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Morning Briefing for pub, restaurant and food wervice operators

Tue 19th Jun 2012 - Whitbread, Café Rouge and SA Brain

Story of the day:

Nomura – no danger of over-supply from new restaurants: Nomura has concluded it is a “myth” that plans by quoted pub and restaurant groups to open more sites is in danger of over-supplying the market. Releasing its inaugural coverage of the pub and restaurant sector, Nomura said: “Some observers have compared the industry’s current enthusiasm for restaurant openings with the trend towards opening branded high-street bars in the 1990s, which ultimately proved unwise. The aggregate planned openings of circa 200 for the quoted names is just 0.4 per cent of gross supply growth for the industry, even before any closures are included.” Nomura reports that the casual dining market has shown a compound annual growth rate of 4.7 per cent over the last ten years and “has proven resilient in the face of a weak UK consumer environment and declining real wage growth”. In the US, 48 per cent of expenditure on food is outside of the home whereas the average in the UK is 30 per cent. “The US market provides a benchmark of how the casual dining market may develop,” said Nomura. However, roll-out of existing brands is likely to provide the majority of earnings growth for major quoted pub and restaurant companies because current like-for-like sales growth of between one and two per cent is insufficient to cover cost pressures in food, drink and labour, Nomura said. The research note added: “We believe that in an unloved part of the leisure sector there are certain companies providing exposure to structural growth in the casual dining market at attractive valuations. The key point is that the pub closure rate of 25 per week masks an important underlying shift in demand moving from obsolete drinks-only venues to larger food-led pub restaurants where the outlook is more favourable.” Nomura’s three buy recommendations are: Restaurant Group (Target Price of 380p), Mitchells & Butlers (Target Price of 300p) and Marston’s (Target Price of 116p). Its neutral on Greene King (Target Price of 533p) and has a recommendation of “Reduce” on Spirit (Target Price of 37p) and JD Wetherspoon (Target Price of 350p). 

Industry news:

Horizons reports breakfast provision grows by 9.9 per cent: Market research and insights consultancy Horizons has reported that the provision of breakfasts grew by 9.9 per cent in the sector in 2011, with breakfasts accounting for 13.6 per cent of all meals served outside of the home last year. Generally, the average mark-up on food was 3.13 times the price the operator paid. The average price is up by 1.2 per cent but without VAT it would have fallen by one per cent. For more information contact Peter Backman on

Olympics are putting off other tourists: The Olympics are discouraging other tourists from coming to the UK with bookings for many attractions, hotels and tours down by around 33 per cent. Select Travel organises exclusive group tours across Britain and is expecting its quietest July for 20 years. Managing director John Martin said: “What we have found is that the demand has moved not to other regions of the UK but to other countries in Europe.” Keith Knowles, chief executive of Beds and Bars, said: “We are full in Euroland and five per cent down in the UK, the Olympic weeks are poor in forward bookings, with a bounce is September already being seen.” 

Christie + Co – a further 2,500 pubs need to close: Property transfer agent Christie + Co has argued that 2,500 pubs need to shut their doors for the sake of the sector. Referring to market activity, director of pubs Neil Morgan said: “Encouragingly, the appetite for acquisition has kept pace with the rush of disposals. This has been especially evident in the regions where small regional pub companies are gaining pub assets and, in turn, local status. Sentiment has been buoyed by a return of debt funding to the sector, including the re-emergence of the traditional brewery loan. While pubs are still closing, the rate of closure remains on course with our projections. We believe a further 2,500 pubs need to close before the sector becomes truly taut and competitive.”

Police and local authority in 4am raid: Police and council officers have mounted a raid on The Feathers in Laleham, Surrey in an attempt to block music being played at 4am. The raid, which took place at 10pm, was prompted by an advert that promised “music from 4am”. Red-faced officials – three licensing officers and two policemen - discovered that 4am was the name of the band playing at the pub. 

US restaurant sales rose 3.1 per cent in May: A survey of US restaurant operators for Nation’s Restaurant News has found like-for-like sales rose by 3.1 per cent in May, compared to a 2.1 per cent rise in April. Quick-service restaurants, which include both fast-food and fast-casual brands, had an even better month, with a sales increase of 4.5 percent in May.

