales) and Wendy’s at number nine (with $9.1bn of sales). Of these McDonald’s has been particularly successful in recent years. In 2005, its system-wide revenue was $52.95 billion – in the most recent year it was $77.38 billion – 46 per cent higher. In six years, McDonald’s added more revenue to its system than KFC produces in a whole year. The sales increase over seven years came despite much by way of incremental store sales – unit growth over the period was a modest 6.4 per cent. The steady sales growth shows that it is absolutely possible to keep on capturing market share if menu innovation is strong enough and marketing muscle is applied judiciously. The points of focus are obvious – coffee, juice, salads, day-part expansion and premium products. But it’s also no coincidence that Burger King is moving quickly to ape McDonald’s menu innovations and, just as important, its business model. Burger King is moving quickly to turn over more sites to franchisees, not least because it devolves the capital cost of updating stores. Overall, foodservice market growth in the US is lagging inflation but the franchise model allows new brands to grow at an often astonishing rate. It’s not gone unnoticed by private equity either, take for example, Smashburger, which was founded in mid-2007 with a $15m investment by Consumer Capital Partners. By the end of last year, it had grown to a £75m turnover company. The chain, which offers better burgers plus chicken dishes, has grown thanks to the franchise route, with some very experienced McDonald’s franchisees among the operators who have taken 60 per cent of sites. Franchisees are expected to make an investment of between $400,000 and $450,000 in new sites, with average unit volume above $1m. It’s a powerful route to growth, with the original backer earning directly from managed sites (operating around 40 per cent of the total estate) whilst earning well from selling franchises and charging royalties on turnover (typically four to five per cent of turnover). In 2011, Smashburger doubled the number of sites in a single year to 93 in total. Smashburger is expected to break into the top 200 franchise systems within two years. Is there a downside to the franchising route? Of course. I signed a Non Disclosure Agreement with one franchisor whilst in Chicago and duly received the full franchisee information pack. A 120-page document sets out the extraordinarily tightly defined obligations of the respective parties and a number of lawsuits, settled and pending, that have arisen from both sides when obligations have not been met. The franchisor/franchisee relationship, as I’ve argued before, is a little like the tenanted pub company/licensee relationship in the UK – good when turnover and profits are strong on both sides, fraught when the opposite prevails. Franchisor/franchisee disputes can and have arisen in areas such as store refit, menu development, national advertising campaigns and royalty fees. Nevertheless, one senses that the franchise route is an avenue ripe for development in the UK and it’s perhaps surprising there’s not been more local activity in this area.
Paul Charity is managing director of Propel Info

How does London foodservice compare with Chicago by Ann Elliot: I love going to the States to understand what’s happening in terms of food and drink trends. It’s always exhilarating to see new restaurant and bar concepts and it’s just as instructive to explore how existing concepts are increasing their covers and driving spend per head. I often learn new marketing and PR ideas I can put into practice with clients. So I headed off to the NRA in Chicago a few weeks ago with a spring in my step and dollars in my hand to see what was going on. Paul Charity had planned a great trip with a mixture of fantastic characters who threatened to (and did) make the trip, one to remember. Since returning I have had to visit a huge range of restaurant and bar concepts on behalf of a client of ours and have walked with a high degree of purpose around Soho, Covent Garden, Borough Market, Spitalfields, Westfield and Leadenhall eating, drinking and taking photographs in a variety of establishments. It’s been really interesting to contrast the eating out environment in Chicago with that of London. In London I have really been struck by Yalla Yalla, The Jugged Hare, Bumpkin, Pho, Brindisa, Polpo (as ever), The Parcel Yard, Barrafina, The Cow and Princi. In fact there are almost too many fantastic places to mention. The ambiance in all of the pubs was friendly, warm, female friendly and inclusive – much of Howard Saunder’s presentation at the ALMR conference (and his concept of TWWWW) makes absolute sense in the context of these three pubs in particular. They make you feel like the ‘pub’ has moved on yet stayed close to its roots- quite a challenge but they have achieved it in spades. Yalla Yalla and its ilk have just managed to deliver what most of us really want, particularly at lunchtime, small portions packed with flavour that deliver every time. I know tapas is probably the right term for this sort of food but it doesn’t really do it justice somehow. The rise of the restaurant entrepreneur in the centre of London is something Tracey Mills from DCL has picked up and transferred to Westfield very successfully. Everywhere I went, but everywhere (especially at Bumpkin), I experienced outstanding hospitality not just competent service. People were genuine, natural, welcoming and interested. They talked, they listened and they were flexible- they made me feel better walking out than I had when I walked in. I think London service has improved in leaps and bounds just in the last 12 months and I would be proud to take anyone to the restaurants and pubs I visited (and lots more). In contrast, Chicago service was much more brusque, not over friendly and much more forced. Yes we got the ‘have a nice day’ touch but that paled into insignificance compared to the personalised service at ‘hello’ and ‘goodbye’ in London. In fact most service elements felt more standardised and more processed than in the UK. We did have some great meals and there were some awesome concepts (see but we also had some pretty awful experiences including seeing really dirty kitchens, nearly falling on slippery front of house flooring and watching dreadful cooking processes at a dim sum takeaway. Perhaps the most telling of all was our experience at Chicago Chop House (see trip advisor for here dated 9th May) where we were upsold outrageously priced starters without being offered the menu until we had ordered them. No doubt an increase in spend per head for the restaurant but achieved at the expense of customer satisfaction, recommendation and revisit. London vs Chicago? London wins hands down to me.
Ann Elliott is managing director of Elliott Marketing & PR