Company news:

Whitbread reports strong first quarter: Whitbread has reported a strong first quarter to its financial year with a 13.9 per cent growth in total sales, driven by a 4.5 per cent growth in like-for-like sales and the continuing expansion of Premier Inn and Costa. Pub restaurants saw 2.1 per cent like-for-like growth and five per cent growth in total sales. Costa Coffee grew like-for-likes by 8.4 per cent with total sales up 25.3 per cent. Chief executive Andy Harrison said: “Our consistent investment in product quality and customer experience has helped our strong brands to outperform their competitors. In the first quarter Premier Inn grew total sales by 12.4 per cent with revpar growing by 2.9 per cent. We are pleased to see that the sharper focus in our restaurants business has helped maintain its improved performance. We plan to open 4,200 Premier Inn rooms, eight joint site restaurants and 350 new Costa stores this financial year, creating an additional 3,500 UK jobs.” The performance covers the 13 weeks to 31 May.

Café Rouge freehold goes to auction: The freehold of a site in Maidstone, Kent tenanted by Café Rouge owner Tragus, is to be auctioned by Allsop on 11 July with a guide price of £950,000 to £1.05m. Tragus is paying a stepped rent on 25-year lease that began on 12 March this year. Rent starts at £34,821 in the first year, rising to £45,428 for the second year and £65,000 per annum thereafter, subject to a rent review every five years.

Wetherspoon freehold goes to auction: The freehold of a pub in Wanstead, London, tenanted by JD Wetherspoon, is to go to an Allsop auction on 11 July with a guide price of £2.48m. Wetherspoon is paying rent of £150,840 per annum on a 35-year lease that began in 1999. 

PPHE hotel group unveils innovative sale-and-leaseback: PPHE Hotel Group has undertaken a novel sale-and-leaseback on a hotel development site. The company bought the freehold of 628 Western Avenue, Park Royal, London for £6 million. At the same time it sold it for £7 million and leased it back at an initial rent of £306,500 per year. Under the terms of the sale and leaseback, the company is required to procure the construction of a 160 bedroom room hotel on the site. A total of £4 million of the consideration for the sale and leaseback will be held in escrow pending the receipt of planning permission to construct a new hotel. The balance of £3 million has been paid to PPHE Hotel Group. If planning permission is not obtained by 14 December 2012, PPHE Hotel Group is required to repurchase the site at an effective price of approximately £7.6 million.

Loungers sets opening date for fourth Cozy Club: Loungers, the café bar concept headed by Alex Reilley, has set a provisional opening date of 22 August, for its fourth Cozy Club, to be located in Salisbury. The company has begun work on converting a former Salisbury arts college in a £600,000 refurbishment. Reilley told Morning Briefing: “It’s a Grade II-listed building with a terrace looking towards the cathedral. It’s most recently been a heavily-partitioned office and we’re opening it up – when you factor in the external area it is very similar in size to Stamford Cozy Club which is 6,000 square foot.” 

Lap-dancing clubs in Leeds secure “one-by-one” victory: Seven lap-dancing clubs in Leeds have won new licences following changes to the law. The clubs are now classified as sexual entertainment venues and need a sex establishment licence to continue in business after October 1 this year. The council received seven applications for licences and following a week of hearings the licensing sub-committee decided to grant all of them subject to some conditions. Objectors including councillors, MPs and religious leaders called on the committee to refuse all the applications and “set a nil limit for the future,” or significantly reduce the number allowed to operate in the city. A report to the sub-committee said the council’s policy was not to set a limit or desired location for sex establishments but to treat each application on its own merits.

Mitchells & Butlers achieves 9.8 per cent sales growth in Germany: Managed operator Mitchells & Butlers achieved 9.8 per cent sales growth last year in the German market with its 38-strong Alex brand, according to Foodservice Europe and Middle East magazine. The Alex brand saw sales of 62.5 million euros. Market leader in Germany is McDonald’s with sales of 3.195 billion euros, up 5.9 per cent in the year – McDonald’s, with 1,415 outlets, is more than four times larger in sales terms than second placed Burger King whose sales were 790 million euros in 2011.