Keep making the case for tax change by John Hutson: This government is proving as adept as the last at slipping through big tax increases for the pub industry in the small print. The “broadly neutral” change to the taxation of fruit machines will cost pubs many millions of pounds. The late night levy (levy – noun; an imposing or collecting, as of a tax, by authority or force) will cost many millions of pounds. These two taxes disadvantage pubs and erode further their ability to compete with supermarkets. Then we have the duty escalator, which has increased an existing tax by over 40 per cent in four years. We keep on taking the punches. Unlike Muhammad Ali, who was adept at ‘rope-a-doping’, the pub industry will eventually go down if we don’t put up a better fight. Ian Payne, speaking at the recent ALMR Conference, said that the industry had got no chance of receiving a VAT cut from the government. Why not? They have reduced it for Scottish ski resorts, which is a tiny sign that pragmatism can win through. Why shouldn’t the government cut VAT for pubs? It makes economic sense, as the evidence from Jacques Borel demonstrates. In France, within a year of reducing VAT for bars, restaurants and hotels, the government was collecting approximately the same amount back in increased employment and corporation taxes from the very same guys it gave the tax break to. Last week, the Irish government announced an extension of their VAT reduction for pubs because it, too, recognises the benefits it brings. Assessing the evidence of VAT cuts all over Europe, Jacques Borel estimates that up to 310,000 new jobs will be created by reducing VAT. Joining Jacques Borel’s ‘VAT Club’ will give company’s in our industry the best chance of persuading the government of the need to reassess their stance on VAT. Because of VAT, there is a blatant economic inequality between pubs and supermarkets. Nobody is arguing that point in principle, and there is every chance of convincing people of the merits of reducing VAT in pubs. In fact, according to research released last week by Fourth Hospitality, the majority of the British public want the government to do more to support pubs by granting tax breaks, with 67 per cent supporting a French style reduction in VAT. The public are with us and Mr Cameron, in his letter to the ALMR, said how highly regards the British pub. A VAT cut will not reduce revenue for government. It will generate jobs, employment taxes, and higher corporation taxes. Scrapping the duty escalator will not reduce revenue for government. It will help to slow, or even stop, the drift from on-trade to off-trade consumption, thereby increasing revenues gained from VAT, employment taxes and corporation taxes from pubs. These are strong ‘common sense’ and economic points that the Fourth Hospitality survey indicates would also be popular with the public. 76 per cent of those 2,000 adults who were surveyed see pubs in a positive light. Combined with the benefits that come as a result of more people consuming alcohol in a supervised environment, why shouldn’t the government listen? 
John Hutson is chief executive of JD Wetherspoon

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