Pub and restaurant company Cambcuisine opens fifth site: Cambcuisine, the company owned by Oliver Thain, Richard Bradley and Max Freeman, has opened its fifth site, The Tickell Arms, Whittlesford, five miles south of Cambridge. The restaurant serves seasonal British food. Cambcuisine also operates The Cock in Hemingford Grey, The Boathouse in Eley, and two Chop House restaurants in Cambridge. It also has an outside catering arm, The Cambridge Dining Company.

SA Brain to open coffee shop in Warminster: Cardiff-based brewer, pub operator and coffee shop owner SA Brain is to open a Coffee #1 in Warminister, Wiltshire. Last month, the company revealed plans to open 30 coffee shops in south Wales and the south west of England in the next three years. In autumn 2011, Brains bought Coffee #1, which comprised 15 high street shops in south Wales and the south west of England, and since then, it has opened three more. Another opening is planned for Gloucester. The chain won Café Society’s Café chain of the Year three years running.

Strada fire stumps firefighters: A fire that destroyed a Strada, which occupies historic Cuppola House in Bury St Edmunds is likely to burn for several more days. The fire started in the basement and part of the building has collapsed on top of it, which has meant firefighters have not been able to extinguish the blaze. “The situation is the fire is in the basement, and you have got floors and ceilings that have collapsed on top of that – it is like a pancake. And because of that we are unable at the moment to get in and extinguish the fire,” a fire brigade spokesman said.

Backyard Brewery in £200,000 expansion: Backyard Brewery, based in Brownhills, is investing to boost production by 150 per cent to 2,500 barrels a year. Director Austen Morgan said: “We’re two thirds the way through building the new chill room. There is going to be a full restructuring of the inside of the building.” New offices and toilets will be built and the expansion will see the Lichfield Road brewery grow from 1,400 sq ft to 2,500 sq ft. The company would like to take on a pub in the near future.

TCG boosts cocktail range at Henry's: Henry’s, the café bar brand owned by managed operator TCG, is shaking up its cocktail offer with the launch later this month of ‘Henry’s Favourites’, a range of eight cocktails created by bartenders at its branches around the country. The featured cocktails were selected following a competition across all six Henry’s Café Bars, inviting bartenders to submit their recipes with photography. The best from each site – plus an extra from the Covent Garden branch and from The Lamb in Norwich, a former Henry’s – were chosen for inclusion. The Henry’s Favourites are being added for an initial 12 months, with some seasonal additions to refresh the offer, while rigorous bartender training at all sites will ensure they are served to perfection every time.

Orchid’s Living Room brand adopts QR codes for customer feedback: The Living Room brand, operated by managed company Orchid, has developed a new customer feedback system that utilises digital technology to give instant reporting and boost engagement. Over the years, the leisure industry has seen the traditional comment card flounder and pubs, bars and restaurants have been searching for a way to continue to get hold of this valuable data. With a new system based on QR Codes, The Living Room believes it has the answer to collating customer feedback quickly and effectively, as well as boosting the number of responses received. With over half of the UK population now owning a smartphone, it doesn’t rely on investment in expensive third party technology as feedback can be sent securely and effectively via a mobile website. The Living Room bars and restaurants previously used in-house comment cards to gain feedback. This system got a great response rate, but it was impossible to measure feedback centrally to see the wider picture. A take-home card was then developed so people could log in after their visit and leave feedback online. However, this meant staff could not act quickly on any problems and it also resulted in fewer customers taking part. Now, the QR Code system combines the positives of previous systems and allows customers to give their feedback quickly and easily whilst still on the premises, meaning that any issues can be dealt with at source, whilst also making it possible to measure feedback centrally. “Customer experience is vital and we want to do all we can to enhance every visit for everyone who walks through the door,” explains The Living Room marketing manager Maria Williams.

Brindisa Tapas Kitchens opens fourth site: Brindisa Tapas Kitchens is opening its fourth site, to be located in Shoreditch. The new site will be called Tramontana Brindisa and will offer a menu focused on Spanish Mediterranean cuisine. Brindisa Tapas Kitchens, which was founded in 2004, also has venues in Soho, South Kensington and near London Bridge, as well as a chorizo grill outside its shop in Borough Market.

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